NZ Herald on Labour

The NZ Herald editorial:

The Labour Party’s annual congress held at the weekend should have seen some interesting new ideas. The party has been out of power for the best part of three years and another election is six months away. Polls put Labour well adrift of National, which is another reason to expect some bold thinking. Labour has little to lose.

But there were not enough interesting or innovative ideas from the party at the weekend, though the word innovative was heard frequently. Labour proposes to encourage research and development with a 12.5 per cent tax break. Leader Phil Goff reckoned this would increase private investment in R&D by $1.5 billion a year, especially in high-tech industries that would create jobs and exports.

How often have we heard this? This country has encouraged company research and development at public expense for years. One of the ways Mr Goff proposes to pay for his tax break is by cancelling the present Government’s incentive, worth $70 million a year.

So there are two parts to Labour’s policy. One is to increase the amount the Government spends on subsidising R&D, and the other is to change the way it is funded. National basically has a system where it picks “winners” who apply for grants or subsidies. Labour proposes a 12.5% tax credit than any company that spends over $20,000 can gain.

So both parties are saying they see a role for the Government in encourgaing R&D, but disagree on the level of funding and the method.

The latest to beat this drum is one of the country’s top scientists, Sir Paul Callaghan, who has been attacking the Budget delivered last week for its lack of high-tech investment. His prescription for economic success is very precise. It is not tourism, “a classic low wage activity”, not wine, “nice lifestyle but frankly the revenue per job is poor”. The future lay in technology. “If you look at the profile of high-tech companies in New Zealand you see some surprising strength,” he says. “We have the capacity of growing this sector significantly.”

But it is not clear what the Government should do beyond ensuring the country is equipped with up-to-date infrastructure for high-tech providers to use. There are fears that even in financing an ultra-fast broadband network the National Party might be exceeding its competence.

I agree with Sir Paul, that one of our industries for the future is and should remain high tech. The fibe to 75% of NZ programme should help that industry.

The best governments can do is maintain a reasonable public research budget balanced against all other calls on their revenue, and allow tax write-offs for the development of exportable products. To pretend that research and development assistance is the answer to the nation’s economic needs is not credible. It is an admission of a lack of better ideas.

I quite like the idea that maybe you tie tax credits to R&D which is used in developing exportable products. That would stop tens of thousands of companies reclassifying expenditure as R&D just to gain tax credits. If you had to link it to an export product, then fewer would qualify.