Internationally the trend is for an increase in R&D tax incentives, and for good reason. As expected, there is a positive correlation between R&D incentives and productivity growth.
According to the OECD, R&D incentives improve economic performance, create job growth (especially in fields like science and engineering), increase social well being, and attract foreign investment. Everyone benefits. Some countries even expanded their schemes to use as a tool to soften the effect on the economic crisis on business.
In contrast, New Zealand’s comparatively unusual decision to abolish the scheme reduced the country’s comparative attractiveness for inbound foreign investment, reduced the country’s attractiveness for highly qualified engineers and scientists, and made it comparatively more difficult for New Zealand businesses to compete against businesses from countries with tax incentives.
Not only should New Zealand institute a well targeted, well designed, R&D tax incentive scheme, the government should signal that the scheme is a long term one that will not be placed at risk by changing political and economic circumstances. The perception of long term stability is a factor that increases the positive impact of R&D tax incentive policies.
Given the concern about New Zealand’s economy, we believe that proper and aggressive investment by the government in R&D tax incentives is an essential and urgent step.