The government has set aside about $1 billion over the next four years for a 12.5 percent research and development tax credit, which Innovation Minister Megan Woods hopes will spur private sector R&D investment.

The pre-announced tax credit lets businesses claim 12.5 cents in the dollar back for every dollar they spend on R&D, provided that bill is more than $100,000 a year. Woods announced the tax credit, which the Labour-led government prefers over the Callaghan Innovation grant scheme. Callaghan’s Growth Grants scheme will be phased down as the tax credit comes in, from next April.

New Zealand lags behind internationally in terms of R&D spend, committing only 1.28 percent of gross domestic product, compared to an OECD average of 2.38 percent. Our companies perform even worse. Business expenditure on R&D has been rising, but it is still only 0.6 percent of GDP.

The budget gave the expected scope of the R&D credit, with the Crown putting aside $1 billion over the forecast horizon. Some $71.2 million is earmarked for the current year, rising to $350 million by 2022. That figure will also cover the cost of implementing the programme.

“This system will help us transition away from the current growth grants model, which is available to a narrower range of firms,” Woods said in a statement. “This represents a significant increase in the amount available to help smart Kiwi businesses to innovate.”

The budget documents identified the tax credit as a fiscal risk, given the lack of data available for forecasting, and international experience showing the “costs of R&D tax credits can be significantly higher than expected”.

The budget also cuts $2.4 million from the June 2019 year from the R9 Better for Business Accelerator Programme, which was delivered through the Ministry of Business, Innovation and Employment, and is currently under review.

Callaghan Innovation chief executive Vic Crone welcomes the additional investment in research and development. “The $1bn over four years will help accelerate uplift of business investment in R&D which is a key lever in diversifying and future-proofing our economy. Currently, we’re not increasing our investment fast enough,” she says.

“Crucially, businesses can still help shape the design of the R&D Tax Incentive and Growth Grants transition consultations, so we are strongly encouraging them to take part in the process. Such feedback is essential to ensuring we have an optimised system of government support for innovation that helps drive R&D expenditure to two per cent of GDP over the next decade.”

The deadline for submissions is June 1.

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