Taxation (Research and Development Tax Credits) Bill

I move, That the Taxation (Research and Development Tax Credits) Bill be now read a third time.

This bill creates a new research and development—R & D—tax incentive for New Zealand. This is a Government that is committed to building a productive, sustainable, and inclusive economy. R & D is a critical driver of new knowledge and technological change. Research and development performed by businesses is recognised as a key indicator of innovation, which enhances businesses’ ability to be successful in changing markets.

Total spending on R & D in New Zealand has increased to $3.9 billion, or 1.37 percent of GDP in New Zealand in 2018, but New Zealand still lags behind many of our counterparts on the world stage. The Government has therefore set an ambitious target to increase R & D expenditure to 2 percent of GDP by 2027, to help ensure that New Zealand moves closer to our international counterparts. To realise this ambition requires the private sector to raise their levels of R & D expenditure alongside that of the public sector.

Across the OECD, R & D tax credits are a common mechanism for incentivising greater amounts of business R & D activity. Strong evidence from a number of studies show that tax credits are an effective way of raising levels of research and development investment by business, and that R & D investment leads to new knowledge and innovations that significantly benefit wider society.

After extensive research and consultation on a fit for purpose solution to encourage greater investment and innovation, we have designed an R & D tax incentive that will have a broad reach across our economy. Using the tax system to implement the R & D tax incentive will open up wider support to all sectors and to different business types. This incentive aims to support genuine R & D that intends to resolve scientific and technological uncertainty. Resolving scientific and technological uncertainty is what will bring the greatest benefits to the New Zealand economy, and to us as a country as a whole.

Increased levels of research and development provide for the diversification of the economy by encouraging new industries and companies, new jobs, and new ways of doing business. This incentive, administered through the tax system, will provide certainty and predictability through a rules-based system. The key features of this incentive include a credit rate of 15 percent for eligible expenditure up to $120 million and a minimum threshold expenditure of $50,000 per year. It requires the majority of eligible R & D activity to take place in New Zealand, which ensures that the benefits of the incentive are realised here. We believe, in this Government, that this strikes a balance between accessibility and ensuring that the scheme is targeting substantive R & D activities.

I want to take this opportunity to acknowledge the contribution to this bill from submitters, including industry groups who have appeared before the select committee on behalf of their members. I also want to thank the members of the Finance and Expenditure Committee for their diligent work on the bill, which has led to a number of improvements to the proposed legislation. I wish to comment on a few of the Finance and Expenditure Committee’s recommendations, which I think significantly enhance the policy intent of the bill to support businesses to increase their investment in R & D through a scheme that is accessible, transparent, and sustainable.

The bill now ensures that joint ventures undertaking R & D are eligible for the tax credit. The bill does not reduce a principal’s claim by 20 percent to account for the contractor’s profit margin; this change addresses the concern that it might incentivise businesses to conduct their R & D in-house when it would be more effective to outsource it. The bill now raises the internal software development cap for eligible expenditure from $3 million to $25 million. This addresses the issue of software as a service and better reflects the distinction between internal software service development and external software product development. It also makes it clear that internal software development undertaken for the purpose of internal administration is excluded from receiving an R & D tax credit.

The R & D tax incentive will be a significant addition to New Zealand’s research, science, and innovation ecosystem, as part of a system of wider Government support for the commercialisation of New Zealand’s excellent science and research base. This will help us to develop a more innovative, diverse, and sustainable economy. This third reading of the Taxation (Research and Development Tax Credits) Bill will bring us one step closer to achieving this Government’s vision of building a better New Zealand for all of our people. I commend this bill to the House.

Thank you, Madam Deputy Speaker, for the opportunity. We supported this bill in the first reading, and we supported this bill in the first reading because we really wanted to work with the Government to ensure that this policy was actually a good policy. We thought that we would get that opportunity in the select committee process, but I have to say that the select committee process—I am personally, and members on this side are all, really disappointed because the select committee process was all about time management. If 45 minutes were allocated for this item on the agenda, as soon as 45 minutes finished we moved on to the next agenda. No consideration was given if members still had some questions or clarifications that they needed to have addressed. So no consideration was given; it was all about pushing the process through the select committee process. And here we are; we are debating the third reading.

Towards the end of the select committee process, we realised that, yes, we cannot support this legislation going forward. When it came to putting a minority view in there, Government members voted against that too. The line which came during that process was “Take this line out from the minority view, otherwise we are not going to include your minority view in the report back to the House.” That was because they didn’t like one line in that minority view, and that was about the number of companies that are receiving growth grants that will be able to access R & D tax credits. The line said it was only a small number of companies—we know it’s only one third that will qualify to get R & D tax credits. So they didn’t like that line; it was all about their politics, and they decided not to include the minority view—that is, our view—in that report back to the House. I have never seen this happen before. I fully understand that the committee can vote it down, but I’ve never seen this happen before. So that was a very, very disappointing process.

During the Minister’s speech, it was really interesting that the Minister didn’t mention that this bill also abolishes growth grants. She didn’t mention this because she knows that growth grants were working really well. This is all about politics, not about supporting businesses to increase their spending on research and development. Why it’s all about politics—I’m happy to explain that, because we know that in 2007 the previous Labour Government introduced this policy, the R & D tax credits policy, and when National came in, by that time, we knew that this was not a good policy. There were several holes in that policy.

