MEActive - April 2017

12 July 2017

MEActive - April 2017

Welcome to the New Zealand Manufacturers and Exporters Association's monthly e-news, giving a series of updates on what we have been working on to make things better for manufacturers and exporters.

    • CEO Comment
    • MEAlerts - Call for submissions and information you need to know.
    • NZMEA Events
    • Media Coverage - Where we have been reported over the past month.
    • Media Releases - Circulated to all media by the NZMEA.
    • NZ Manufacturer Magazine
    • Figure New Zealand Graph


CEO COMMENT:  R&D Policies

In our last Connect Me article, we discussed policies to improve New Zealand’s R&D performance and productivity.  This included moving to an R&D tax credit system to increase accessibility to all businesses conducting R&D. We also suggested changes to the tax treatment of productive plant and equipment to help companies keep up with the rapid pace of change in technology. 

Looking at New Zealand’s R&D spending as a percentage of GDP compared to OECD countries, it becomes clear that we have a lot of catching up to do.

Source: OECD

The below graph from the OECD compares the level of Government support for R&D activities across a number of countries.  New Zealand lies in the lower half of this list, and the support is made up entirely of direct government funding of business enterprise research and development (BERD) activities – this represents our grant system, which is facilitated through Callaghan Innovation. 

This same type of funding makes up a significant proportion of most countries spending.  Though, for many countries towards the top of the list, indirect government support through tax incentives (this includes the likes of R&D tax credits, as well other forms of tax support) makes up a large proportion of spending.

One of the contributing factors influencing this discrepancy in R&D is policy settings, both the way in which a Government supports R&D and level of spending they are willing to invest. As explained above, there are  significant differences in the level of public R&D support across countries – bearing in mind, there is not a perfect correlation between higher Government spending and high overall R&D spending, for example the two highest spenders, Russia and France, still lag behind other countries in terms of overall R&D spending. However, virtually all of the countries that have higher overall R&D spending than New Zealand see higher levels of Government spending on R&D.

Not only is Government spending a key component of supporting R&D spending and innovation, but differences in such policies directly affect our ability to compete in world markets – i.e. a company exporting from a country with much higher R&D incentives than New Zealand has a relative competitive edge over our exporters.

So what kind of R&D policies are other countries using?

In Australia, for R&D expenditure up to $100m per year, there is a 43.5% refundable tax offset for companies with an annual turnover of less than $20m, and a non-refundable 38.5% tax offset for all other companies. 

China has seen a significant increase in their R&D spending since the 1990’s, moving from below New Zealand in the mid 1990’s, now sitting closer to the OECD average, and has significant higher Government spending on R&D (see graph above).  They currently offer a tax deduction of 150% of qualifying R&D expenses, and in addition, for companies deemed to have “High and New Technology Enterprise” status, the company tax rate of 25% is lowered to 15%.

Germany operates an R&D grant system, focused on projects. These have an average grant rate of 50% of eligible project costs, with some higher rates possible for SME’s. 

South Korea runs an R&D tax credit system, with different rates for SME’s, medium and large sized companies. A tax credit equal to the greater of: 50% of the current year R&D expenditure exceeding the average R&D expenditure for the previous four years; or 25% of the current year R&D expenditure.

They also encourage and support SME’s to purchase  IP from other Korean companies, through a tax credit equal to 10% of the purchase price of certain IP purchased by an SME from a Korean party. Medium-sized companies are entitled to a tax credit that is the greater of: 40% of the current year’s R&D expenditure exceeding the average R&D expenditure for the previous four years; or 8% of the current year R&D expenditure.

In addition, South Korea has a tax credit for investing in facilities for productivity improvement. Large companies can claim a 3% credit of qualifying investments; Medium-sized companies up to 5% of qualifying investments; and for SMEs, 7% of qualifying investments.

In Israel, tax benefits are granted to industrial companies (including software companies) that export more than 25% of their total turnover to a market larger than 14 million persons. This involves adjusting each company’s tax rate - a corporate tax rate of 7.5% applies to companies located in a priority area and a 16% applies to companies located in other areas. In addition to these, there are a number R&D grants available, some of which are repayable through future revenue if the project is successful. 

