Technology Minister Judith Collins has generally tried to dampen down expectations of spending in the sector. Photo / RNZ
Here are seven areas that many in the tech industry would like Thursday’s Budget to address – and the likelihood of the Government delivering.
New Zealand is falling behind the rest of the world with artificial intelligence (AI) in that it has no major Government funding initiatives to boost uptake and no AI-specific regulation.
Surveys have revealed that a majority of Kiwis are spooked about the dark side of AI and want some guard rails put in place.
Why would anyone in the private sector want red tape wrapped around artificial intelligence?
Buddle Findlay special counsel Damien Steel-Baker says many New Zealand companies want to invest in AI systems. They think some degree of regulation is inevitable, at some point, but don’t want to waste money now creating products and services that could fall foul of yet-unknown rules. “So some will have a bit of uncertainty, which will stifle their innovation,” Steel-Baker says.
In the United States, President Joe Biden launched a comprehensive series of directives on AI. The European Union passed the AI Act, which includes safety benchmarks that AI systems must meet, and bans (bar law enforcement exceptions with a warrant) on using artificial intelligence with CCTV footage, predictive police profiling or “emotion-recognition” systems in the workplace, to give a few examples.
Australia’s Budget 2023 allocated A$101.2 million ($108.6m) to a critical technology fund to help create governance rules for AI and support small and medium enterprises’ adoption of AI technologies (as part of a wider tech adoption fund that topped A$1 billion). Its Budget 2024 (delivered on May 14) had a further $40m for national AI centre programmes to support safe and responsible deployment of AI. Will we see similar initiatives on this side of the Tasman? It’s a sure bet Technology Minister Judith Collins will deliver an AI strategy soon, but with purse strings tight, meaningful Crown spending to boost an update of the tech is slim.
Some, like Victoria University Andrew Lensen want the Government to at the very least do a stock-take of which industries, and which jobs - and how many - are exposed to the first wave of the new industrial revolution, which is crashing over us with much more spend than the first.
The Briefing for the Incoming Minister (or “Bim”) for Media and Communications Minister Melissa Lee (since replaced by Paul Goldsmith) said the urban Ultra-Fast Broadband (UFB) network is “world-class”, but “despite substantial government investment, rural New Zealanders experience connectivity services that are slower, less reliable and more expensive than urban New Zealanders”.
The Technology Users Association of New Zealand (Tuanz) has been advocating for better rural broadband and Chorus recently reiterated its proposal that the Crown co-invest in a PPP to expand fibre into rural areas. The NZX-listed firm envisioned a 10-year, $2-2.5b 10-year public-private rural fibre rollout. That probably represents too much sticker shock for Goldsmith - for Budget 2024, at least – but the Government could still expand more modest wireless broadband and cellular efforts, or simply expand a pilot project to subsidise Starlink installation in remote areas.
Will Elevate get elevated?
In 2020, the previous Government gave $300m (most of it via the NZ Super Fund) to create the Elevate fund, which chipped in on new funds created by private venture capital firms, which in turn invested in tech start-ups.
With that $300m almost run dry, the Startup Council, assembled by the Labour-led Government, consisting mainly of people from the private sector, recommended that Elevate be topped up – and this time to the tune of $500m. That suggestion, and others, were not picked up.
Recently, one of the partners at Blackbird – Australasia’s largest venture capital fund, and the recipient of $30m from Elevate toward its NZ Fund 2 – wrote an open letter to the coalition Government, also recommending a $500m top-up for Elevate.
Elevate’s success is hard to gauge at this point. There was a venture capital (VC) boom in New Zealand from early 2020 to early 2022. But cheap money meant a VC boom worldwide. And it’s too early to gauge the success of Elevate’s co-investments (and the Crown-backed New Zealand Growth Capital Partners, which runs it, always plays its cards close to its chest over any timeframe).
Regardless, a top-up is unlikely to appear. Before the election, Collins tamped down expectations of more money for Elevate, citing tight Crown accounts and a need to get the lie of the land while in office. And that land is looking rougher than expected.
The Startup Council also recommended tax breaks for investing in start-ups. Again, Collins was careful to dial down expectations before the election, citing the fiscal constraints that have only got tighter since.
Tech entrepreneur and unsuccessful National candidate for Auckland Central Mahesh Muralidhar and the Startup Council are among those who’ve lobbied for the Government to drop a tax on unrealised gains for employee stock ownership plans (esops). That would make it financially practical for cash-strapped start-ups to offer shares to retain talent, or lure it from within New Zealand or overseas.
Collins said pre-election that she was open to the measure, but would not 100 per cent commit. Still, it looks on the cards.
Some in the startup community also want the Government to address the foreign investment fund tax, which they see as a double taxation and disincentive for high net worth individuals to come to NZ and invest in our early-stage companies. So far there’s been no sign of appetite for action on this front.
“NZ Inc” is shorthand for the Government and private enterprise co-operation in our everybody-knows-everybody small-country economy, where some see various sectors needing a boost from the Crown grow to the point where they’re competitive on the world stage – or in a position to grow faster.
So far, the current Government has delivered some negatives, with tech-friendly agencies like Callaghan Innovation and the Ministry of Business, Innovation and Employment (Mbie) caught in the general cull of civil servants, delays in major IT projects contributing to Spark’s recent earnings downgrade and pressure on every firm that deals with the Government – easily New Zealand’s largest single buyer of tech products and services – as Crown agencies button down.
The cloud software boosting kiwiSaaS, whose six fulltime staff are funded by $11m from the last Government, expiring in June, is one of several industry entities looking nervously to Budget 2024.
It’s likely the NZ Inc-friendly Collins will continue and even expand public-private efforts to boost tech. But the funding might not come with the squeezed Budget 2024, and she’s more likely to strike her own path than renew the previous Government’s initiatives.
Australia has comprehensively outspent New Zealand, on a per capita basis, on Government efforts to boost cybersecurity defences and promote e-safety online. The Aussies earmarked A$86.5m to establish a new National Anti-Scam Centre, A$46.5m for a co-ordinator for cyber security to co-ordinate multi-agency efforts in the event of a cyber incident, and quadrupled funding for the office of Australia’s e-Safety Commissioner (its rough equivalent to New Zealand’s Netsafe) with a A$131m injection (Netsafe’s total funding is around $4.5m).
We’re unlikely to see spending on that scale here (and indeed, so far there have only been cuts, with Internal Affairs consulting on a proposal to lay off 11 staff in its Digital Safety Group) and abandoning plans for a social media safety regulator.
Here, we’re definitely going to see more centralisation and co-ordination between the public and private sectors and the stew of agencies on the Crown side of the fence – as flagged by Collins in her Technology and Government Communications Security Bureau (GCSB) portfolios, and Commerce and Consumer Affairs Minister Andrew Bayly in the area of cyber scams. But immediate funding boosts are less likely.
After taking it to Cabinet in 2019, Finance Minister Grant Robertson (with new Revenue Minister Barbara Edmonds) finally introduced legislation for a Digital Services Tax (DST) on the eve of the 2023 election. It had no time even for a first reading.
A DST would involve a flat tax on a Big Tech firm’s New Zealand revenue, regardless of a profit – billed as a measure against so-called profit-shifting to low-tax countries like Ireland.
Local tech industry ginger group NZRise liked the bill (although it’s fair to say more local procurement is its top priority). But Big Tech might have hoped it would die a natural death, post-election.
Instead, Revenue Minister Simon Watts reinstated the Digital Services Tax Bill in December. He recently told the Herald he was still considering whether to proceed with it. Budget 2024 could reveal whether he sees the threat of a DST as a useful bargaining chip, or a route to crackdown. Critics, including Ministry of Foreign Affairs and Trade (MFAT) officials, say the sums gained would be modest and could be negated altogether by retaliatory tariffs.
Budget 2023 allocated $15m for free home internet for students in 18,000 disadvantaged households.
Technology Users Association of NZ (Tuanz) head Craig Young says more sweeping solutions are needed to provide affordable internet for all in urban and rural areas (and his organisation has suggested several here). He wants the current Government to do more - including expanding support to 58,000 families.
“If they are genuinely committed to digitising as many government services as possible, they cannot afford to leave anyone behind,” Young says.
“In our paper, we attempted to present a reasonable case for affordable solutions. However, based on my experience with ministers so far, there seems to be a lack of accountability for this issue in the Beehive,” Young added.
Tuanz also wants to see more investment in upskilling. A broad industry downturn has provided respite from the pandemic labour squeeze - which exposed an over-reliance on imported labour and a fall-off in local tech training - but the underlying problem remains.
“This could be a couple of things, including ensuring that all school teachers are digitally literate, and we teach our children how and when to use technology. It could also mean funding the establishment of Digital Apprenticeships, expanding on existing programmes for trades, enabling students to learn on the job, and removing one of the barriers to education - having to earn an income. This is particularly relevant to our young people in lower socioeconomic areas,” Young says.
“It could include assisting mature individuals in pursuing second careers and retraining in fields such as cybersecurity and AI, similar to initiatives underway in Singapore.
“However, considering the new government’s decision to halt work on the Industry Development Plans, including any of these initiatives in the budget would come as a surprise.”
Young said he would like to see the Digital Boost programme, which provides free digital upskilling for small businesses, extended, but has seen no indication.
“There has been no leadership demonstrated regarding developments in AI, security, or any other technology. We emphasised to the government in our briefing immediately after the election that they cannot afford to delay action in these areas,” the Tuanz head said.
The Government has already indicated it will maintain the 20 per cent R&D tax rebate introduced by its predecessor for the video game sector (or, at least, Collins has made very supportive comments about it).
The Consumer and Product Data Bill 2024, introduced to Parliament last week, is designed to usher in open banking, which - all going to plan - should make it easier for fintech apps to provide the likes of new payment solutions, putting market pressure on contactless payment fees. It should also make it faster and easier to get a loan, or compare or switch a power or other provider (banking will be it’s first point of focus though).
The Tāwhaki National Aerospace Centre - aka a $5.4m runway extension funded by the previous Government via its Provincial Growth Fund (at the time derided by the opposition), was opened by Collins in February.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
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