So we decided to get rid of that policy and we started Callaghan Innovation. So it was National that started Callaghan Innovation, and then, through Callaghan Innovation, along with other grants, we started administering growth grants. I would say to the Minister Megan Woods and Government members that they should take a couple of minutes out of their time to read Callaghan Innovation’s annual report—not just this year’s report; last year’s report and 2016’s report. What they will find in the 2017 report—and even if it was during their annual review before the Economic Development, Science and Innovation Committee, they would have noted that—according to their 2017 report, they said that there was a 46 percent increase in R & D spending by Callaghan Innovation customers with grants from 2014 to 2016.

Then, looking at the 2018 report, it said, “14 percent growth in business expenditure on R & D in 2017”. They said, “Our grant customers account for $1.07 billion of R & D spend”—

💬 Andrew Bayly: Billion?

A billion—$1.07 billion—and if we look at the Statistics New Zealand report, it clearly says that total research and development expenditure increased 17 percent from 2014; this is the 2016 survey. That is a substantial increase. Increased R & D expenditure was largely from businesses increasing their R & D expenditure, up 29 percent from 2014. Higher education and Government spending increased 7 percent and 5 percent respectively.

So that is a very positive report, but what we see from this Government is that, instead of building on their success, instead of building on something that was really working and was established properly, they’ve decided to abolish that scheme to bring their politics in and to bring their policy from 2007 back. That’s what I mean by saying this bill is all about politics. This bill is not about supporting business spending on research and development in a real sense. We had the Business Growth Agenda—yep, in that we had our target to increase research and development spending—but this Government decided to get rid of that Business Growth Agenda that we had put in place.

It was really interesting to see that the Minister said that this bill is going to provide an increase in research and development in a sustainable manner. How do we know? We don’t know that, because no one can tell us how many companies are going to benefit from this policy. Through growth grants, we know so far around 300 companies benefited, because that was put in place only in 2014; so it is just four years that we can measure for. But, for this policy, from the start, we have seen that the Minister or the Government have not been able to tell us exactly how many companies are going to benefit through this scheme. I asked a question to the Minister on 16 August 2018, and the answer that I got from the Minister was that she said it would be around 3,000 companies. But when the final draft came, I read the report; it said it will be around 2,000. So numbers fluctuated between 1,500 to 2,000 later on, and when I asked that question again in the House, the oral answer that I got from the Minister was that she’s always said it’s between 2,000 and 3,000. When we had Callaghan Innovation’s annual review, I asked them how many companies were going to benefit from the scheme. They couldn’t give me a number. They said they had no idea how many companies were going to apply for the R & D tax credit.

So this is a policy where we have no idea how many companies are going to benefit, but here the Minister is saying it’s going to be sustainable. When the Minister doesn’t even know what the demand is going to be, how can the Minister stand up and say it’s going to be sustainable? We know there is an evaluation provision in this. It’s after five years of implementation of this legislation—actually, it’s already come into effect from 1 April. We should be mindful of that, and we’re debating the third reading of this bill here. So, in that evaluation, we don’t have a clear idea of what this policy is going to be evaluated against. If the Minister or the Government is not able to list those points, is not able to tell us what the criteria will be for that evaluation, how do we have confidence in this policy?

In this policy, there is a refundability provision for companies that do not have enough tax liable income, and that is where we, on this side, have the biggest concern, because these companies need cash early on, before they start spending on research and development. They want that assurance, because cash is really important for them, not after they have incurred that expense, and this Government has completely failed to address that issue. They have put a temporary measure in there—a refundability provision—which is going to be reviewed as part of their review, which they have already said they are going to do, which will include a policy that was put in place by the previous National Government, the R & D loss tax credit policy. And what has that done? That has created a lot of uncertainty amongst those businesses and investors of those businesses, because what businesses need is certainty from Government, and this Government has failed to do that.

So we are really disappointed that this Government has put forward a half-cooked approach, because, from the start, we can see they have been so unorganised. We knew when the draft was going to come out, but the draft didn’t come out in that month; it was delayed by a few weeks. Then we were told in a certain month that the bill would be introduced. It didn’t get introduced in that month; it got delayed by a few weeks, and now the policy has already come into effect from 1 April this year, and today is 2 May and we are debating the third reading of this bill. That is how disorganised they have been towards this policy.

We feel that the Government should have taken time to develop this policy properly, as officials also said that they didn’t get enough time to develop this policy properly. The Government should have listened to them, should have allowed enough time so that this policy was developed properly so that we could have worked with the Government to support something that is needed to incentivise research and development. We on this side fully understand that we need to support research and development, and that is why we started Callaghan Innovation, and that is why we had other things like, as I mentioned, the Business Growth Agenda and other targets that we had set to improve business spending on research and development. We understand that research and development is important to support our economy. So we are really disappointed, and this side is opposing this bill. Thank you, Madam Deputy Speaker.

