New figures show the number of businesses planning on increasing R&D spending has doubled, but is it because of the impending R&D tax credit policy or NZ’s tight labour market?

Cartoon of Megan Woods by Jacky Carpenter

The Government is welcoming the ramp-up in the number of Kiwi firms looking to increase their investment in research and development (R&D) within the next 12 months.

Minister of Research, Science and Innovation Megan Woods says the R&D tax credit – which will become available on April 1 next year – is a major factor behind businesses’ investment intentions.

But Grant Thornton Partner Paul Kane says its more likely New Zealand’s tight labour market is driving firms' thinking in this area.

New research from Grant Thornton shows the number of businesses looking to increase R&D investments in the next 12 months has jumped from 26% in the first quarter, to 50% in the second.

Kane says the jump is likely because firms are looking to invest in new productivity improving technology and are doing so because it’s getting harder to find staff.

The latest statistics show New Zealand’s unemployment rate is 4.4% – the Government and the Reserve Bank are expecting that to fall to close to 4%.

The lower the unemployment rate, the harder it is for firms to hire new staff – this leads to what economists call a tight labour market.

And recent business confidence surveys have highlighted this as a concern for businesses.

“I think we’re running out of labour and it’s right across the spectrum,” Kane says.

He says New Zealand’s productivity levels are low and need to improve.

“We have got to invest more in the new products that are coming out, like artificial intelligence and systems and processes to actually try and drive some productivity into the workplace.

“We just can’t keep doing it by labour… we can’t just keep throwing people at things.”

Firms understand this and that is reflected in the Grant Thornton survey’s numbers, Kane says.

Minister welcomes the numbers

Woods says it’s pleasing to see the business community is already responding positively to the introduction of the R&D tax incentive for next year.

Earlier this year, Woods unveiled the Government’s R&D tax credit policy, whereby a business would be able to claim a tax credit for up to $120 million of R&D expenditure each year.

“The R&D tax incentive will be one form of support amongst many for Kiwi firms to increase their investment in R&D, move further up the value chain and deliver higher wages.”

She says the Government set aside $1 billion in Budget 2018 to lift R&D expenditure to 2% of GDP by 2028.

But Kane is not as convinced as Woods that the policy is driving businesses R&D investment intentions.

“I don’t think people are putting a lot of emphasis on [the policy] at this stage.”

He says the last time the Government had an R&D tax credit scheme – which was for one year in 2008 – it was quite an arduous process.

“It’s a bit like when you apply for grants, there is quite a process to go through and it’s whether people can be bothered doing that.”

He says some business people, who went through the last R&D tax credit scheme, “are still a bit wary of that.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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16 Comments

Disruptive technologies and a heightened risk to assuming your business model isn't under threat?

Great reason for engineering consultancies to buy new testing hardware, or utilities to buy monitoring equipment.

'Jock' are you any relation to 'John silver?'

Nope, no relation :)

“The R&D tax incentive will be one form of support amongst many for Kiwi firms to increase their investment in R&D, move further up the value chain and deliver higher wages.”
I agree with the part that R&D lifts productivity in the long run but a generic statement on R&D delivering higher wages is misleading.

Higher productivity gains to the private sector from R&D means higher output with lower inputs, and therefore more cash from business activities left behind for the owners after paying the bills.
Only a small portion of gifted employees end up with higher wages but the larger majority actually risks completely losing out on this deal. Instead of celebrating productivity gains from tech advancement, the government should worry about those who are incapable of upskilling themselves and may be left behind because of this R&D frenzy.

https://knowledge.insead.edu/responsibility/how-the-digital-economy-has-...

Granny herald says R&D credits won’t be sufficient as a standalone measure of higher productivity.
1. Tax overhaul making household savings lucrative to make capital available domestically and reduce reliance on costly capital borrowed from overseas
2. Reduce demand-pull inflation by slowing population growth (migration) until supply-side capacity constraints and inefficiencies are resolved. More targeted low volume, high-value migration is recommended
3. Eliminate the one size fit all treatment of foreign capital by introducing incentives to particular high value industries to attract foreign investments and know how

https://www.nzherald.co.nz/economy/news/article.cfm?c_id=34&objectid=120...

