By Brian Fallow
WELLINGTON - Enterprise and Commerce Minister Max Bradford has raised the prospect of relaxing the tax laws to allow research and development costs to be deducted in the year they are incurred.
Labour immediately accused National of "nicking" its policy.
In a speech to the Chambers of Commerce annual conference on Sunday, Mr Bradford said: "We are reviewing the taxation arrangements for research and development with a view to allowing full deductibility in the year of expenditure."
Developments would be unveiled soon, he said.
When the Government announced its "Bright Future" industry policy in August, Mr Bradford said that the Government was looking at whether development costs should be deductible, as research costs already are,but did not want to create large tax loopholes or perverse incentives in the process.
At present expenditure on developing a new product or process cannot be deducted, because it is deemed to be giving rise to an asset of the business, which has to be capitalised and written off over several years.
Officials sometimes argue that one reason corporate New Zealand's reported R&D spending is so low by international standards is that development spending is called something else for tax reasons.
According to OECD figures New Zealand's R&D spending equates to 1 per cent of gross domestic product (half the OECD average), only a third of which is done by the private sector (a third of the OECD average).
Treasurer Bill English has in the past been unenthusiastic about more liberal tax treatment for private sector R&D, putting the emphasis instead on ensuring that public sector research was better targeted and more accessible to business.
But tax relief on private sector R&D would not be fiscally expensive, Mr English said earlier this year, because not much of it was being done.
Private sector attitudes to R&D deserved to be challenged, he said.
"The private sector tends to want it both ways. It wants the Government to do the work and take a lot of the commercial risk, and it wants a tax break for its own stuff as well."
Labour's finance spokesman Dr Michael Cullen said Labour announced months ago its intention to introduce a more sympathetic tax treatment for R&D, including full deductibility, as part of its campaign to transform New Zealand from a commodity-based to a knowledge economy.
"It is not the first of our policies National has nicked and I'm sure it won't be the last."
National hints at R&D tax breaks
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