Budget: right outlook but no watershed

Auckland-based tertiary institute Unitec hailed the recent budget as "a watershed in the transformation of New Zealand to an export-driven value added economy".

Auckland-based tertiary institute Unitec hailed the recent budget as “a watershed in the transformation of New Zealand to an export-driven value added economy”.

Centre director Howard Frederick : “The government has adopted what can only be seen as ‘our programme’: that we must back our innovators and entrepreneurs through incentives and education if we are to transform New Zealand into a knowledge society.”

Dr Frederick, who claims to be the country’s only professor for innovation and entrepreneurship, believes New Zealand is about to embark on a new era of growth which will initially halt but then reverse the so-called brain drain of young talent. He says they will return with overseas skills, contacts and experience, which will further fuel New Zealand’s growth prospects.

New Zealand, says Unitec, has one of the highest rates of entrepreneurship in the world, but has a disparity between a high start-up activity and a modest success rate. “The budget will help fill the gap.”

Here are a few of the budget’s main points regarding IT:

  • The $100 million dollar New Zealand Venture Investment Fund, modelled on the successful Israeli Yozma fund, aims to seed venture capital. The fund is expected to be matched by private venture capital to form specialist $30 to $40 million “drop down” funds. With $50 million funded by state- owned enterprises and the same amount taken from Crown Research Institutes, National Party leader Jenny Shipley says this is ‘robbing Peter to pay Paul’ and will mean less research overall — a claim rejected by the Labour Government.
  • A tripling of support for the Incubator Support Programme from $600,000 to $1.8 million per year to help small, innovative firms develop new products. Management support and annual cash awards are offered at incubator centres across New Zealand, including at Unitec.
  • An “economic opportunity package” with an extra $34.35 million this year devoted to helping individuals, small businesses, high growth industries, local communities and entire regions. Total funding for Vote Industry and Regional Development in 2001-02 is $96.18 million, almost double the $49.49 million for the previous year. The government has set aside a total of $331.87 million over four years.
Part of the package involves “Building Future Capacity”, which includes schemes to develop links with New Zealanders working overseas and use networking to lure jobs and trade home. “Building the Base of Business” includes more Technology In Industry Fellowships, extra support for the Enterprise Awards Scheme and more cash for regional projects and helping specific industry sectors like biotech and forestry. “High Growth Potential” schemes includes doubling the funding of the Business Growth Service, which identifies firms with growth potential, to $6.75 million in 2001-02, and doubling the Major Investment Service, which works with Trade New Zealand to develop major investment projects in New Zealand, to $3.37 million in 2001-02.

By world and European standards, such intervention is modest. UK-born and bred, I recall vast regional aid programmes for depressed parts of Britain and even the right-wing Thatcher government created “enterprise zones” for the worst-hit, where incoming investors did not have to pay local-body rates for several years. The European Union also threw in the odd billion or two, not just in Eire, but in Liverpool and the North East.

Of course, we have no Brussels booty to apply for, and Michael Cullen, Jim Anderton and Pete Hodgson seem to be doing their best to help, but is it enough?

Corporate tax at 33% is increasingly out of step, with rates falling in Australia to 30% and far lower rates in Ireland and Singapore. While some R&D spending can be written off here, we fall short of the 175% level of Australia.

In Ireland, overseas-owned IT firms pay more in corporate tax —12.5% — than they ever received in subsidy, adding to the economic benefit of the jobs they have created. It is not a question of whether we can afford to reduce the level of corporate tax, but whether we can afford not to. A more generous R&D tax regime could also attract incoming investment.

Where the government’s heart truly lies can be shown in its other spending initiatives. The $600 million for superannuation shows a lack of faith in New Zealand business and could have funded far more wealth-generating projects. Sport and leisure receives an extra $100 million in coming years, the arts $180 million, and reports now suggest TVNZ’s charter will cost $100 million. Compare that with the many and varied “nickel and dime” projects for business.

Budget 2001? A step in the right direction, but hardly a watershed.

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