This initiative was flagged before the last election and will increase the size and reach of an existing Crown research institute, Industrial Research, to build up the sector and create new opportunities for high-value manufacturers.
The Government has earmarked $76.1 million of capital funding and $90 million of operating funding for this institute over the next four years.
President of the Association of Scientists Shaun Hendy said the institute should help build stronger links between science and industry.
"[It] will give New Zealand back the kind of R&D capabilities that led to companies like Fisher & Paykel Healthcare. The kind of R&D that the ATI will undertake has not been possible in the contestable funding environment run [in the past]," Hendy said.
Although putting money into high-value technology and manufacturing was likely to deliver the "most economic growth in the short term", Hendy said it should not come at the expense of other sciences.
"It is important we keep the other areas of our science system strong. The Christchurch earthquake just demonstrated how important those other areas of our sciences are," he said
Finance Minister Bill English has earmarked $833 million for the Ministry of Science and Innovation in the 2012-13 year, $40 million more than in the 2011 Budget.
Included in this is $14 million of funding for new "national science challenges", which aim to help find solutions to "fundamental issues New Zealand faces in its future development".
The Government plans to spend $60 million on these challenges over the next four years.
Although the Government claimed it will boost science and innovation by putting in $100 million of new money into the Performance-Based Research Fund by 2016, only $6.3 million extra is earmarked for it next year.
Hendy said that when inflation is taken into account, the Ministry of Science and Innovation's spend has gone up by only 3 per cent.
"This still falls far short of level of investment in science and technology made by other small countries like Singapore or Denmark. Our ongoing unwillingness to invest in science and technology means that Kiwis work harder and earn less than almost any other people in the developed world," he said.
But Catherine Beard, executive director of ManufacturingNZ, said the country was in "catch up mode with the rest of world" and when it came to R&D funding any new spending was welcomed.
"Not only do we need more government investment in R&D but more private investment," Beard said.
Manufacturers and Exporters Association chief executive John Walley said the research and development spending was a step in the right direction, but R&D tax credits would be more beneficial to businesses.
"The tax credits are a much more effective way of stimulating high technology."
