R&D target welcomed but the question is how to get there

The Labour-New Zealand First agreement to increase spending on research and development to 2% of GDP over 10 years has been welcomed but experts say it does not go far enough.

New Zealand's level of gross spending on R&D is 1.3%, according to the OECD, lagging the OECD average of 2.4%.

Labour's own R&D policy involved introducing a 12.5% tax credit on companies' spending on R&D.

The Science Media Centre asked innovation experts to comment on the R&D target outlined in the coalition agreement.

University of Auckland Business School deputy dean Rod McNaughton said the objective of increasing the country's R&D spending to 2% of GDP over 10 years shone a welcome spotlight on a fundamental weakness in the economy.

The target was for total R&D, while innovation and economic growth was strongly linked to business enterprise expenditure on research and development (Berd).

''New Zealand's record of Berd is dismal compared to many OECD countries because of low overall spend and a higher proportion of expenditure occurring in small firms.''

How the Government went about increasing R&D was vital, Prof McNaughton said.

During the election campaign, Labour mooted a 12.5% R&D tax credit.

The experience of countries such as Canada, whose innovation policies relied heavily on R&D tax credits, suggested it might be an ineffective approach.

New Zealand had too few firms with large research budgets. Rebating a small proportion of an already small expenditure would do little to achieve the large-scale focused investment required to make a difference, he said.

Motu Economic and Public Policy Research director Adam Jaffe said 2% of GDP on R&D was a good aspirational goal but would be difficult to achieve and was possibly in conflict with other Labour policies.

In particular, since R&D was mostly about people, achieving the goal would require an increase in the number of active researchers by something like 50%, he said.

''This would almost certainly require a large influx of foreign scientists and engineers.''

The international evidence was R&D tax credits were modestly effective at increasing business R&D, he said.

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