Businesses call for R&D incentives

New Zealand businesses are calling for the Government to offer research and development incentives as the economy gears up for a year of growth, according to a Grant Thornton survey.

The survey of 75 Kiwi businesses found 88.6 per cent said incentives for companies to invest in research and development (R&D) would best aid business growth.

Grant Thornton partner Peter Sherwin said with elections looming, R&D incentives offered by political parties were likely to become a major issue.

Labour had already indicated they would offer a tax rebate incentive that would see businesses claim back $1.50 to $2 for every dollar invested in R&D, Sherwin said.

"The Government, on the other hand, is not in favour of such a policy as they believe there is too much scope for this to be abused."

Sherwin said the Government's grant and incentive schemes through the likes of the Callaghan Fund, which matches R&D investments dollar for dollar, had their flaws. Small businesses or individuals often ran out of capital to invest up front, he said. "So you get caught in this Catch-22 situation."

People with good ideas often did not see them come to fruition because they did not have the dollars to put on the table in the beginning.

"Perhaps we need something like the large innovation funds that Hong Kong has to co-invest or lend money to our entrepreneurs."

While it would be a higher-risk investment, now was the time for the Government to become "braver" and invest more in New Zealand's technology sector, Sherwin said.

The New Zealand economy was predicted to be running at about 4 per cent growth and it could be up to 10 per cent in hotspots like Christchurch by election time, Sherwin said.

The fast-paced growth would put strain on capacity and the skilled workforce.

R&D was one way companies could look at helping themselves do things smarter, faster and more efficiently, he said.

"While traditionally we are a country that does not invest heavily in R&D, often preferring to throw people rather than technology at problems, necessity may see this change and become more of an election platform."

Sherwin said the R&D focus needed to reach beyond the primary sector. Ultrafast broadband, cloud and internet technology had removed the restraints of geography from many sectors, allowing NZ companies to export their intellectual property in areas such as software and games, he said.

After repealing the short-lived R&D tax credit at the start of its term, the Government is now considering making changes that will allow small companies that are R&D intense - 20 per cent of salary costs - to cash out their tax losses.

In a separate initiative, there are also proposals that would allow a write-off of so-called "black hole" expenditure, being R&D costs that would otherwise never qualify for a deduction.

Sherwin said another issue that could become an election topic was the provision of incentives for business people to come to New Zealand.

Almost three quarters of businesses surveyed said they were in favour of assisting business migrants. "Skill shortages are already hurting our economy, so we do need to address that problem."

Sherwin said it was important to ensure all skilled migrants did not settle in Auckland, which would exacerbate existing housing and traffic problems.

Part of an incentive scheme could be to make it more difficult to settle in Auckland.