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 research and development (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% of GDP, up from 1.3% now. New Zealand cannot afford to fall behind, given the OECD average is 2.4%.
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 Luey. “For example, further consideration needs to be given to how to support startup 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% do not budget for R&D, while 29% spent less than 1% of their revenue on product or service innovation (see table).
The budget comes as small business owners take a wait-and-see approach to the performance of the new government.
According to the MYOB Business Monitor survey, 42% of business owners are neither satisfied nor dissatisfied with its performance, 26% are satisfied, while 30% 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% just over 12 months ago, to a net negative 14% 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 Luey.
In Australia, the corporate tax rate for businesses earning up to $10 million in revenue sits at 27.5%, with those above paying 30%.
The goal is to reduce company tax rates down to 25% for all businesses by 2026-27.
New Zealand business all currently pay 28%.
Other important initiatives of Budget 2018 to business include: