R&D tax breaks a pragmatic way to prosperity

The question is, not can we afford to have tax breaks on R&D, but with the many billions of dollars of IT investment looking for a home, can we afford not to?

When I wrote this column last week, I didn't know my comments on tax would be so prophetic.

Queenstown-born businessman Jason Neal wants to invest $200 million in a research centre and technology park, creating up to 700 jobs in the US resident's home town. But the decision largely rests on whether New Zealand can offer the same tax incentives as offered in Australia. Australian IT firms have been basking in the federal Government’s Innovation for Action Plan, promising A$2.9 billion of support for IT industries and R&D taxbreaks of up to 175%.

If this country cannot offer the same incentives, says Neal, the jobs are likely to go to Australia. Neal, whose GHS Global company develops hotel management software, also says other IT firms are lining up to come here but they too are likely to go over the Tasman.

The Australian Immigration service also tells us its new immigration polices aimed at attracting IT professionals are generating extra interest.

What can be more important than jobs? And how many of us would like to work in Queenstown? Or will we be lured to Aussie instead, adding to New Zealand’s 20-year high exodus?

With R&D taxbreaks, how many software firms here would find more research projects that are economic? And think of the result: Kiwi firms bringing out more new products and services - faster.

Our government is reviewing the taxation issue and looking at other ways to help. Its last budget boosted R&D spending by 10% to $474 million, created a “seed capital fund” for IT firms and announced a $12 million grants programme. But more help is on its way.

Prime Minister Helen Clark told engineers 10 days ago that “over the next 10 years the government is looking for a big transformation in the state of the economy”. She said new policy proposals were being developed for government support for incubators and for seed capital, and representatives of 19 potential incubators were to meet Industry Minister Peter Hodgson in Wellington last week about the plans.

The government has also just announced venture capital funding schemes and Clark gave more reminders that a review of tax treatment for R&D is underway. Last year’s established Science and Innovation Advisory Council would also help develop a consensus on building the knowledge economy, the PM said.

The day before, Deputy Prime Minister Jim Anderton told the Hamilton Business-to-Government Forum that the government was keen to be “a partner” with business. The Ministry of Economic Development and Industry New Zealand have been set up as partnership agencies and help get good ideas off the ground, he said. “A team of industry specialists within Industry New Zealand is working with high growth potential companies. They identify barriers to their growth and help find ways past them,” says Anderton. A Regional Partnership Programme is also underway, he says, to help the regions reach their full potential.

Says Anderton, who ran a “a not insignificant" manufacturing engineering company: “The coalition government is full of pragmatists. I’m one of them. If ideas work, I’ll support them. If they don’t work, I support throwing them out and trying something else.”

Let's hope so.

As a recent arrival to New Zealand, I recall UK governments throwing tens of millions of dollars to foreign car and semi-conductor companies to set up shop in the UK. US car chief John De Lorean also received millions, but the only time his sports car took off was in the movie Back to the Future. Today, multinational car giants threaten to quit the UK unless they get huge wads of subsidy. And they usually win as the plants are mostly sited in key electoral battlegrounds.

This should not be the New Zealand way and, anyway, I doubt we could afford to succumb to such economic blackmail.

Neal says he does not want money from the government, just “a competitive tax system”.

What have we to lose by giving it to him and all businesses based here? R&D tax breaks would increase investment, create jobs and eventually more wealth. Our government would lose little, if any, revenue. If it led to firms moving here, just as tax breaks created economic success in Ireland, we would all benefit.

The question is, not can we afford to have tax breaks on R&D, but with the many billions of dollars of IT investment looking for a home, can we afford not to?

Being so “full of pragmatists”, I am sure this is something our coalition government will understand.

Greenwood is a Computerworld reporter. Send email to Darren Greenwood. Send letters for publication to Computerworld Letters.

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