Thank you very much, Madam Deputy Speaker. I am so confused about what that member, Parmjeet Parmar, was talking about. I think that member’s confused. First of all, she raged that this is politics—“This is the wrong thing to do. This is politics.”—and then she said we should have taken more time to develop it because the Opposition would have supported it. Then she said her Government got rid of it. Well, I’ll tell you what happened: the last Labour Government did bring this in and the National Government did get rid of it, against Treasury advice.

Treasury said you should keep it, but the Government got rid of it. And what happened? What happened to New Zealand’s R & D spend? We have one of the lowest R & D spends in the OECD. It is why this Government, in research and development, under Dr Megan Woods, has said we need to do something different. We need to do it differently if we want to increase our R & D and be as good as we possibly can be.

What we’ve also said is we’re not going to pick winners. It’s not about picking winners. What we want is we want companies to take control of their own future, and we’re going to give them the ability to do this. I think the innovative way that Megan Woods has approached this is absolutely fantastic, and it is going to make a difference.

When the member talked about 2,000 or 3,000 companies—heaven forbid! Imagine 2,000 or 3,000 companies undertaking research and development. I would have thought that would be a really good thing. A billion dollars we’re putting into this—a billion dollars. This is not about politics; this is about driving productivity, driving research and development, and growing our economy in a way that the previous Government never allowed the economy to grow. I’m very proud of this.

This bill provides the kind of support that businesses have been asking for—that businesses have been asking for. We want businesses to feel supported, to take more risks, and to think a little bit more radically, and this scheme will be a valuable one for New Zealand and for our economy. This is less about the Government picking winners and more about enabling companies to take control of their own destinies. There’s no doubt about this.

The R & D tax credit scheme this bill introduces will be a real asset for New Zealand as long as—and I reiterate this: as long as—the scheme remains sustainable. That’s why we are building in safeguards. We are ensuring there is rigour to the rules to protect the benefits that this regime will bring about, to ensure that the scheme can continue to provide support to progressive thinking and help build a dynamic economy.

We are ever mindful of the need—

💬 DEPUTY SPEAKER: I do hope the Minister isn’t reading his speech.

Not at all. I’ve got notes here that I’m referring to, but I’m not reading it in any way, shape, or form.

💬 DEPUTY SPEAKER: That’s good.

💬 Hon Member: He can’t read; he hasn’t got his glasses on.

That’s the problem—I’m going blind. Ha, ha!

We are mindful of the need for fiscal prudence. As the Minister of Revenue, I think it is important that I make some key points so they’re understood—hence the reason why I have a few notes here that will just prompt me around the tax implications of this piece of legislation.

For the benefit of members, I will give a quick rundown of the safeguards and the integrity measures of the bill. Firstly, the bill proposes that claimants must satisfy certain criteria to be eligible for these R & D tax credits. It’s a fundamental requirement, but the bill goes deeper. It also contains criteria that we provide support for R & D—

💬 DEPUTY SPEAKER: It looks very much like the member is reading those notes. I hope the member is being honest—all members in this House are honest, and the rules are very clear—but I’ve asked the member not to read his speech.

OK. Well, what I will say about this is that inland revenue—are you requesting to me, Madam Deputy Speaker, that I look at you the whole time I speak?

💬 DEPUTY SPEAKER: No. Not at all.

Can I look down, or—

💬 Kieran McAnulty: Give it here. I’ll hold the notes up!

I can’t read these on the page!

All I want to say is that this is a very robust piece of legislation. It’s a very robust scheme. We’ve had officials from inland revenue and the Ministry of Business, Innovation and Employment (MBIE) travel to jurisdictions that have an R & D regime in place and learn what has worked but also learn from their mistakes. They’ve travelled to the UK. They’ve been to Scandinavia. We’ve looked at the Israeli model. They’ve met with Australian tax officials, and they’ve asked them what we should do. The Australians have given us the benefit of their insight and their wisdom and said, “If we were setting this scheme up again, this is exactly what we would do.” We’ve taken the British model, and what we’ve said is “You know what we’re going to do?”—I’m going to put those notes away; blank pages—“What we’re going to do is we’re going to review the scheme after five years. We’re going to review the scheme after five years, just to make sure it works.”

The other thing we’re going to do to ensure that companies don’t embark on what they believe is an R & D journey, get to the end of it, and then be told “Goodness me! That’s just business as usual.” is have a pre-approval scheme, which I think is really valuable. So companies can go to the officials and say, “This is what we are proposing. This is what we want to do.” And officials have given assurance that in very quick time they will actually approve the spend or the scheme that is part of the businesses R & D plan so businesses can progress with confidence. It is the right thing to do.

The other thing we’ve said is that the majority of this R & D must be undertaken in New Zealand. There is no point in having an R & D tax scheme for the vast majority of it to occur overseas. So I think we’re allowing 10 percent to occur overseas, but the vast majority must take place in this country, which is the right thing to do. There’s no doubt about that.

There are a lot of safeguards in this bill. We’ve got the best inland revenue officials working really closely on this. They’ve developed a scheme, but I do want to come back to that important point: because research and development is dynamic, because it is changing, because the definitions can change, and because there’s a whole lot of stuff that is going on—it’s a bit of a cliché; you don’t know what will happen tomorrow today—we have said we are going to review this in five years, just to make sure it is meeting the objectives of the Government and is actually increasing the R & D spend in this country.

