Think about Kiwi innovation...

The Britten Superbike
Sir Ernest Rutherford
The Sealegs aquatic car

None of this will happen under a National government. National is axing research and development tax credits, raising taxes for those companies trying to innovate and push forward into the 21st century, rather than cling to outdated 1980s management paradigms, as espoused by National and their neo-lib buddies.

I totally agree with you Vads.

This should be the biggest election issue IMO as NZ cannot push forward as a true global citizen/leader in innovation like similar countries (Sweden, Finland et al) without such investment from the government. NZ's economy is dominated by small and medium sized business who's last 5 cents in every dollar should be spent on research, but isn't due to a range of factors.

The worst thing is National know they won't lose fuck all votes from this policy because the 'average voter' doesn't see the long term benefit of R & D.

i think your examples are a little questionable but your point stands. EG Ernest did all his research in England.
But NZ companies like Endace (a NZ competitor to Cisco that listed on the London Stick Exchange a couple of years ago and experienced a 5 fold increase in its share price) and LIC (Livestock Improvement Corporation) will be disappointed.
These are both Hamilton based innovative successful NZ entities who would've benefited and advanced NZ's use of technology to improve our nations competitive advantage.
However the real question is - Will they change their approach if this policy gets implemented and the answer to that is - probably not!
And, John Key needs to balance his books somehow.

Yeah was going to pick holes in the egs as well, but I gave Vads the benefit of the doubt and put it down to using poetic licence.

Actually it is fairly normal Tory thinking, raid the piggy bank for an extra block of cheese today and blame the workers for their low productivity & poor saving rate tomorrow.

I agree completely. Very short-sighted approach to developing the economy... which is surprising since the economy is supposedly National's strong suit.

Welcome back to the arse-end of OECD R&D measures NZ

Combine this with the raping of Kiwisaver and I am EXTREMELY disappointed. Not that I have ever been a National supporter anyway, but I was looking forward to yesterday's announcement as I had pretty much assumed National was a shoe-in for govt this time round.

Hopefully the race just got tighter.

Bollocks. As someone who works in this exact industry I can tell you that the state of the govt makes almost no difference to the amount of ideas which make it past market validation - assuming you're talking about innovation with an aim to grow a successful business. Primarily because innovation is driven at the earliest stages by individuals who rely on their family & friends overwhelmingly for support, not research tax credits.

If you're thinking of it in terms of access to funding - by and large most innovators don't even know could be sought or, if sought, just as often shortens the time to failure as it does success. (something important is still learned though - just in less time with funding)

The getting-to-global-market level, which happens many years later usually, will be affected but, by and large the drive of the person/people involved - not access to straight funding.

Some evidence from overseas suggests that because most innovators/inventors make heavy use of the FF connections, having lower tax rates for average earners is quite important for innovators who can hit up their crew for support.

R

I can tell you for a fact that there are many companies that will reduce or eliminate their R&D budgets as a result of this.

We've had a decade of straight productivity decline. What do you attribute that to?

R

They're not where the bulk of our innovation comes from. And if there was potential money to be made, they'd keep doing it.

It's the funding - not wiping the tax breaks - which makes the most important difference to innovation (well, according to innovators and related organisations like Escalator). Having access to angel investment or start-up funding is far more crucial. Any tightening of these things could mostly be attributed to worsening global economic conditions - something neither National nor Labour can really control easily.

R

Excuse the large post, scroll past it if its unbearable...

Correct me if I'm wrong (perhaps he was actually given some assistance in the end?) but I was under the impression that John Britten and his super bike would have occurred regardless of which party was in government and that he was granted little to no assistance during his feat of entrepreneurial genius. But looking past that, I agree with the general sentiment behind the topic itself, especially the importance of R&D. In fact despite becoming increasingly apolitical as I have dived deeply into economics, this still remains one of those policies I feel really strongly about, enough to simply support it on principle alone. <-- Rare for me these days, given my increasingly divergence into pragmatism, feeling like I’m more of an independent that a supporter of parties. People already know my views from earlier comments made in the tax thread about R&D and how important it is for us to invest into. While tax deductions are not as potent as having liquidity for actual investment we must do something about the situation.