Pick one:

  1. A new employee who:
    • Needs drug-tested before entering the workplace and every Monday thereafter
    • Will likely belong to a union which, if in the Gubmint's Target List, will become a multi-employer collective contract thereby removing your negotiating room, and if not, is likely to be a stroppy participant given the zeitgeist
    • Will receive the minimum wage and Gubmint-determined increments thereto, regardless of your state of business
    • Will require induction, training and other input before becoming productive
    • Will require overheads (ACC, leave, Elfin Safety, clothing and protective gear, coverage of unplanned absence) to the tune of 25-50% of nominal annual wages cost
  2. A robot

3. Sell the business and move into a sector that uses contractors not employees.

I agree, Roger. The direct and opportunity costs of on-the-job training is high, even with graduates having tertiary degrees in relevant fields.
No wonder the gig economy is catching up in major population centres of the world like Sydney. A large portion of data, tech and finance jobs in Sydney's BFSI sector come with an expiry date.
Unfortunately for many, the gig economy also favours the high-skilled with higher pay and better options to choose from.

https://work.qz.com/1253396/the-gig-economy-could-help-solve-our-job-tra...

Something makes me think you're not going to hire new or retain good employees with an attitude like that. Maybe you should stick to dealing with robots.

Ever been on the wrong side of a union? It is enormously dispiriting. Business owners are people too. They make choices according to their experience.

I've been on the wrong side of a union, as a union member employee. I learned very early on about unions when I hired on to a large company as an hourly employee. I was in the shop doing mechanical component assembly. In my first week on the job, the union shop steward came by and requested that I stop working so hard. He wanted me to take it easy and work more slowly. I learned from that lesson, and decided that I would find employment that recognized and rewarded high work performance instead of the union paradigm of rewarding seniority and minimizing performance on the job.

Unions have their place, and were quite necessary a century ago. At present, unions need to understand just how the tragedy of the commons dilemma relates to their circumstances.

I have quite a few 'employees' - all non-unionised. I pay them in cast-offs, keep them largely in the dark about everything, and use their products for my personal gain.

It's my Worm Farm....

R and D is needed now, more than ever. But it is to be differentiated from growth, profit and the usual 'givens'.

To get where we have to go - long-term-maintainable society being the only valid goal - means renewable energy,. no resource draw-down and no sink-reduction (sinks are the capacity to absorb/break down our waste/pollution).

That is so far gone from what we are, and the remaining time is already so inadequate, that all hands to the R&D pumps would still leave us behind the 8-ball. For instance, bitumen is made from fossil-fuel. We rcan raise our thinking past the fools who think we can 3-D print anything (but who forget that said printing required feedstock) and ask whether we can replace bitumen? And if we can't, is rail (much less and longer-lived material, potentially less rolling resistance) a valid alternative? Is there a case for a one-rail-up, t'other rail down system between cities?

And so on. But unless you ask the right questions, your R&D may well lead to a stranded asset. I'd be interested to know how much of the increased R&D is aimed at addressing the future - climate change, renewables and the rest.

I work in the R&D world and there has been an uptick in available work over the last few months.

However, it's incredibly subjective as to how people define R&D, so I would be very suspicious of any survey results. For most it should mean "the development or improvement of a product or service". For some it can mean sending Debbie the office girl out on a Word + Excel course on the assumption that she will then come back and magically improve administrative processes and increase productivity.

When the gubmint gives out grants everything is "R&D". A lot of this activity may not be R, may not be D or may not even be viable without the grant.

Immigration NZ should resume their "R&D" work on that computer program that can analyse a range of data to generate a risk profile on every applicant. If I recall correctly they named it something like Microsoft Eggshell.