The 2007 budget is a “damp squib”, according to Xsol founder John Blackham.
Blackham, who has consistently pressured government to improve the situation of high-tech Kiwi companies trading overseas, says a tax exemption for “active income” earned overseas by New Zealand-owned companies is good as far as it goes, “but the big problem with these companies is they have to raise capital overseas.”
The lack of significant venture-capital sources in New Zealand means they still have to get capital from overseas sources, in return for a shareholding “and they will cease to be New Zealand-controlled”.
“Our best and brightest people will still end up working for overseas-owned
The drop in the corporate tax rate, from 33 to 30%, will give some help to locally listed companies and small privately owned firms, he says, but not to the typical high-tech company in its early years, where all earnings are ploughed back into the business and there is no profit to be taxed.
“Most of the $1.2 billion [given to business by the rate reduction] will be earned by overseas owned businesses like the banks; the bulk of us will not benefit.”
Others, however, were more positive. Garth Biggs, director of ICTNZ and executive director of the HiGrowth project, says he hasn't had a chance to look at the detail relating to those organisations, but it is good to see more money going into ICT and health.
Biggs was also positive about R&D tax credits, saying New Zealand needed to do something in that area.
Chip Dawson, president of Software New Zealand, says the budget presents opportunities for organisations to grow. He says spending in areas such as sustainability and productivity could also benefit ICT.
He says he is encouraged by the business tax rate cut to 30%. New Zealand technology companies, like other exporters, are struggling with a high exchange rate, he says, so new export incentives that could deepen the relationship with customers offshore are also appreciated.
Blackham, however, says the 15% tax rebate for research and development is unlikely to cause much genuine increase in R&D, he suggests. Companies will merely start reporting the research expenditure that they haven’t bothered to talk about before.
The rebate only puts us on a par with Australia and Canada and it may have a slight effect in encouraging researchers to stay here, but Blackham says he doesn’t think it will bring researchers back to New Zealand from other countries. More funding for market development is “okay”, he says, but the compliance costs of preparing a case for such funding is horrendous.
Michael Cullen used classic trigger words like “innovation” and “productivity”, but there’s precious little of either in this year’s Budget, Blackham says. “Productivity is likely to be reduced if anything because of the time spent applying for [funding].”
Blackham would rather have seen a shift from direct to indirect taxation, with an increase in GST, compensated by a reduction in personal taxes.