Trends show that globalisation is happening. America, Canada and Mexico have certainly felt the stress from NAFTA. America has lost many jobs in certain sectors because of it, while others in the agreement have had instant improvements, due to being able to offer the same for cheaper, or better and cheaper. Mexico farmers have struggled due to subsidiaries protecting them for too many years. Using subsidiaries in my opinion should be a mid term, not a long term policy. And mock capitalism as you may, it’s how the system works and unless you have an alternative economic function to replace it with, I would get use to it. In the long term I believe these economies involved in such trade agreements and alliances, that take the short term risks associated are going slowly adapt (despite initial chaos) and end up becoming the powerhouses of tomorrow. All of the economic literature talks about 'comparative advantage’; it’s an old principle being espoused as far back as Ricardo. History supports the position well, and despite some controversy in early American history I believe that in more recent times, those who have benefited from it mostly, are the nations or the market sectors specifically within those nations, that have predicted emerging trends and worked it to their advantage. This is how we ensure our future in New Zealand, by looking for ways to specialize and offer excellent products or services to the global economy. If it means leading the world in luxury yacht building, we should embrace it. We need to start thinking boldly about this with a vision and a plan because lets face it, our economy is isolated and we already have a disadvantage.

Our farming is high tech, but we also have a lot of potential to develop new innovations suitable for dealing with the climate crisis. I know what I am about to say is going to be unpopular, but I am starting to think we should maybe pull out of the Kyoto Protocol (its going to cost us too much for little to no benefit) and before you all start attacking me and so we don't loose too much political face amongst the global community, immediately sign and ratify the Asia Pacific Partnership on Clean Development and Climate. A pact that allows countries to set their own goals for reducing greenhouse gas emissions individually, with no enforcement mechanism. We could then implement a carbon tax and from the revenue start awarding grants to companies such as Neptune Power who is testing Tidal energy in the Cook Strait. We could lead the world and it will create a slow but soon to be rapidly increasing job market.

I agree. I've long said it was largely pointless to be part of it as the only real effect the average person would notice is that essential utilities and the like would become more expensive. That's it.

NZ is in no position to reduce global emissions even - if we reduced ours by 100% it would make almost zero difference. So are we doing it for PR or should we try to create an industry of technology and innovation along this topic which we can export to others.. I.e. make money out of helping others reduce their emissions/improve efficiency?

R

^^Important point but we shouldn't gloss over tax incentives if they are low and radical enough to allow companies to base their operations here. Unfortunately you are mostly right about this; New Zealanders (like other obvious candidates) seem to have placed all their eggs in one basket, by only investing their savings or equity into houses rather than a broad range of financial investments.

As the paper from the Reserve Bank of New Zealand is about to contend, this means there is little to no local equity available for New Zealand business, especially as interest rates have risen and this global credit crunch has developed. The equity gap has diminished our potential for supplying funds to support start-ups and other small businesses. It has also left the economy more vulnerable as lending criteria has become more stringent.

Applicable speech from Alan Bollard in 2006

http://www.rbnz.govt.nz/speeches/2860814.html

It was noted.



The thing about the Kyoto Protocol is that its requirements for compliance are very strict and cumbersome. All of the associated processes we perform as a nation need to be conducted through the Compliance Committee of the UNFCCC; making things a little inefficient by itself. Given we are currency well behind in our commitment obligations we can expect the Enforcement Branch of the UNFCCC to penalize New Zealand with the following.

As quoted from the Kyoto Protocol Reference Manual on Accounting of Emissions and Assigned Amounts (Kyoto 2007, p. 19). The Enforcement Branch is likely to perform the following on us:



And just to answer this:



Unless other nations come to our assistance, thats about the only tangible way I can see us getting out of this predicament.


Reference:

UNFCCC secretariat "Kyoto Protocol Reference Manual on Accounting of Emissions and Assigned Amounts", 1.1.5.5 The Compliance Committee, p. 19 - 2007

http://unfccc.int/files/national_reports/accounting_reporting_and_review_under_the_kyoto_protocol/application/pdf/rm_final.pdf [/quote]

Mistake above: *Currently

Thinking about this more critically it would appear I was wrong about this statement:



This part here is applicable:



So the question remains, how are we supposed to resolve our failing commitment obligations if they suspend our eligibility to utilize the CDM (Clean Development Mechanism) and/or JI (Joint Implementation Mechanism) required to make money or acquire credits out of helping other nations to reduce their emissions???

To quote economist William Nordhaus in the reference below:




Reference:

William D. Nordhaus "Life After Kyoto: Alternative Approaches to Global Warming Policies" - Yale University December 9, 2005

http://www.econ.yale.edu/~nordhaus/kyoto_long_2005.pdf

The Britten Superbike and Sealegs both did actually.

not to mention the Hamilton Jet propulsion unit and numerous others

besides was not



for employer contributions to kiwisaver?

Not to mention neither required any high level of research funding, and were made on long-term trial and error basis... More to the point, had/have tiny tiny tiny market potential compared to the likes of what would have any significant impact on NZ exports.

R

and sealegs has been posting year end losses

Is it just me or is Sealegs more a PR success than anything really special?... I mean, a boat - which has fold-down wheels.... what genius mind put those things together?

R

lol at Glen Martin from Martin JetPack on One News talking about this topic.

