Better than nothing, but only just.

The increase in funding for business research and development grants Prime Minister John Key announced yesterday looks even less impressive in light of numbers Statistics New Zealand released two weeks ago.

The $80 million increase for Callaghan Innovation's grants programme in next month's Budget is spread over four years. It will increase the available Growth Grant funding from $102 million to $122 million a year.

But it comes after public sector R&D spending directly and through the universities fell by $59 million or 4.1 per cent between 2012 and 2014.


R&D spending by businesses, by contrast, rose 4 per cent over the same period to $1.2 billion. Just under 11 per cent of the business sector spending was taxpayer-funded.

The total spend on R&D last year by private and public sectors combined was $2.6 billion.

That is equivalent to just 1.1 per cent of gross domestic product, or less than half the OECD average of 2.4 per cent of GDP. And it was unchanged in dollar terms from 2012.

To be fair, the Government can point to other policy initiatives intended to improve the business environment for innovation.

Financial market regulations now enable start-ups to use crowdfunding to raise capital.

The tax laws allow start-ups to cash out tax losses from R&D spending, and it has moved to address the issue of "back hole" R&D spending, for which a deduction was not previously available.

But an R&D spend of 1.1 per cent of GDP does not constitute keeping up, never mind catching up.

Business groups applauded the prospect of an increase in grants but in a ker-plop, ker-plop sort of way.


Employers and Manufacturers Association chief executive Kim Campbell said: "At present we're going backwards, with a lot of ground to make up ... The targeting of research funds to qualifying businesses has worked up to a point, but other policy options need further exploration in a wholehearted effort to get a larger percentage of businesses participating in R&D and innovation activities."

Business New Zealand chief executive Phil O'Reilly said: "Given budgetary constraints faced by the Government, it is positive that the choice has been made to allocate funding where it can be most effective - in prompting innovation by New Zealand companies."

ManufacturingNZ executive director Catherine Beard said: "We are in catch-up mode and it's great to see the Government recognising this will add value to our exports and grow bigger and more sustainable companies."

But Taxpayers Union executive director Jordan Williams called it corporate welfare and said Government-funded R&D grants had a long history of poor returns.