KEY POINTS:
Industry groups keen for an environment that encourages investment in innovation have welcomed the inclusion of a hefty tax credit for research and development.
But they warn that although the Government is on the right track, it is very much a game of catch-up.
The Government yesterday unveiled
a tax credit scheme worth at least $630 million spread over four years on top of a $73.7 million funding package for research, science and technology.
The latter included $46.6 million aimed at lifting business performance through R&D, $25.5 million to build science capability; $28 million for improving sustainability and primary sector productivity, and $7.3 million for global science collaboration.
But it was the tax credit that achieved the greatest reaction.
In a move widely praised by public and private industry representatives, eligible R&D expenditure conducted mainly in New Zealand will be able to claim a 15 per cent tax credit in the 2008 tax year, with a cash payment available for loss-making companies.
Apart from R&D on software, deductions are uncapped.
Deloittes described the credit as comparing favourably with similar schemes in Australia and the UK.
"I'm sure businesses will welcome it. It's one of those things that had to be done, and so good on them for doing it," said Andy Hamilton, chief executive of Auckland business incubator Icehouse.
"But is it going to solve our problems? No - it just brings us into line with other OECD economies."
The threshold of a minimum R&D spend of $20,000 was a little high and would favour large firms over small.
"Your normal business that's turning over half a million dollars won't comply."
But the credit was a positive step that could encourage firms not engaged in R&D to do so.
He said it would be irrelevant to many early-stage R&D focused companies.
"It doesn't excite me and it just means we're in line with the other countries."
He also questioned whether $18.6 million in Technology New Zealand grants and services aimed at boosting private sector R&D would help exporters.
"I think grants by themselves are appreciated but I don't think they're the panacea."
Brian Ward, chief executive of NZBIO, an organisation representing biotech and life sciences companies in New Zealand, said the initiative had been long overdue, but he thought it should have been higher for those companies that are R&D intensive in the early stages.
"For those organisations it would have been good to have a rate somewhere around 20 to 25 per cent."
Anthony Scott, executive director of the Association of Crown Research Institutes, said the Budget might be remembered as "kickstarting an R&D culture".
But the actual dollars going into research, science and technology were barely keeping pace with costs.
Innovation injection
* Budget 2007 flags a 15 per cent tax credit for mainly New Zealand-based R&D starting next year.
* The Government estimates it will be worth $630 million over four years, but its uncapped nature means it may cost more.
* A $73.7 million funding package for research, science and technology includes $28 million to improve sustainability and primary sector productivity.
