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R&D businesses big winners from Budget 2018

The Labour-led coalition Government’s first budget has several positive initiatives that will support innovative businesses says accounting software provider MYOB.

“The big winners from Budget 2018 are businesses investing in research and development,” says MYOB New Zealand General Manager Carolyn Luey.

“It’s important that New Zealand’s economy moves up the value chain. We want to see more businesses involved in R&D because that delivers higher value jobs and more innovation.

“The government should be commended for its goal of lifting national R&D spending to 2 percent of GDP, up from 1.3 percent now. New Zealand cannot afford to fall behind, given the OECD average is 2.4 percent.

Budget 2018 puts $1 billion of operational funding forward for the R&D tax incentive, allowing businesses to claim 12.5 cents back for every dollar they spend on R&D. The incentive will be available for all businesses spending more than $100,000 on R&D.

“We would encourage all businesses who are involved in R&D to engage with the government’s consultation document currently out for feedback on how the tax incentive scheme should be designed,” says Ms Luey.

“For example, further consideration needs to be given to how to support start-up and high-growth companies. These businesses might currently be making a loss and therefore not paying tax, but should be incentivised to invest more in R&D.”

MYOB’s Business Monitor Survey of more than 1,000 local small to medium businesses found 36 percent do not budget for R&D, while 29 percent spent less than 1 percent of their revenue on product or service innovation (see table).

What percentage of revenue (or sales) does your business spend on research and development?


Amount0 employees1-56-1920-199Average
Less than 1%30%28%18%28%29%
1 per cent6%5%12%10%6%
2 per cent4%5%11%10%5%
3 per cent3%8%1%04%
4 per cent2%4%7%12%3%
5 per cent5%4%6%9%5%
Greater than 5 per cent5%6%8%7%6%
We don’t budget for product/service development and innovation39%33%30%13%36%
Don’t know6%8%7%13%7%

The budget comes as small business owners take a wait-and-see approach to the performance of the new government. According to the Business Monitor, 42 percent of business owners are neither satisfied nor dissatisfied with its performance, 26 percent are satisfied, while 30 percent are dissatisfied.

“We know business confidence has taken a hit recently. Our Business Monitor also showed that expectations for the economy fell from an overall net positive 21 percent just over 12 months ago, to a net negative 14 percent in the latest survey, although owners rated their own firm’s prospects more positively.

“With this backdrop, and considering increasing costs for small businesses in the forms of increasing wage pressures, it would have been good to see movement on issues like tax rates for business. We face the real prospect of a gap opening in tax competitiveness with Australia with its government looking to reduce business tax rates further,” says Ms Luey.

In Australia the corporate tax rate for businesses earning up to $10 million in revenue sits at 27.5 percent, with those above paying 30 percent. The goal is to reduce company tax rates down to 25 percent for all businesses by 2026-27. New Zealand business all currently pay 28 percent.

Other important initiatives of Budget 2018 to business include:

• A substantial investment in regional development with $1 billion allocated to the Provincial Growth Fund to support local economic development projects

• $7.1 million over 5 years to implement an E-Invoicing, helping to streamline New Zealand’s business environment and speed up cashflow

• Funding for the Government’s transport strategy, the Auckland Transport Alignment Project and the Canterbury Acceleration Fund

• $100 million of new funding for a new Green Investment Fund to encourage investment in low-carbon industries

• Support for the Ministry of Foreign Affairs and Trade to help businesses involved in export

• Funding for the Future of Work Tripartite Forum

-ends-


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