The key thing for me—and the reason why I really like the scheme—is it is not about the Government picking winners. In the past, I think we had a little bit too much of that, where, if a company has been very good at filling in forms and they’ve engaged in a way which has been meaningful—and I will acknowledge Callaghan Innovation has done a great job, a very good job—

💬 Andrew Bayly: Well, keep it.

We are. Callaghan Innovation are reinventing themselves, and they were going to work with IRD to make sure this works. But instead of the Government saying “You’re worthy.”, what we’re actually doing is letting businesses take control of their own destiny—letting them be innovative and say, “Hey, you know, we’ve got a really good idea. We think we can make this happen.” All they have to do to be eligible for the R & D tax credit is meet the criteria. There is no list ticking, there is no panel it has to go through, and there’s no assessment around whether this fits or it doesn’t etc.; it is just about meeting a key set of criteria, which the business will understand before they even put their application in or before they even seek approval.

So I think this is a great way forward. We did need to do things differently, because our R & D spend in this country is one of the lowest in the OECD. I’m very proud of the work that IRD has done in conjunction with MBIE to come up with a scheme that I think is really going to drive growth and productivity and make a difference in this country. Thank you very much.

Well, thank you, Madam Deputy Speaker. Nice to see the member Stuart Nash just talking a moment ago, speaking freely without having to refer to other matter to help him. A comment he made which I found just somewhat troubling—I think I heard him say this, and I just wondered whether it’s true—was that, under National, we didn’t grow the economy—

💬 Kieran McAnulty: That’s not what he said. He didn’t say that.

I thought he did. Well, maybe that was the implication. Or maybe the implication is that Labour - New Zealand First is growing the economy more quickly. I don’t think he actually meant that, but what I’d say to that—[Interruption] What I’d say to that member is that, under National, for the last three years, this economy grew at 3.3 percent on average across the three years. Since this Labour - New Zealand First Government’s been in power, it is now growing at 2.3 percent, which is, basically, a third of what was achieved under our Government. The implication for that is a $3 billion decrease in GDP and a billion wiped off the value of the revenue to the Government’s accounts, which would’ve paid for this in one year if they’d just been able to manage a proper economy.

Now, I just want to return back to the bill.

💬 DEPUTY SPEAKER: That would be nice.

National is absolutely committed to seeing creative businesses grow, and we’ve had so many of these dynamic companies come to the market, come and produce new products, new services, whether IT or whatever, and they are so important to the fabric of the New Zealand economy. I think that when you look around at all the new trends that are going on around robotics, IT, all that smart technology around it, it is just so exciting.

I think the one thing that we did have going with the Callaghan process was that we were in a process where we had professionals involved in managing R & D. We were working with those companies that we thought had the best opportunity of growing the New Zealand economy and making sure that they had the support around them to achieve the outcomes that we want. What has happened with those companies is that they’ve actually driven R & D, and there have been some remarkable experiences. In fact, I remember the Prime Minister going to the Methven factory, a New Zealand company, opening one of the new products that they had developed, which, of course, had come around from the Callaghan institute funding. I say this is very important.

The thing about where we’re going with this proposal—whilst we absolutely support any efforts to grow the R & D pie in New Zealand, the issue about this is actually twofold. The first one is how do you prioritise the expenditure—how do you prioritise the expenditure—because it’s fine saying you’ve got a billion-dollar fund, but who are the companies that are going to get access to it? Is it just on a “first come, first served” basis? If you are still working on your proposal and you don’t get there before the billion is spent, then you’re not going to get the money. So that gives rise to one of two things. Either you miss out, which is bad for “New Zealand Inc.” because we put our money into those companies that are not delivering the highest value for New Zealand, or their budget for this is going to blow out, as it did in Australia. When they put in a similar R & D scheme, they costed it at $1.8 billion. By the time the scheme had finished, it was $3 billion. This is something that we’ve been asking the Minister about repeatedly. How is she going to make sure that we get the best value for money?

The other issue with this is around pre-profit companies, and this is where it’s just silent—just silent. That is just as important in terms of a focus for the New Zealand Government, in terms of growing those newer companies who are in pre-profit stage, because they’re probably just as dynamic as the bigger ones. At least we put in things like black hole expenditure deductions and cash out, where you could offset the tax that you would’ve saved and get cash ability to fund those pre-profit companies. We actually put in place some real, tangible benefits for those types of companies. This bill is silent on it, and this is the thing about this bill that really worries me, because I think it’s actually a bit of a feel-good bill. This is good to be able to say, “Tick the box. We put a billion dollars into R & D—doesn’t really matter who we give it to, as long as we get it out and we can say we’ve done it.” If you’re going to put in good policy, make sure you put in good policy. It’s interesting, even using the facts from the advisers—they said 85 percent of this $1 billion fund is going to end up in the hands of 330 to 350 businesses. That’s not too distant a future from what Callaghan is actually achieving now.

So I think there are some real concerns with it. Of course we support R & D—of course we do—but the question is: is this the right mechanism? I think there are some serious doubts about it.

