R&D measures poor substitute says sector

By DANIEL RIORDAN

The Government's boost to research and development spending has drawn faint praise from business.

Industry leaders still favoured tax breaks on R&D spending instead of the grants scheme introduced in yesterday's Budget.

Government spending on research, science and technology will increase by $43.6 million in 2000-01 to $474 million, with $20.3 million of the increase to be spent on private-sector R&D.

Included in the private-sector package is $11.8 million of grants to help firms offset the costs of their R&D spending. The remaining boost to private-sector R&D is an extra $8.5 million for Technology New Zealand, part of the Foundation for Science, Research and Technology (FRST), which will have $24.7 million to continue providing dollar-for-dollar support for businesses to invest in new technology.

The Government signalled two weeks ago it preferred to help business meet its R&D costs with grants rather than tax breaks.

The new scheme - imaginatively titled Grants for Private Sector R&D - will be administered by FRST, and fund up to 33 per cent of a firm's costs on a particular project.

Research, Science and Technology Minister Pete Hodgson hopes to have it working by September.

FRST chief executive Steve Thompson said up to $100,000 could be provided to a particular business.

Reaction from business groups was understandably muted in light of their stated preferences.

High Tech Council chairman Trevor Eagle called the grants scheme "a poor substitute for taxation allowances."

"R&D has to be endemic for all companies in New Zealand, not just a selected few. It's got to be for everybody."

Software Association board-member John Blackham said the key would be how well the scheme was administered.

"But it doesn't sound particularly attractive."

The response of manufacturing and employer representatives ranged from faint praise to outright condemnation.

"The Government is to be commended for its focus on the importance of greater R&D in a so-called knowledge-based economy," said Manufacturers Federation president David Moloney.

He welcomed the extra funding for Technology NZ but said a more equitable tax treatment for R&D would be better.

Alasdair Thompson, northern division chief executive of the Employers and Manufacturers Association, expressed disappointment.

"I suppose we shouldn't complain that the Government hasn't kept its promise to make R&D tax-deductible as we were warned there would be ... grants for research. But making R&D tax-deductible would have created far more impact than grants, which are still too easily captured by the science community."

Export Institute president Graham Boult was less equivocal.

He said the grants would do nothing tangible to create employment, generate wealth and retain exporters and entrepreneurs.

"Manufacturing generates 50 per cent of our overseas earnings but can expect a meagre $3 million in grants if Technology NZ continues to provide assistance to the manufacturing sector at its existing level," said Mr Boult.

FRST's Dr Thompson said the aim of the grants scheme and the boost in Technology NZ funding was to lift private-sector R&D in New Zealand, which at about 0.34 per cent of GDP was low by international standards.

The new grants scheme will complement existing support for business offered by FRST.

Total funds in FRST's suite of schemes for industry - which includes Technology NZ, the new grants scheme, TechLink and Technology Fellowships - are now $36 million.

Among other changes introduced, the Public Good Science Fund, which traditionally has allocated the vast majority of Government research money, is being chopped up into five smaller funds: Research for Industry, Maori Knowledge and Development Research, Health Research, Social Research and Environmental Research.

Mr Hodgson said the changes were made because the fund was too complex and unwieldy.

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Minister's budget statement

Budget speech