By Yoke Har Lee
National and Labour have finally got the message from business that research and development spending needs encouragement to grow sharply, but their policy proposals are too late and too paltry to trigger a big change.
Mindful that New Zealand has one of the lowest rates of corporate R&D spending among developed countries, the parties have focused on making tax treatment more attractive.
Labour proposes making all R&D costs tax-deductible, while National says it will study the issue with a view to making tax treatment more favourable.
Because the approach of both was so timid, "there is no perception in business that R&D ranks higher in politicians' minds than anything else," said Dr Jim Watson, founder of biotech company Genesis Research.
R&D was a pillar of a knowledge economy, requiring more extensive policies from both parties, he said.
They needed, for example, to ensure R&D offered avenues for career development and that business was motivated to put money into the science sectors.
"Policies, therefore, have to highlight R&D so the payback is there for the investment community, whether it is via tax breaks or whatever."
Countries that saw science and technology as key drivers of their economies had been pragmatic about developing them.
But a resource-rich country such as New Zealand had an investment community that was slow in responding to opportunities offered by the sciences, said Dr Watson.
High-technology companies such as Genesis would benefit from policies that attracted investment in R&D.
"Genesis struggled to get the investment community's support. There is no incentive to invest in it. There is also no political leadership saying that advanced technology is fundamental to our economy.
Dr Watson said that if politicians demonstrated they were serious about R&D, "it will have immediate impact on New Zealand as well as overseas investors."
He made it clear that he was speaking as a businessman and not as a board member of the Government-run Foundation for Research, Science and Technology, which dispenses research funds.
Peter Maire, co-founder of high-growth Talon Technology, a maker of navigation equipment, said the policy of allowing the expensing of R&D investments would do little for most small companies, which were already doing so, contrary to directives from the Inland Revenue Department.
But larger companies that had to capitalise R&D spending would benefit.
"Being in a high-growth period, Talon pays a lot of taxes. We haven't paid a dividend in the last 10 years.
"As long as you are paying high taxes, you can't invest very much in R&D."
David Maloney, president of the Manufacturers Federation, said the views of most medium-sized companies remained mixed.
"Some of our members want a lower corporate tax rate while others want to be able to expense R&D. Honestly, I don't think there is a lot of difference in terms of where the parties' policies are at."
Professor Garth Cooper, of the University of Auckland, who successfully established and has since sold his share in US-listed biotech company Amylin Corp, said both parties had come up with a reasonable start to policies on R&D.
"But it is a little too late. I don't see anything of significance. It all seems so small relative to other countries. It would make us no more competitive."
But he was encouraged by National's proposals to set up enterprise scholarships and the New Economy Research Fund under its Bright Future package for economic development.
By next July, the fund will total $36 million, with the money to be used by research institutes, universities, companies and other organisations to study opportunities in new areas of economic activity.
"The unfortunate thing is the claim that it is new money. A lot of that is existing money which has been relabelled," Professor Cooper said.
He was also sceptical whether either party would carry through with their policies after the election.
In terms of addressing the critical lack of science and engineering skills needed to support the knowledge economy, businesspeople said both parties were still failing to find ways to attract students to those areas.
For Mr Maire, the critical shortage of engineers was inhibiting growth.
"It is a real ridiculous state of affairs. We need a very targeted immigration drive in places like Britain, where you are going to find the people with the engineering and production skills base."
He also suggested the Government should provide subsidies to encourage students to study science or engineering.
Dr Watson said politicians had come to realise the student loan problem was for real.
"But we also can't continue to educate students without recognising that science, engineering and technology are important disciplines. If the loan scheme was kept, there should be some incentives - perhaps to allow students to take off one year of loan repayment if they worked in technology or R&D firms."
In pursuit of the knowledge economy, policies must ensure that education and knowledge were available to everyone. "If that means citizens having to pay higher taxes so that we can educate our young, so be it," Dr Watson said.
Philip Carden, a former IT consultant now running venture capital firm No-8.capital, said the Government had to get investment in education right or suffer a deterioration in skills of the workforce. While we had moved away from directly providing incentives, other small countries had done so successfully.
"We know the free-market argument - that such things don't make global sense. The reality is, small countries which are successful are doing it. In the case of getting investment in technology, it is not only practical but the only way to solve the problems."
As much as he was a firm supporter of a liberal arts education, Mr Carden said New Zealand needed a targeted approach. Students in courses of national demand should not have to bear the full cost.
Too little, too late for a kickstart to R&D sector
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