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Five things the government can do to promote an ideas economy

The coming year is shaping up to be crucial for New Zealand’s economy.

Paul Adams

Do we join those countries making their way out of the international wreckage or become a cautionary tale?

The government could more actively promote competition and productivity by taking the following five steps to gain maximum leverage from our innovative ideas and technologies:

Create a fairer tax regime for patents

Patents are a crucial commercialisation driver yet our tax rate on patents is higher than many other countries. The Income Tax Act (2007) also contains an obscure provision that effectively taxes them twice as it requires patent owners to capitalise any patent expenditure (treating the patent as an asset) but if the patent is sold, the owner must pay income tax on the sale proceeds (treating it as income).

This gives patent owners the worst of both worlds and punishes innovation unless they move their intellectual property offshore. Policy reform would encourage more homegrown IP.

Rationalise the incentive systems around public R&D

The government spends over $700 million annually on research and development and promises to spend more.

Yet too few of the results achieve a return because public funding processes tend to incentivise perennial R&D, rather than innovation that will be commercialised. This is fine in some areas but a waste of money in others, which highlights the need to…

Be clear about ROI expectations

There needs to be a clear delineation between funding for blue skies research and funding for projects that expect a commercial return. This should be considered as part of a wider structural realignment in public R&D spending.

Stop pretending the government can commercialise IP

Crown Research Institutes are not good at moving from idea creation to commercialisation so there has been an astonishingly low return on billions of dollars invested in them over the past two decades.

When compared with the performance of innovative private sector firms like LanzaTech, it is clear that the CRIs’ failure to commercialise is a fundamental weakness that will require more than bureaucratic retooling to fix.

Public money must continue to underpin New Zealand’s R&D sector but it must be spent more wisely.

Change the game

R&D funding should be guided by rational incentives, clear expectations and a focus on results.

This will require the government to get its tax policy in order and then dramatically increase support for private efforts that show signs of delivering. Reversing the ratio of public and private sector support, and opening the results of public research to commercial firms will likely cause a storm of protest – but it must be done.

New Zealand is at a public research crossroad: push it into the real world or continue to write off vast amounts.

Nobody should apologise for wanting a powerful commercial IP sector: the smart game looks to buy wins, regardless of where they come from.

New Zealand doesn’t have enough money to play any other way.

Paul Adams is chief executive of EverEdge IP.