It’s an absolute pleasure to get up on behalf of New Zealand First in support of this R & D tax policy. This is a key policy plank in the coalition agreement. It has been a longstanding New Zealand First policy to drive our R & D to GDP ratio to 2 percent. Why is this important? It’s because there’s almost an exact correlation in the OECD between investment in R & D and GDP. Those countries that are at the top of that scale have all got one thing in common: they invest much, much more in R & D than we do. Our aims are high at 2 percent, but if you look at the average in the OECD, it’s only 2.5 percent. If you look at economies like Denmark, they’re up at about 4 percent. So we’ve got a way to go, but we are making a start, and we’ve already started, obviously, with this kicking in already.

We need to grow the pie. That’s the key here. We’re going to be here in a few weeks listening to the Budget, and there is so much call on the Government’s resources, but that can only be done if we are generating income through taxation and through businesses growing and investing. That’s why we need to back our businesses to increase their R & D spend. We talk about it all the time: we have to transform to value from volume. I keep going back to those logs that sit on the wharf outside as I look out my office in Bowen House. That is a 20th century business model that will not support a 21st century expectation of the services and the economy that we would want to have in New Zealand. We need to diversify our economy.

I go back to an example, actually. Mr McAnulty and I had the privilege of going on a trip to Taiwan. We were taken out to a business park that, through one of these schemes, was incentivised. It was 500 hectares. The income generated from the businesses in that park was US$50 billion. Now, I’m proud of our primary industries, and we’re seeing a great increase at the moment in our export revenues—up 11 percent, I believe, in the last 12 months—but we, through all that, through seven million - odd hectares, managed to generate about NZ$46 billion. So, in 500 hectares, they were generating more than what we were generating off seven and a half million. So it shows you how important innovation is in the transition to a 21st century economy.

We know we’re at about 1.37 percent. That has grown under our watch—up by $750 million already, and, encouragingly, business is leading the way in that. When you go back to those OECD averages, actually, Government expenditure on R & D is not too far away from the average; where it’s been lagging is business investment. So we do need to put some incentives in the way, and this piece of legislation does just that.

A little bit of history: of course, we did have this, as Mr Nash pointed out in his contribution. The last Labour Government brought this in just before they left office, and it was taken out by the National Party. Now, I’m a little perplexed by this—this is the National Party. I’m a recovering Nat, so I kind of know a little bit about how they work. The only real philosophy they’ve got is tax cuts. We know that they’ll have a range of policies at the next election, but the only one that anyone will show any interest in is the size of the tax cut they are going to offer the electorate. It’s all they really have. So imagine my surprise when I’m hearing from the other side of the Chamber that this, which is essentially a tax cut for business, is being railed against by the National Party. The National Party are in this House tonight railing against a tax cut. I feel like when I was a child and I learnt that Santa wasn’t real.

So what they’re arguing, of course, on that side, is that we should have, as they did in the Callaghan initiative—which is a successful initiative, and we do support it and we will carry on, because we are a Government that can walk and chew gum. But they are saying that we need to have a targeted—where the Government and bureaucracy decide which businesses get the tax incentives or the Government support, and which don’t. That is socialism. I am hearing socialism from the National Party tonight. I’m sitting here in a Labour - New Zealand First coalition talking about a tax cut and tax incentive for business, and I’m proud to be here doing that, and I think the National Party needs to reassess their philosophy because their only one real principle has been flushed down the toilet tonight.

This, of course, is a wider strategy and a wider package that we’re bringing. Of course, the Provincial Growth Fund that we’re so proud of in New Zealand First and on this side of the House—that, too, is investing. I had the pleasure the other day to stand—

💬 DEPUTY SPEAKER: Does that have anything to do with the bill?

Yes, it does. In terms of R & D, Madam Deputy Speaker—

💬 DEPUTY SPEAKER: Good. Bring it in.

—and the ways in which this R & D tax credit complements the other initiatives that we’re making, like the Provincial Growth Fund and the investment we made the other day in the Cawthron Institute in Nelson—algae development—of $6 million. It was absolutely fascinating to go through that facility and look at what they’re doing. I’m under secrecy as to what the value of that stuff was, but we are talking eye-watering amounts per gram for the output that is coming out of that institute, compared to the tonnes and tonnes of unprocessed logs that we’re relying on to run our economy at the moment, and the frozen legs of lamb—still not a business model that far removed from when the Dunedin sailed out of Port Chalmers in 1887.

So this is a transitional move for our economy. These R & D tax credits will incentivise R & D spending by our businesses. We have had a number eight wire mentality in this country. We are innovative, and we are going to back Kiwi businesses to make their own decisions about R & D. We’re not going to make them fill out forms and go through a bureaucracy like the National Party wanted; we are going to back them. They know what’s best, they know where the opportunities are, and we are going to incentivise them to do it.

So I will commend Minister Woods on bringing this through. I will commend the people involved in the coalition negotiations that put this at such a high priority, because we know how important it is to get R & D spending up if we are going to rise up those OECD rankings and have an economy that’s able to deliver the services that we need it to do. I would commend the Finance and Expenditure Committee. I do understand that they did shape the bill. There were some issues—it can have some complexity—and they did help with that, and the officials, obviously, helped in that as well. So I take absolute pleasure—this is a key fundamental building block in building a 21st century economy for New Zealand, and New Zealand First absolutely supports this measure and commends it to the House. Thank you.

