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Changes at Callaghan Innovation: Goodbye Growth Grants, hello tax credits

Top image photo credit: Ben Mack

A programme worth almost $660 million (about $657.2 million to be more precise), Science, Research and Innovation Minister Dr Megan Woods said last week Callaghan’s Growth Grants would end on March 31 next year – but that organisations that already had a Growth Grant could extend it until 2020.

According to Callaghan, to apply for a Growth Grant, businesses needed to apply and meet the criteria, kind of like how Immigration New Zealand requires certain criteria be met when applying for different visa categories.

Instead of the Growth Grants, the plan is for tax credits – to the tune of 12.5 percent – to be offered to organisations that spend more than $100,000 per year on research and development (R & D). The organisations will still have to meet criteria that proves what they’re spending more than $100,000 on is actually R & D to be eligible for what’s being called the R & D Tax Incentive Scheme.

“We’re very excited about the additional investment in research and development under the new R & D Incentive Scheme,” explains Vic Crone, Callaghan Innovation chief executive. “The $1 billion over four years will help accelerate uplift of business investment in R & D, which is a key lever in diversifying and future-proofing our economy. Currently, we’re not increasing our investment fast enough.”

Although known for their Libertarian leanings and being opposed to expansion of Government, the New Zealand Taxpayers’ Union has also hailed the decision to transition away from Growth Grants, calling the decision “fantastic news for taxpayers” in a press release.

“We have regularly called for the new Government to dismantle the grants and replace them with an across-the-board tax credit,” Taxpayers’ Union economist Joe Ascroft said in the release. “If the Government wants to encourage R & D spending, it’s much more efficient to apply a simple subsidy across the board, rather than make guesses on the future prospects of companies and pick winners and losers in the process.

“Dismantling corporate welfare is politically difficult. The Minister should be applauded for making the best decision for taxpayers.”

Organisations can still have a say about what the replacement for the Growth Grants will look like. “Crucially, businesses can still help shape the design of the R & D Tax Incentive and Growth Grants transition consultations, so we are strongly encouraging them to take part in the process,” says Crone. “Such feedback is essential to ensuring we have an optimised system of government support for innovation that helps drive R & D expenditure to two per cent of GDP over the next decade. There’s only a fortnight left in which to give feedback, so please get involved now.”

Submissions for input on the tax credit plan are open until June 1, and can be made at the Ministry for Business, Innovation and Employment (MBIE) website.

Source: Statistics NZ Research and Development Survey 2016

Countries that spend a greater percentage of their overall Gross Domestic Product (GDP) on R & D often do better economically, such as South Korea, Japan, Germany and the United States. According to Callaghan, Statistics NZ’s Research and Development Survey for 2016 found that R & D as a proportion of GDP had increased to 1.3 percent, an increase from 1.2 percent in 2014 – but still lower than the OECD average of 2.4 percent.

Between 2014 and 2016, total R & D spending in Aotearoa increased by 20 percent (or about $531 million) to hit $3.2 billion. Most of this growth came from the business sector, which spent $1.6 billion (an increase of 29 percent). Also according to Callaghan, business expenditure on R & D now makes up half of all R & D investment in New Zealand.

Source: Statistics NZ Research and Development Survey 2016

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