Debate on Crown Entities, Public Organisations, and State Enterprises — Foundation for Research, Science and Technology

This is a rather unusual entity, in a sense—although not in the period we are talking about—because, of course, the Foundation for Research, Science and Technology no longer exists. It has been merged with the Ministry of Research, Science and Technology. So although we are debating it today, it is no longer in existence. It has been pushed together with the ministry in a restructure to make it look as if the Government is actually becoming more involved with, and more dedicated towards, science and innovation.

I have to give the Government credit. The Ministry of Science and Innovation is a terrific name—it is a terrific name. It is just a real shame that the ministry does not live up to that name. It came in during that plethora of reforms last year, which was trumpeted as being the step change for research and development. The Ministry of Science and Innovation was meant to be the new way forward; it was supposed to lead that change. To some degree we actually saw an increase in funding for research and development. The Government put $56 million a year more into it—$56 million. When we took into account the total spend, that was a little less than 5 percent. When we took into account inflation, it was a lot less than that, particularly as inflation is running now at nearly 5 percent or more.

The most important thing about that money, and where it went to, was that it went to giving businesses a handout to do more research and development. It did not encourage a real change in the culture of those companies. The research and development in our private sector is woeful—it is absolutely woeful. We do not spend a figure anywhere near the OECD average when it comes to research and development inside businesses. So although the Government trumpets the merging of these two entities as the new dawn of research and development, the reality is quite different.

I will give another example of exactly what this really means. We would expect that for a new entity like this ministry, the Government would search the world for somebody who would lead this new entity into a completely new field and really bring about major change in our research and development. But that did not happen. When we looked for the leader of the Ministry of Science and Innovation, the advertisement was open for only 2½ weeks and it did not look overseas for the best person, despite the fact that the Minister of Science and Innovation talks about the triumphs of Denmark. The Prime Minister talks about Taiwan and what it is doing. The Minister has just come back from Israel, where he has been looking at research and development. I expect he probably flew there on a commercial flight; I hope that he flew on a commercial flight to Israel in order to look at the research and development.

These countries put from 3 to 4 percent of their GDP into research and development, and they have science and innovation places that are world leading. Why cannot we have world-leading places just like that? The answer is that this Government certainly does not have the commitment to research and development that it talks about. It talks the talk, but it does not walk the walk.

When we look at this year’s Budget, despite the fact that in January we were told that it was about innovation and savings, we can actually see a $12 million decrease in the overall spend in science and innovation—a $12 million decrease. The top-line headline in the Budget is that $36 million has been reallocated. That will set the world alight! It will really set the world alight that we have reallocated $36 million!

Research and development in New Zealand is the driver of our innovation. It could be the driver of our economy—a new, smart, clean, green economy—but this Government has enabled research and development to languish and go backwards. Thank you.

Funnily enough, I heard Mr Stuart Nash say, in relation to that last speech by David Shearer, “Good speech!”. I was a bit surprised to hear that. The Opposition had one of New Zealand’s foremost scientists, and indeed entrepreneurs, to speak at its conference. Labour made the person its keynote speaker. It was Sir Paul Callaghan. So I was anticipating that Labour was obviously planning something very significant as a way to project its commitment—the commitment I just heard Mr Shearer talk about. It is very hard to accommodate. So what was Labour’s big idea? What was the thing that was central to their conference that would take New Zealand to a bold new era? It was, in fact, a rehash of its tax credit policy. It may have been a little bit more targeted, because the limit went up to only $200 million, which was an increase of about $100 million. However, there was a hook in that increase. If we look at the New Zealand economy in the broad, we see that we have three core sectors. There is the primary sector, with over half of our exports. Indeed, part and parcel of why the current account deficit is reduced is because that sector is doing so well at the moment. There is tourism, with 10 percent of the total economy. It is a huge foreign exchange earner. I guess we would say there is manufacturing, particularly high value manufacturing, and advanced services, particularly in tertiary education and information and communications technology.

So Labour’s big idea was to push up the extra spending in the high-tech sector and take that money directly from another sector—the farming sector. I thought that was actually a zero-sum gain. That was no change at all. And that was Labour’s big idea. That is why I was surprised to hear Mr Nash say that Mr Shearer’s speech was a good speech. I say to the Opposition members that if that is as good as it gets, I suspect they will spend a little bit more time sitting on those benches than one might think. They said to New Zealand’s largest export sector, the primary sector, that they were going to take $160 million off it, directly as at zero-sum gain. So our most profitable part of the sector at the moment, the export sector, was going to be a sop. It is hardly an innovative policy, I say to Mr Shearer.

I return to the facts of the situation. In 2008 Labour’s last Budget appropriated $689 million for research and development. That was during a time of relative economic success for New Zealand, in line with much of the rest of the world. This year we appropriated $773 million, which is a gain of 12 percent. The difference is that we had to do that in a time of relative economic difficulty and, in particular, when faced with the cost of reconstruction after the Christchurch earthquakes.

💬 David Shearer: Oh yeah. No commitment—that’s the problem.

Did members hear that member say “Oh yeah.”, as if it is of no significance whatsoever that New Zealand taxpayers will spend $6 billion to reconstruct Christchurch? The Opposition, as reflected by Mr Shearer, just says “Oh yeah.” Is that what the Opposition really means about Christchurch? I might actually give a little bit of credit and say that maybe I misheard that. There is just an absence of reality in—how can I put it—Labour members’ rhetoric and their delivery.

