Science Minister Pete Hodgson's outburst rejecting our request that Government honour its pre election pledge to allow the full tax deductibility of r&d costs was extraordinary, says Employers and Manufacturers Association, chief executive Alasdair Thompson.

"All we were asking was for Government to honour its pre election mandate," Mr Thompson said.

"This would be a useful start for Government to express its genuine concern to build a stronger relationship with business.

"Mr Hodgson misinterpreted the point of our request as well attacking the messenger. Before the election Pete Hodgson led Labour's espousal of the innovation driven economy, including his support for the full write off of r&d costs in the year they were incurred.

"Business responded favourably. Now he is backtracking.

"Mr Hodgson challenges us to produce a statement where the present Government has criticised the private sector for inadequate spending in this area. Last week Dr Cullen told the NZ Herald (May 31st) 'the private sector needed to come to the party because its r&d investment was low by world standards.'

"This is precisely the sort of misinformation coming from Government so frustrating to business. The reason our r&d spend is so low is because Inland Revenue does not allow it to be 100 per cent deducted, so business declares it to be it something else and claims it as a legitimate cost of remaining competitive.

"The approach is not only askew with what other countries do, it repeats negative signals about New Zealand's attitude to investment in innovation.

"What business wants is the retention of finely targeted grants for r&d as well as the full expensing against tax of the costs associated with undertaking innovation."

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