His product will make money for him - as a glamour/luxury item maybe - but has the potential to add ... ummm, nothing to the NZ economy.

Why? Because as soon as they got to any marketable point - which is still pretty unlikely - they will move offshore to be closer to their markets.

Giving companies like them a tax break would be no different to the govt just giving someone money to go on a holiday to the states to look for a job or set up shop.

R&D which would be of any benefit to NZ - and not guys making jet packs and rockets - is when we can export stuff/know-how and employ people here.

Agribusiness is a major area for this and Fonterra, for example, are world leaders in many processing techniques. Directly related to this is some NZ companies have become world leaders in alloy welding (from making large-scale milk processing silos to the highest level).

The percentage of companies who take a tax credit for R&D and which actually relates to meaningful benefit to NZ is in the 5% region. Not exactly a great hit-rate.

R

I agree Rob and any tax breaks should be tied to demonstrable benefits and conditions and not be another free for all like the export incentive bullshit was in the 70's.

Feel good is not a good feeder.

and kiwi innovation does not equate with innovative kiwi tax accountancy

Well you have both made some interesting points RobW and NR which I am at least willing to consider and potentially compromise on. The counter stone of my argument rests upon the premise, that any incentives we grant for R&D in our country, must actually have a productive outcome. That said, if the present policy isn't working as intended, then we should indeed review it and make changes accordingly.

The only place I think I may differ with you both, is that I think New Zealand ‘geographically’ is generally a very safe and stable location, isolated from radicalism and turbulent markets and with little to no major enemies at our borders. We are an island of course and our closest neighbors are our allies. So with this in mind, if we set a radical enough policy framework, with low enough tax rates set specifically for R&D as incentives, foreign companies may be inclined to set up their operations here. Despite the disadvantage of our distance and the increase in transportation costs which would result from any potential shipping requirements involved.

Which to be honest I suspect would be minimal and balanced out by the safety of our location, given the nature of the industry mostly comprises of research, design, testing, development, blue prints and utilizing smaller amounts of materials compared to these same 'potentials', larger production plants, which churn out the end product (and which China can operate cheaper than us, making it impossible to compete with). In the end their activity may include nothing more than shipping over an eventual prototype; so I am working on the assumption here that 'overall' the sector is generally not that transport extensive.

Thus what I am really alluding towards here is maybe a little different to the policy you are both focusing on and making points against; and is actually my attempt (whether ill conceived or not) to find a potential avenue we can exploit as a nation and derive a ‘comparative advantage', increasing (despite low revenue potential but yet with other benefits like employment opportunities and perhaps highly skilled labour) our long term potential within a shrinking global market. Imagine for instance, if we developed say? a reputation for R&D as a direct consequence of such a long term policy plan, similar to how Bangalore is considered an IT haven in India.

That’s my vision, but could it really work?

It's demonstrated intent more than anything. Of all this "bloated govt spending" they've been saying exists the FIRST things they went after just to beat an already unaffordable Labour tax cut were policies focussed on growing a long term saver capital market and innovation. Which are exactly what we need.

If they'd changed the way they incentivised innovation then great. Even if they'd slowly ramped down the Govt exposure to Kiwisaver (remove the kickstart, begin to limit the %Govt contribution etc) but kept the employee, employer levels up. But nope, they just watered down or removed them with no replacement.

Fuck off National - thanks for at least taking one party off my list of possible votes.

Rival, the unescable end of a low flat tax rate is much greater income disparity across the nation.
Sure you can say "all boats rising tide etc" but the disparity itself is socially destructive.

If we did go that way you'd have to direct almost all the tax take to lower incomes - minimise Govt support to the extreme for high earners.

Heh, i know a person who was involved in an analysis of organisations that got SME funding from the govt for start-up, research etc. Much of the funding went anywhere but where it was intended, including *buying* new muscle cars for the owner and his brothers. Few of the SMEs delivered anywhere near the results that had been suggested but the people responsible for checking and allocating the funding weren't so keen to report back as it made them look bad.

Most of the time, non financial help is much better and more efficient than hand outs. Some people spend more time shaping their business for application of grants than bettering their product/service.

Export advice, legal/structure advice and help with patents (not that they work very well) is often much more beneficial and traceable.

What are you talking about exactly?

Lets say (to make my point) we only offered this 10% flat R&D tax rate to foreign companies only. This would mean any additional companies that moved there operations to our shores would have absolutely no effect on what you have just described. In fact, we will gained 10% tax from every new company that joins us.

In this example there is actually a net gain.

You know, I'm not sure now having re-read your post!
I may have been reading different things at once and got them muddled - could have sworn you suggested a 19% flat tax rate nationally somewhere in there...
Sorry.

