R&D grants tipped for Budget

By DANIEL RIORDAN

The Government has given its strongest signal yet on how it will help small businesses and research-based companies in the Budget in a fortnight.

Speaking to the Business Herald between talks to Auckland business audiences, the Treasurer, Michael Cullen, said Labour had decided not to change tax rules affecting small businesses but would instead announce a programme of grants to lift private sector research and development.

"Labour's pre-election policy was to use tax deductions to stimulate R&D in the private sector.

"But when we talked to innovators in the business community they suggested a grants scheme may well be a simpler and more effective means of supporting R&D investment. Which also means we can give better assistance to start-up firms which aren't making profits anyway so wouldn't benefit from tax breaks."

Dr Cullen said details of the measures would not be released until Budget night on June 15.

They are expected to include a sizeable boost in funding for Technology New Zealand, the Government-funded body which helps businesses develop and adopt new technology.

TechNZ last year gave out a record $25 million across 1000 projects.

Dr Cullen reiterated the Government's commitment to raising public funding of R&D to 0.8% of GDP by 2010.

But he said the private sector also needed to come to the party because its R&D investment was low by world standards.

Private sector R&D is about 0.34% of GDP, between one-quarter and one-third of the western world's average.

While the bulk of the Government's increased assistance to small business would be in higher direct funding, Dr Cullen said the Government would also continue with measures to simplify the tax system.

His meetings in Auckland came ahead of today's National Bank survey showing slumping business confidence and a study of 30 leading New Zealand entrepreneurs by Ernst & Young.

The study concluded that the Labour-Alliance Government has no real understanding of the entrepreneurial business sector.

High on the list of worries for entrepreneurs were proposed changes to the Employment Contracts Act and renationalisation of accident compensation insurance with an expected rise in premium rates.

The entrepreneurs say they have all heard the election promise of the Labour party, the 10-point plan focused on business development and Government-assisted initiatives.

Carol Campbell, national director of entrepreneurial services at Ernst & Young, said that most entrepreneurs perceived the Government was instead putting obstacles in their path which created frustration for individuals who were intent on growth strategies and getting on with business.

Possible ACC rate increases were also a major concern because they tended to hit the pocket immediately.