National’s R&D policy a mistake: KPMG & Deloitte
National’s proposal to abolish the R&D tax credit regime is hugely disappointing, say two leading tax partners.
National claims getting rid of R&D tax credits for business will help allow more generous middle earner tax cuts outlined yesterday.
However, KPMG Tax partner Paul McPadden says the proposals represent a huge change in National Party policy.
Abolishing the tax credit will effectively mean a tax increase for businesses conducting R&D in New Zealand, he says.
“New Zealand will be out of step with many modern western economies, where R&D tax incentives are considered part of ‘mainstream’ tax policy.”
Mr McPadden says high quality R&D is vital to the long-lasting success of most businesses.
“Australia, by comparison, is considering radical changes to its R&D tax incentives that will significantly boost the level of government support for businesses conducting R&D.
“This is part of a programme to further stimulate innovation in Australia.”
Abolishing New Zealand¹s rules at the same time can only be described as ‘bad timing’.
National’s announcement seems to be a ‘heat of the moment’ response to the deteriorating economic picture, he adds.
Thomas Pippos, managing tax partner at Deloitte, says from a business standpoint, the announcement around the scrapping of the R&D tax credit regime comes as a major disappointment, especially given the regime is only in its infancy.
“Given these regimes are common internationally and have been proven to assist in stimulating private sector R&D, the proposed scrapping of the regime is a blow, particularly to businesses who have invested heavily preparing for the regime.
Given the extensive policy debate prior to the introduction of the R&D tax credit regime under the Generic Tax Policy Process it is disappointing that a National Government would seek to jettison the regime with such ease, says Mr Pippos.
“But, these things happen in an election year and given the testing economic conditions, sometimes difficult decisions need to be made. Time will tell whether the R&D tax credit regime can survive, and if National are unable to govern alone it may receive a reprieve from the chopping block.”
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Comments and questions9
This is very disappointing, to completely scrap it, surely funds could have been cut elsewhere.
How can we create an innovative, knowledge based economy when as it just starts to get off the ground we cut it (if National get in).
I work with many startups and closely involved in another which uses the R&D credits to stimulate growth and preserve equity in times where we have to compete globally from day one.
The real question then is, are businesses confident enough that the business environment will improve that much more under National that the R&D credits become irrelevant.
This is a huge backward step for NZ. NZ R&D has been struggling to keep up with other countries, we finally get some Government help only for it to be scrapped by National (assuming they are voted in).
The personal tax cuts promised by National should be revoked in favour of keeping schemes that will aid our nations economic growth.
I do not believe National have the ability to stimulate our economy to the point that R&D tax credits are not necessary.
ACT are in favour of the R&D tax credit scheme.
A fundamental element of business is risk. A further fundamental element of business should be R&D. Why should private enterprise expect wage earning tax-payers to take that risk. If business is not prepared to front with self funded R&D, then perhaps they shouldn't be in business. Wage earners are already paying for half of their expensive lunches including the beverages they wash it down with. Boo Hoo private enterprise .... show some backbone and get on with business ....
Is 'Anonymous' happy to have the Government give tax money back to people to spend on cigarettes and drugs in the form of $10 extra per week? Maybe it could be spent on something worthwhile such as research? Have you any idea of the cost of R&D? Do you know about the benefits of R&D to an economy? The R&D tax credit is exactly that - a credit - tax is still being paid. The aim is to stimulate research so that NZ doesn't go further down the economic plughole.
Wage-earning tax-payers are not required to take any risks, yet are able reap the rewards of employment once businesses are successfully up and running.
Business owners often pay the taxes that help to fund schemes like Working for Families, yet are unlikely to qualify to receive any such assistance in return, so why is it unusual for wage-earners to contribute a little towards fostering new business ideas?
If NZ focuses on trudging along on wages rather than encouraging innovative, successful ideas, eventually the people who require assistance will outnumber the people capable of paying for such schemes. Plus, who knows, one day we may all urgently need the solutions discovered via such research and development.
The two developments that have shown real forward thinking have been the R&D investment and kiwisaver. What I had hoped in National was a fresh face and a fresh brain. Its clear I have been dsappointed. John Keys' pragmatism has simply turned out to be just a desire to to look after a few friends and bankrupt ideas. Sad. I thought I had my vote sorted.
One reason NZ has drifted down the economic ladder is lack of adequate investment in R+D both by the government and industry. It is a key driver, just like infrastructure investment, in generating sustainable economic growth. You only have to compare NZ to other similar sized economies that have performed better over the past 20 years. A consistent feature is greater relative level of investment in R+D. This has been achieved by a variety of methods, but tax credits are often present.
National has informed us all that instead of a widely distributed R&D tax break for the private sector, that $100mill extra will go to the CRIs and Universities. Once there, a small proportion will be spent on actual R&D, most of which will never surface in any usable form, and we have plenty of precendents for that. Maybe we'll never know what a superb performance many small businesses would have provided once we were encouraged to write up and proceed with our R&D in a more structured way.
The current R&D system is overly bureaucratic and funds the most economically poor ideas. It is creating a consultancy industry around it. What percentage of govt funded R&D is successful? I don't know of anything from my experience.
Why should bad R&D projects get massive funding when
the majority of the successful R&D projects have no
govt funding? Fixing a raft of laws that effects the ability of us to do business is way more important.
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