So there was $689 million appropriated in 2008 and $773 million appropriated in 2011, which is a 12 percent gain. Next year there will be further gains as a result of Budget 2010. Budgets are effectively 4-year Budgets, and each year has an increase. The technology development grant started off at $22 million. It will grow a bit more this year, by $60 million next year, and a bit more the following year. That is a progressive increase that flows through into each Budget.

💬 David Shearer: How many companies didn’t get it?

I want to make clear the distinction between a research and development tax credit and a technology grant. The problem with Labour’s plan is that it just showers the money out like confetti to get it through to the accountants, and it essentially says that if they can rort the account system using highly paid accountants or lawyers, then that will do. We looked at that and asked whether Labour had actually increased the level of research and development as a result of that undirected tax credit system. The answer was no.

We have taken a smarter approach. We have analysed it by New Zealand’s most research and development-intensive companies, and Mr Shearer knows which they are. They are set out in a publication called the TIN100 Report, which sets out the top 100 research and development-intensive companies. We will progressively work through those companies with the intent that each and every one of them will receive a technology development grant. That is the intention, because we know that research and development-intensive companies will invest the grant directly into increased research. That is the fundamental difference from just simply sending the money through the tax system.

💬 David Shearer: They’re offsetting their other expenditure. That’s what they tell me.

We hear from the Opposition members their fundamental misunderstanding. They say that companies will just offset it. I ask them how a tax credit targeted through accountants leads to behaviour change. How does it do that?

💬 Paul Quinn: It doesn’t.

The answer is, as Mr Quinn said, that it does not. We need to focus on the companies that have the culture of research and development, then invest in them.

I acknowledge that in 2011 we had a difficult Budget. At least on this side of the Chamber we acknowledge that. On the other side they just advocate reckless spending and have a long list of promises, completely oblivious to the fact that we are actually running an 8 percent deficit as it is, which is one of the larger ones in the developed world. I guess that if it was 12 or 14 percent, it would be a matter of real indifference to them. Maybe Greece is the kind of a country they would like to emulate. I went to Greece recently and I saw what happens when a deficit is left to get completely out of control. In the current environment we have to make realistic and sensible choices about dealing with debt, dealing with growth, putting the country back on track, and setting an agenda that is predictable, that is sustainable, that people can believe in, and that gets us back on a pathway towards growth.

I say to members in the Chamber that every week the Hon Paula Bennett provides her colleagues with details of the situation of unemployment for both youth and the regions. I can say to members that in virtually every region in New Zealand, unemployment is less this year—in fact, it is significantly less than it was last year. The lines are heading in the right direction. There is a sense of some level of recovery, reflected in part by that increase in exports from the primary sector.

I close on this point. Labour’s plan, in essence, is to kick out the feet from under our most productive sector. New Zealand needs to understand that Labour’s big plan is to take money from New Zealand’s most productive export sector and say that is a plan that will grow New Zealand. I say to New Zealand that that is a bankrupt policy and it will fail, and it will be seen as such by New Zealanders. They are looking for sustainable, realistic, predictable, and sensible plans that take New Zealand into the future. Those plans rest with National; they do not rest with Labour.

I am grateful for the opportunity to speak on this review of the Foundation for Research, Science and Technology—which has now disappeared, as was pointed out by David Shearer—and also the Crown research institutes. It was a bit rich for David Shearer to talk about investment in science, given that from 1999 to 2008, Government investment in science as a percentage of GDP basically flat-lined, and private investment in science also flat-lined, as well. I agree with him entirely, however, that New Zealand does have a huge task in incentivising private sector investment in research and development. But there is no doubt in my mind that the way the previous Labour Government was going about it, splashing out $300 million in untargeted tax credits, was absolutely the wrong way to do it. We know right around the world that such a method is associated with rorts. [Interruption] Yes, it is in Australia and we know that there are rorts right throughout the system there. Finland, for instance, with a much more attuned, sophisticated, targeted system, has had a far greater deal of success. But I do agree with the member that there is a major task for New Zealand in looking to increasing this investment if we want to sustain economic growth as part of the trifecta of how we will achieve that—firstly, through our primary products, secondly, through our tourism, and, thirdly, through science and innovation.

I think the other point that should be made is that if Labour ever thinks it will move the economy, then it has to make the basic regulatory regime suitable for business. That applies to science and innovation, as well—a low transparent tax system, such as the National Government has achieved; a more flexible labour market, such as has been achieved by the National Government, obviously concentrating on excellent graduates; and of course ensuring that the regulatory regime, in terms of bureaucracy, is as straightforward as possible.

But I think it is important, in terms of getting the context of today’s science system in New Zealand right, to look back to the past. The foundation was formed in 1990, under some rather interesting principles. They were, firstly, to allocate funds for the production of outputs relating to public-good science and technology, and indeed one would hope that we look for outcomes. I think that over the last 20 years it has been difficult to judge the performance of our science system accurately. Obviously, there are a whole variety of ways we do that, whether it be by citations, whether it be by conferences attended, whether it be by spin-off companies, or whether it be by underlying performance. All of those things are somewhat nebulous. It is absolutely important. The new science review and the new purpose of the Crown research institutes is to ensure that performance is looked at very carefully under independent 5-yearly audited reviews.

Secondly, back in 1990, the second principle was to allocate funds pursuant to ministerial schemes. That does fly in the face of ensuring that we have the discipline of an evidence base behind what we do, and hopefully that has changed for good in the new reforms under National after the science review.

Thirdly, the foundation is to provide independent policy advice to the Minister of Science and Innovation on matters relating to research, science, and technology, including our national priorities for those matters. That is partly where the rub was with the old foundation and the ministry. The foundation was the funder of the policy division and it became—

Report noted.

Tertiary Education Commission