Now, it was interesting that the previous speaker, Mark Patterson, talked about the fact that it’s important to have growth in the economy, because what we’ve heard most about in just about every speech and every announcement of this Government has been about spending money—the Government spending money on all manner of things and spreading wealth across the community—and there’s been very little spoken of in this Government about creating wealth and growing the economy. There’s been very little in the way of a clear economic development strategy. I do remember asking the economic development Minister, David Parker, in this House what the economic development strategy was, and he did nominate three things: this, the R & D tax credit; secondly, the Provincial Growth Fund, which I would argue is reasonably discredited in many ways in the way that it’s been handled by Shane Jones; and the third one was changing the tax settings.

Of course, subsequently, that has been dropped, so when we look at the Government’s economic development strategy, there’s only two legs left to it, with one being the Provincial Growth Fund. We’ve been having a bit of a debate about that with Shane Jones as to whether it’s generated 54 jobs so far and 118 bureaucrats or not, and he has not come up with any robust figures to challenge that, and so it has been a very thin output indeed so far for the money spent. I’m fascinated with the idea of how you can spend half a billion dollars promoting the planting of trees, about 60 percent of which are supposed to be native trees, and how you convert land which is currently producing sheep and beef and employing people and sustaining an industry and converting that to native forestry—how that’s generating wealth or jobs. It’s destroying wealth and jobs.

But, anyway, that’s one plank, and the other plank that is left in terms of their economic development strategy is this R & D tax policy. So it’s a fairly thin economic growth strategy, because, essentially, what it’s doing is shifting the focus away from the grants-based policy that we had, whereby a certain amount of money was set aside in order for grants to be handed out through Callaghan Innovation. No particular way of doing this is perfect, because whichever way you do it has benefits and negatives.

The problem with the R & D tax credit way of doing it, of course, is that you’ve got no idea how much it’s going to cost. It’s brilliant for accountants and, rest assured, the accountants are slathering at the prospect of this bill because they will get very fat commissions working with big companies in order to make sure that everything fits the description of R & D in order to get the tax relief. So it’s great for accountants, but it’s hopeless for small start-up businesses that don’t have big incomes and justifying taxes for that in order for that to be built. If you’re investing in a company that is not going to be profitable for 10 years, for example—which is quite common; it may be 10 years before you have a profit and pay any tax—then an R & D tax credit is not much use to you. So the cash-flow support that you’d get from the grants-based system is more useful.

Now, there are negatives for a grants-based system as well. So you can have an argument for ever about which way of doing it is better, and it would be interesting. There is sort of an implication there from previous speakers that they’re going to spend the billions of dollars on the R & D tax credit and continue to do all the grants as well. I’d be very surprised if that’s the case, but we may learn that that’s the case, and if they’re doing that, well, I’d be very interested to see that. But what we are seeing is a change between those two ways of doing it.

So that’s all right. You can have an argument about it. We don’t support it. We think the downsides are more substantial in the sense that it is great for accountants and not so good for start-up companies, but the broader point I’d make is that that is just a change in the way that we go about supporting R & D in this country and the mechanism with which we deliver it. But that on its own is about the only thing that this Government is talking about in terms of economic development, and that, ultimately, is part of the reason why we’ve had business confidence at all-time lows. The growth in GDP has dropped from nearly 4 percent to nearly 2 percent—

ASSISTANT SPEAKER (Poto Williams): Order! Order! This is a third reading debate and it is really about what the committee of the whole House has returned to the House.

Thank you very much, Madam Assistant Speaker. Well, on that basis, I will finish my speech.

This is one of the best pieces of legislation that has been reported back to the House from committee in a long time, and the reason for that is because it shifts entirely the focus. We’ve got to recognise that this is a key piece of driving future growth in a sustainable way, because, as Mr Patterson noted quite rightly, the old model doesn’t work. We need sustainable growth, and also growth that is based on innovation, and innovation which doesn’t give us those negative externalities such as the emissions and climate change impacts.

The great thing about this is that the people who are best placed to make investment decisions make them. Goodness gracious! It almost sounds like a National Party line—that is, the people who are going to be spending their own money and putting their own time and effort into these enterprises. It’s not for the Government, and it’s been well shown that the Government can’t pick winners. It can’t predict the future.

Here, what we have is the fact that anyone can apply for these tax credits, and one of the great things is the lower threshold. At a mere $50,000 of research investment, anyone can apply for these, but it goes all the way up to $120 million, and whilst it may be that projections show that, say, 300 companies will be the main recipients in terms of value, there will be huge amounts of smaller companies who might be investing $50,000, $100,000, or $150,000 in research and having great start-up innovations. They are not having to go through some onerous application process for a Callaghan Innovation grant, but they are simply having to qualify—qualify by showing that it’s genuine research and that it’s solving a real problem.

The rate itself, at 15 percent—and this is another change in the legislation—is generous. It is a real and substantial reduction in the effective cost of research, and the generosity just keeps going. It was good to sit on the Finance and Expenditure Committee and work through the fact that there are a whole lot of companies out there in enterprises of all kinds that we need to encourage, and not be picky, if you like. So, with multinational subsidiaries who are operating within New Zealand, the fact may be that the ultimate shareholders are overseas, but they are doing research in New Zealand. That’s good for New Zealand. That is enhancing our economy, and so they will qualify.

