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R&D funding, 2018: Goodbye Callaghan, hello tax credits

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Will the government's decision to abandon R&D grants kill NZ’s startup tech sector?...

With $1 billion over four years designated for R&D ($71.2 million invested this year, rising to $350 million by 2022) and the announcement that Callaghan Innovation will be phased out as of April next year, opinion is split about just what the Labour-led government 2018 means for R&D – and innovation – in New Zealand.

“This system will help us transition away from the current growth grants model, which is available to a narrower range of firms,” says Innovation Minister Megan Woods. “This represents a significant increase in the amount available to help smart Kiwi businesses to innovate.”

That new money, however, will take the form of a 12.5 percent research and development tax credit, allowing businesses to claim 12.5 cents on every dollar spent on R&D (provided that bill is more than $100,000 a year) and whether that’s a good or bad thing depends on who you ask.

“The removal of Callaghan Innovation Growth Grants mean many research intensive businesses will actually get less support for Research and Development.”

“Research and Development are crucial to the growth of the New Zealand economy,” says Mike Rudd, Staples Rodway Tax Director. “While this was well signalled in the election campaign, it’s great to see a billion dollars being spent, which is more than we expected”.

“The Labour Government is so far living up to its promises of no new taxes and balancing the books. This should help with business confidence.”

That tax credit will also come at the cost of Callaghan Innovation, with the grant programme planned to be phased out from the beginning of next April.

Still, Callaghan Innovation CEO Vic Crone is welcoming the plan: “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,” she says.