Innovation: A few words of good news

By PAUL PANCKHURST

The sweetest part of the Budget for venture capitalist Ross George, of the Auckland company Direct Capital, was a single sentence.

It said: "A tax policy priority this year is to bring forward proposals to enable overseas venture capital to be invested in New Zealand in accordance with normal international tax rules".

George explained why this mattered.

"There is a global standard structure for venture capital funds that every country in the world - that I know - uses: an LLP, a limited liability partnership.

"Without an LLP structure, we effectively ban foreign capital from the New Zealand private equity and venture capital market."

Present rules required "complex structures which were expensive to set up and with which overseas investors are unfamiliar".

He viewed the Budget reference to "normal international tax rules" as code for saying that New Zealand would get in line by introducing an LLP structure.

"New Zealand has to do it, because last week Australia launched their LLP structure - and we simply need it to compete."

Looking wider, George said it was "quite a strong Budget on research and development and innovation".

"At a time when quite a few companies are cutting back in this area, not only is funding maintained, it looks as if there are reasonable increases."

Importantly, he said, the funding packages were closely integrated with commercial goals.

"There's a very strong desire for commercial outcomes."

"It should result in much more effective R&D and innovation spending."

One topic not addressed was the tax issue of ownership continuity of R&D losses.

"In the venture capital industry, if a company has spent a lot of money on R&D, gets good intellectual property, and then gets funded by other sources, it loses ownership continuity, and therefore the tax benefits of the R&D."

The issue might be tackled in tax proposals, he guessed.