If you are interested in reading more about countries R&D and investment settings, there is a Deloitte report “Survey of Global Investment and Innovation Incentives 2017” that covers many countries in further detail. 

MEALERTS:

SAVE THE DATE:

Inaugural Manufacturing and Design Conference, 10-11 May 2017
A National Conference for Innovation in Manufacturing and Design. Held in Auckland, this is an exciting opportunity to consolidate, connect and collaborate with the New Zealand Manufacturing and Design (MaD) network at the inaugural manufacturing and design conference. You are invited to become an active member of this cross-disciplinary research network, focussed on New Zealand’s manufacturing economy of the future. Click here for more information.

SouthMACH, 24-25 May 2017
SouthMACH is the South Island’s premier technology trade show celebrating the heartland of NZ Manufacturing.  This biennial event in Christchurch gives you the opportunity to come face-to-face with the experts behind the key innovations entering the New Zealand market.  NZMEA will be holding a workshop and have a stand at the event showcasing our organisation and some of our member's successes.  Contact us if you would like to be a part of our stand.

NZMEA EVENTS:
The events page on our website has more information on upcoming events. Click here to view our upcoming events or see below.

Leaders' Network - Christchurch
Monday 15 May - NZMEA Leaders' Network - Christchurch.  Our Guest Speaker is John McDermott of the Reserve Bank of New Zealand.  Click here for more information or to register.

Leader's Network events are a great opportunity to meet and network with your manufacturing peers over refreshments.

MEDIA COVERAGE:
Where the NZMEA have been reported over the past month.

Date Media Organisation Title
1 March DEMM Magazine Exchange Rate Needs Attention. Magazine
1 March DEMM Magazine Manufacturers end year on a high note. Magazine
1 March DEMM Magazine SouthMACH on track for May. Magazine
5 March Radio New Zealand Economy at mercy of Auckland housing – manufacturer. Radio
5 March Radio New Zealand The future of manufacturing: a panel discussion. Radio
7 March Scoop.co.nz Slow Start to 2017. Internet
7 March Voxy.co.nz Slow Start to 2017 – NZMEA survey. Internet
7 March MSCnewswire.co.nz Slow Start to 2017 – NZMEA’s Latest Survey. Internet
21 March Voxy.co.nz ‘Missing link’ in OECD and Productivity Commission reports. Internet
21 March Scoop.co.nz OECD & Productivity Commission Reports: The Missing Link. Internet
22 March NZ Manufacturer Company Profile: Mach 3 Engineering, Christchurch. Internet
22 March NZ Manufacturer Bringing back jobs of the past. Internet
22 March NZ Manufacturer Magazine Bringing back jobs of the past. Magazine
22 March NZ Manufacturer Magazine Mach 3 Engineering. Magazine
24 March NZ Engineering News SouthMACH 2017 – “Celebrating the Heartland of Manufacturing”. Internet
24 March MSCnewswire.co.nz OECD and Productivity Commission Report Here’s the Missing Link." Internet

MEDIA RELEASES:
Media releases submitted by the NZMEA during December.  Click here to read the latest media releases.

Date Title
7 March NZMEA Survey of Business Conditions - Mixed bag for manufacturing sales, but R&D spending up.
21 March OECD and Productivity Commission Report:  Here's the Missing Link.

NZ MANUFACTURER MAGAZINE:
Click here to read the latest edition of NZ Manufacturer Magazine online for free.

The NZMEA has been approached by Doug Green, editor of NZ Manufacturer magazine.  Doug is wanting to write articles under a section called Rural Manufacturing. If you are outside of the main centres or related to rural sectors and would like to be interviewed for an article please contact the NZMEA and we will pass your details on to Doug to contact you directly.

FIGURE NZ GRAPH:

In addition to having low Government spending on R&D, New Zealand also lags behind in terms of business spending on R&D. Some of this may relate to how R&D spending is accounted for, but also represents an area where we can significantly improve – once again, the right Government policy settings can help to encourage increased business R&D spending.

For more graphs related to manufacturing and exporting, as well a large collection of data on New Zealand presented in a simple visual way, visit www.figure.nz.