Joint ventures—now, not necessarily a model that’s used universally or even a lot in this area, but sometimes when you need equity and you’ve got real skills, a joint venture is the perfect corporate vehicle for these kinds of enterprises; so they’re included as well.

It was really useful to work through the software definition, including internal software—software that is innovative but might be, indeed, used internally. So there’s a $25 million cap on that. That’s a huge amount of money, and I think a real recognition that software, whilst it’s going to be tricky pragmatically to determine exactly where the line is drawn between innovation and business as usual, is, nevertheless, a really important part of innovation.

But, most importantly, this is fair. It’s not a bureaucrat deciding who gets a grant and who doesn’t—anyone can qualify. This excludes no one. Anyone who thinks they’ve got a good idea and is willing to put their own money and their own time up can get this tax credit and benefit from it. So we are playing catch up here. We need to absolutely catch up with the rest of the OECD. It’s true—one of the earlier speakers from the other side said that there has been an improvement. But it’s not enough—it’s not fast enough. We’re currently at 1.37 percent of GDP. Even if we get to 2 percent, that’s still below the OECD average, but it will be a vast improvement.

So that’s what we’re aiming for. This is about creating a vibrant, innovative, sustainable economy. This is just another building block in the fantastic economy that this Government is building for New Zealand. Thank you.

Look, we support research and development, without any shadow of a doubt, and because of that, we were prepared to put our support behind this bill. However, we have seen considerable lags. I think one of the areas that I want to highlight here in this third reading speech is the lack of certainty around the complexity of the pre-profit situation that many true R & D companies face. We have an example in my electorate of New Plymouth: a company that actually has received funding in the past from Callaghan Innovation and also has received funding from the United States Department of Energy—such was the quality of their research—but they are a company that, essentially in the development of their product, which is a wave energy device, have invested considerably of their finance, and an R & D tax credit is not going to be of great assistance to them. They actually need a grant format.

I raise this issue because we know that this Government has said that we are facing a transition, in terms of the energy mix in New Zealand, and here is a company—that, even with the former Government, received some support through Callaghan Innovation—that is at a critical stage. The Azura wave device by EHL, based in New Zealand—Egmont Hydraulics Ltd—has received support from overseas, support from this Government, yet in a tax credit regime will find it very difficult to continue. What they can do, which I think would be tragic, is that they can sell up equity in order to raise the cash flow needed to take it to the next step, but what happens when they do that is they lose control of their intellectual property. They lose control of the opportunity for Taranaki industry and engineering, and the know-how that’s in New Zealand, to actually develop this technology and this opportunity that could be marketed worldwide.

If we are truly in a transition where we want to ensure that the technology and the smart people behind it can progress into new energies and new innovation, then we must have an R & D regime that will support that. For example, if a company spends $50,000 on R & D and can qualify for a 15 percent rebate, that’s $7,500. We need substantially more funding available that’s going to bring that real sea change, that’s going to bring the real ability to do some strong innovation in this country.

I also want to, in my closing remarks, just say something in terms of that 1.35 percent to 2 percent increase in R & D spending that the Opposition speak about. Back in 2016, recorded by Business New Zealand, the expenditure in innovation grew from around about—the percentage that existed there, over that period of time, the increase in those two years was around about 17 percent. So to say that we have inadequate funding or an inadequate growth for investment in R & D is not substantiated by the record. Look, we support R & D investment if we can get more money into our industries. The concern has been in the past—and I know the bill seeks to address this—that companies may shift their designation of expenditure to R & D in order to qualify, and there needs to be, obviously, a huge amount of investment to monitor this, which, essentially, becomes money that becomes lost to the system.

Look, in closing, can I just say that I was disappointed that the minority view was denied by the committee as well. I think that that is really not in the good faith in which our select committees operate. As I chair my select committee, we have never once ever denied a minority view, because we believe that this Parliament needs to operate where all views are heard. Can I say that all that indicates is that the Government was very sensitive about this issue and didn’t want the public to hear what the Opposition had to say.

Thank you very much for the opportunity to speak on the third reading of this bill. Some elements we obviously support, but we are greatly disappointed that this is not going to take the country forward in the way that we believe it should.

I understand this is a split-call. Michael Wood—five minutes.

I’m very pleased to be able to take a quick call on the Taxation (Research and Development Tax Credits) Bill. It’s a bill I feel very strongly and very passionately about. One of the great challenges that New Zealand faces is that, over the last 40 years, our relative economic performance in respect of productivity and the living standards that can therefore be supported has continued to decline against OECD partners, against countries with whom we compare ourselves. That has affected our ability to deliver the living standards and all of the good things that we want for our people.

This is one of the areas that make a difference. We have become an economy that is overly reliant on lower-value commodities and the service sector. Now, as important as those sectors are, we need to be developing those sectors of the economy which are higher value, higher wage, and drive the higher export receipts that bring wealth into our country. We absolutely know, from all of the international evidence, that one of the strongest things that we can do to be bridging that gap is to increase our spending on R & D. This is the kind of far-sighted economic policy that we have been lacking for so long.

