By Brian Fallow
WELLINGTON - By international standards, the Government's spending on research and development is low, and the private sector's is appalling, the National Bank says.
R and D spending in New Zealand equates to 1 per cent of gross domestic product, compared with an average of 1.85 per cent for the OECD as a whole. The only OECD countries doing worse by that measure are Spain, Portugal, Poland, Mexico, Greece and Turkey.
Despite an increase in R and D spending by manufacturers, spending by the business sector as a whole is only a third of 1 per cent of GDP, roughly a third of the OECD average.
Part of the reason, the National Bank suggests, is that, according to the OECD, New Zealand has the least generous tax treatment of R and D of any of its members.
The bank's chief economist, Brendan O'Donovan, said that although there was a case for allowing R and D spending which now has to be capitalised and written off over several years to be expensed in the year it occurred, a general cut in the company tax rate should also encourage more R and D spending by raising the return on all forms of business investment.
The bank argues there is also a strong case for direct Government involvement in R and D in areas where private investment is unlikely to be available but where the rate of return for society as a whole is high.
"The importance of publicly funded research as the storehouse of knowledge is highlighted in a recent analysis of industrial breakthroughs in the United States, which found that three-quarters of all papers cited by American industrial patents were based on domestic or foreign research funded by Government," the bank said.
Mr O'Donovan said R and D was an area in which market failure arose because the returns and productivity benefits from successful research and development and innovation could not be fully captured by the individual firms themselves. "Instead they diffuse through the rest of the economy, ultimately contributing to rising levels of productivity, standards of living and employment in the economy as a whole."
Govt 'must encourage R and D spending'
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