The Research and Development Tax Incentive provides a 15 per cent tax credit on R&D spending carried out in NZ. Photo / Getty Creative
The Research and Development Tax Incentive provides a 15 per cent tax credit on R&D spending carried out in NZ. Photo / Getty Creative
The Research and Development tax credit has supported more than $2 billion of R&D spending from August 2022 to May 2023 – an increase of around $1 billion in less than nine months, Research, Science and Innovation Minister Ayesha Verrall said this afternoon.
That takes research and development (R&D) asa percentage of GDP to 1.47 per cent - still well shy of the Government’s goal of 2 per cent, which it hopes to hit by 2030, and still well behind a number of other small developed countries of similar size (see below).
Verrall said the scheme had been gaining momentum over the past few months.
But overall, New Zealand is struggling to move the needle.
A Stats NZ report released on April 8, 2023 said that from 2020 to the end of 2022, New Zealand’s total expenditure on R&D increased by 11 per cent to $5.2 billion.
But R&D spending as a portion of GDP barely increased over the period as it edged up from 1.46 per cent to 1.47 per cent.
The Research and Development Tax Incentive (RDTI), introduced in the 2019/20 tax year, provides a 15 per cent tax credit on R&D spending carried out in NZ.
Verral said $312 million in credits has been paid out in tax since the scheme’s inception.
A May 2023 Deloitte report noted the scheme is picking up pace. “The RDTI now has 1779 businesses enrolled (compared with just over 500 in the first year of operation,” it said. This afternoon, Verrall updated that 1896 firms are now enrolled.
A key tweak since the credit was first introduced has been the introduction of in-year payments, which lets a company access a tax credit - in the form of an interest-free loan - before the end of the tax year.
NZ’s R&D tax credit is still behind Australia, however, which offers up to 18.5 per cent rebate. Verrall said Australia’s scheme is tied to measures of “R&D intensity” that saw some firms receive a rebate at the lower end of its 8.5 per cent to 18 per cent band. NZ offered a flat 15 per cent, regardless of business size or the quantity of R&D.
Research, Science and Innovation Minister Ayesha Verrall. Photo / Mark Mitchell.
National - which preferred direct grants when it was in power - criticised the RDTI when it was floated, saying many startups made no profit on which to claim a rebate. Subsequently, provisions were made for non-profitable firms to claim a rebate on research spending, subject to labour expense caps.
This afternoon, research and technology spokeswoman Judith Collins told the Herald, “Our R&D figures feature poorly when compared with comparable small advanced economies. We focus rightly on research, but our development and commercialisation needs much more of a focus.”
National Party Research, Science, Artificial Intelligence and Technology spokeswoman Judith Collins. Photo / Marty Melville
Collins added, “R&D needs capital, talent, and access to markets. That’s what business can expect from National’s R&D policy.” She could not give specifics.
According to OECD figures, Israel’s RYD spend hit 5.6 per cent of GDP in 2021, 2.9 per cent in Finland and 1.9 per cent in Norway. Among larger countries, the US was at 3.5 per cent and the UK at 2.9 per cent.
“We are currently at 1.47 per cent, so there is some way to go [to NZ’s 2 per cent target],” Verrall said.
“But the increasing uptake of the Research and Development Tax Incentive scheme is a positive sign for the wider research, science and innovation system, which is undergoing its largest reforms in 30 years through the Te Ara Paerangi – Future Pathways programme.”
Budget 2023 included $450m to help make Wellington a “science city” through the creation of three new research hubs to be set up in the capital.
“As more businesses become aware of the Research and Development Tax Incentive and see the benefits it can provide beyond their bottom line, we can expect business research and development in New Zealand to continue to increase in size, scope and quality, Verrall said.
“To make the scheme more accessible and attractive, we began in-year payments to allow businesses to receive regular payments throughout the year, rather than having to wait for the money to be paid out after the end of the tax year.”
Earlier today, F&P Healthcare revealed a $275m Auckland land deal for a second R&D centre.
