Tax incentives for R&D could shape up to be an election issue Title

 

Tax incentives have a "positive and significant" impact on research and development spending, according to an International Monetary Fund working paper published this week, but remain contentious in New Zealand with the ruling National party dubbing them an "unknown financial liability" while the opposition Labour Party is still committed to implementing them.

While R&D spending is inching higher, New Zealand still lags behind its peers with recent data showing total R&D investment as a proportion of gross domestic product increased to 1.3 per cent in 2016 from 1.2 per cent in 2014. The OECD average is 2.4 per cent. Business investment in R&D was 0.6 per cent of GDP in 2016, still well off the government's aim to lift it to 1 per cent.

The IMF paper notes many governments use tax incentives to stimulate private expenditure on research and development, including the majority of OECD countries and other large economies such as China, India, Brazil and Russia. In a recent mission to New Zealand, IMF officials recommended the government lift its support, describing those incentives as "a bit on the timid side".

Both National and Labour see innovation as critical to lifting the country's productivity levels, a challenge given its relatively small economy and distance from other markets. National, however, has argued New Zealand's research and development grant system administered through Callaghan Innovation stops companies "gaming the system" by reclassifying spending to qualify for tax credits.

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