Low R&D tax rates I'm all for so long as you can capture the value of the output somewhere - you'd need to be careful around repatriation etc when you're talking about foreign companies...

That 19% was a minor discussion regarding a potential optimum tax rate on the Laffer Curve, allegedly conducted by the NZ Treasury. I was skeptical of it being 19% but wanted to discuss it anyway as a side point.

Right, mixed up discussions somewhere - sorry, Firefox being a pain in the ass for me right now and is freezing and jumping around threads and tabs...

Dude as long as they keep an eye on the funds - perhaps act as signing authorities for expenditure - this wouldn't happen

Were they an SME or a start-up? Established companies generally are better bets for investment and, historically, the start-ups which are left to fight it alone for a couple of years have a much much higher success rate than ones which secured loans/funding. For some reason the having-to-work-from-your-garage or keeping another job while you get up and going makes for a better and more realistic proposition - especially when it comes to time make the next step for angel investor funding. Angels and indeed banks generally wont want to get involved with people who already owe money to others (family, banks etc)..

No tax-credit as described in the start of this thread will make significant difference to the success-rate of start-ups in science/technology areas in NZ.

Re: offering foreign companies tax incentives to set up shop here - you know what that forces? It forces local companies in that field to give up or they re-register their company overseas and then operate as a locally in NZ - employing largely the same people they would but now with less tax liability.

Support - in the form of tariff reduction, overseas liaison/consulate/contact help and setting up Kiwi company clusters/programmes (Beachheads for example) is what companies who can design, produce and export from NZ need - and which will reap the biggest local benefits employment and tax-wise.

Anything that gets developed here is only really useful if it can be made here or protected and licensed offshore (Rakon for example - their company isn't about high-tech as people think, it's about insanely consistent manufacturing processes they've developed.. the market for their product only exists because they can deliver 2 million widgets with such reliability. Not because they make something no-one else can. Their competitors simply can't supply the units at the same extremely low failure rate).

Britten, Sealegs, Martin Jetpack etc are examples of products which are largely useless to the NZ economy as they are glory/PR products which have tiny market potential and would be made offshore relatively easily and a darn site cheaper than we could. Giving companies like that funding/tax-breaks is basically a form of social welfare for inventors.

R

biggie?

Actually that wasn't what I had planned at all; I simply narrowed my argument to focus only on foreign companies, to make a point to garethw. But it wasn't even required due to initial confusion in context anyway. For the record, I am not in support of denying the same incentive to New Zealand companies.



Hold on, if different companies to what presently reside in New Zealand come to our shores, say for example, like many of the military industrial companies (think Raytheon) that now operate in Australia, came to our shores because of a massive tax incentive, they would only be setting up a small portion of their company, so they could perform their operations more cheaply. Which is why the policy would need to be radical to attract attention. However demand for their product shouldn’t change due to operating in New Zealand and their production plants would still be operating where they presently reside.



Protection and licensing offshore would be ensured by such companies’ executive branches anyway? It is merely the small R&D departments of such companies, that I want to attract in order to derive a comparative advantage. A similar example to the sort of plan I allude towards, would be Ireland’s policy changes as they entered into the EU. They made radical tax cuts (flat corporate tax rate of 20%) and many European companies outsourced specific sectors to their shore as a consequence to reap the benefits. It has helped with their IT boom and even caused political backlash from the French prime minister who objected to EU countries abandoning France and Germany because they had socialist high tax rate policies by comparison. Anyway the production from the results of any R&D would not be required to operate in New Zealand, not unless we as kiwis increased demand for their actual product, and even then, I suspect they would export it over because it would be cheaper.



Agree with these innovations not benefiting our economy but giving tax cuts is about incentive, its not a subsidiary or funding that I espouse, warranting a comparison to social welfare. You obviously know about the radical economic polices employed by Dubai right? Where they have no corporate tax rate for 15 years (with potential for the policy to be renewed after 15 years) if you setup shop and conduct business in a specific zone of the country. Have you seen what this has done for attracting an influx of foreign investment and the resulting boom in construction that has resulted? This is the sort of radical, excuse my use of a Muldoon term, “think big” vision I am alluding towards. And it is not Keynesian policies such as tariffs, high tax rates of 60% and massive government deficit spending into dam construction and smelter works et al. This is actually very supply side, right wing economic policy in the way of a large tax cut to attract companies and potentially benefit New Zealand in the long term, due to specialisation and potential comparative advantage.

He will sell that company in a second given the right offer - it's not hard to see it's ironically got no legs long-term. Anything he develops will be copied by much larger companies with bigger clout, manufacturing and contacts - civilian or military. He'll then be touted as a kiwi icon of success but, ultimately, it'll add little to the economy.

R