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Home / Business / Personal Finance / Tax

Fears for future of innovation

Owen Hembry
By Owen Hembry
Online Business Editor·NZ Herald·
9 Oct, 2008 03:00 PM3 mins to read

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KEY POINTS:

The National Party is defending its plan to scrap millions of dollars of research and development tax credits despite concern from some business leaders.

Research and development is a foundation stone of the economy, which the global financial crisis has pushed to the top of the election agenda.

The National Party plans to scrap a 15 per cent research and development tax credit and wind up the Government's $700 million Fast Forward fund aimed at pastoral and food industries.

The fund was expected to grow to about $1 billion during the next 10 to 15 years and with total investments up to $2 billion when matched by industry.

Progressive Party leader Jim Anderton said the National Party wanted to turn back the clock.

"More tax on innovation is exactly what we don't need in these tough global financial conditions," Anderton said.

Business NZ chief executive Phil O'Reilly said the research and development credit scheme should have been given more time.

"Companies that have already invested significant amounts to get ready to take advantage of the tax credit will be unhappy with this policy change," O'Reilly said.

Bronwyn Dilley, chief executive of biotechnology industry body NZBio, said research and development tax credits were used by a number of countries to incentivise private sector investment and foster innovation.

"The removal of the R&D tax credit would be a significant disincentive to start ups, especially in sectors such as the life sciences, where the development path is quite long and R&D costs are significant," Dilley said.

However, National Party science, research and technology spokesman Paul Hutchison said the effect of tax credits was not necessarily high quality.

"The tax credit itself in many respects encompasses much of the business as usual expenditure and is associated with reclassification of activities that was going to be carried out anyway," Hutchison said.

National had initially planned to reduce the tax credit, which would total about $300 million a year, from 15 per cent to 10 per cent, Hutchison said.

Based on the originally planned saving National would put funding of about $102 million into universities, Crown research institutes and private institutions, rising to $120 million by the third year.

Meanwhile, the primary sector would get an extra $70 million a year to replace the Fast Forward fund, he said.

Companies would still be able to claim the tax credit for this year.

Federated Farmers president Don Nicolson said farmers had walked away from distorting tax systems and subsidies many years ago.

"I think if the Nats can prove that if they were to become the Government they would adequately fund the ag and food sector's science needs and aspirations, then we can support that," Nicolson said.

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