This bill is not a silver bullet, but it is an important piece of the puzzle: 30 out of 35 OECD countries have a research and development tax credit of this kind because they recognise the value of embedding within our systems the value of research and development. Tax credits of this kind are, by their nature, less haphazard and less subjective than the grants processes that we have at the moment. It, effectively, means that if you are a business who is investing in bona fide R & D, which has huge spillover economic benefits, then you will be eligible. There’s no favouritism. There’s no subjectivity. There’s no picking the fashionable sectors of the day in terms of what will be funded. If you meet the criteria, then your R & D expenditure will be recognised and a tax credit will be within your reach as a business. So it’s a very good measure that will help to lift our private sector R & D spend up to that 2 percent figure that we are aiming for.

There was a good select committee process that considered this bill, which made quite a large number of changes—most of which were canvassed at the second reading and committee stage hearings of this bill—but I think, basically, we’ve been able to make a good bill better than it was. It’s one that I do strongly support.

I do need to address some of the comments made by my colleague Jonathan Young in his previous speech. It is correct that there is no minority view from the National Opposition that came from select committee to this House at the committee stage. I want to be very clear about this as the chair of the select committee: the Finance and Expenditure Committee has a very strong record of collegial relationships across the table of minority views being able to come through that express the views of the Opposition when bills come back to this House. In this particular case, there was an attempt in that minority view to put words in the mouths of officials, and that is what members on this side viewed to be unacceptable and in bad faith. Members on this side attempted to resolve that situation by making some simple suggestions to resolve that problem.

I believe that in this Chamber and in this House, when we are debating legislation, it is absolutely proper for members to disagree and for members to put forward different views. That is how our democracy works, but there has to be a degree of fairness in terms of the way that we treat the officials who, in an impartial and fair way, advise us as we attempt to create good legislation. So, in my view, that was an act of bad faith, and, in fact, members of the National Party tried to assist their colleague in this regard, and that particular colleague did not see an intelligent and appropriate way through that. So it was regrettable that that happened, but I do note that that person was not a permanent member of the Finance and Expenditure Committee and was not perhaps familiar with the ways in which we do try to work together to resolve these matters.

But coming back to the core issue: this is a good bill. It will help to drive a more productive economy that can drive the living standards that we want in New Zealand. It is based on the international evidence that lifting R & D through a tax credit system can help you to do that. It has been worked through well by the select committee. On the issue of refundability, which has been raised in some of the speeches previously, these are for businesses who are in the pre-profit stage and, therefore, don’t have a profit against which to claim a tax credit. There is a limited refundability provision of up to $255,000 for the first year that is specifically designed to be supporting those smaller start-ups who might be in pre-profit. A lot of further work is going on into developing an enduring scheme to deal with that issue, and I’m quite confident that that will be sorted out by next year. I commend this bill to the House, and I’ll be very happy to see its passage later on today. Thank you, Madam Assistant Speaker.

Thank you, Madam Assistant Speaker. It’s a great opportunity for me to actually stand to speak on this, the Taxation (Research and Development Tax Credits) Bill. I will start by addressing the concerns that the previous member who just took his seat, Michael Wood, raised in terms of the minority view, and, I guess, to actually say I wasn’t part of the Finance and Expenditure Committee—

💬 Kiritapu Allan: Ask your colleague right behind you—Ian McKelvie.

ASSISTANT SPEAKER (Poto Williams): Order! That is enough. Do not bring me into the debate.

—and I’m not a permanent member. Having said that, I have actually been in this House longer than the member who just took his seat. Some advice: in fact, if there are minority views—

💬 Kiritapu Allan: Tell that to your—

ASSISTANT SPEAKER (Poto Williams): Order!

—and it comes from the National Party or the Green Party or the New Zealand First Party—let’s say—or the Labour Party, it is the responsibility of that party and they are responsible. It is not up to—

💬 Kiritapu Allan: Absolutely, and say that to the colleague of your own team.

ASSISTANT SPEAKER (Poto Williams): Order! Can I just ask the member to resume her seat. Ms Allan, I’ve asked you to come to order three times now. As Government whip, I expect a much, much higher standard from you.

💬 Kiritapu Allan: I raise a point of order, Madam Speaker.

ASSISTANT SPEAKER (Poto Williams): This must be a point of order, not just an observation.

💬 Kiritapu Allan: In respect of the matters that have been discussed in the House this afternoon: as a member sitting on this side of the House, to hear matters that have been dealt with in select committee rehashed and reinterpreted in a way that undermines the integrity of those processes—

ASSISTANT SPEAKER (Poto Williams): Order! You will resume your seat. You’re calling into order the integrity of the select committee process. I will not allow that—[Kiritapu Allan stands] No—I will not allow that to happen. This is a third reading debate. It is the debate on how the bill has been returned to the House after the committee of the whole House. Now, there was discussion about this at that process. It has been the subject of previous debate calls within this third reading, which have not been ruled out of order in terms of being able to be discussed. I will permit the member to continue her contribution.

Thank you, Madam Assistant Speaker. As I was saying, for someone who has actually been part of select committees, and having actually been a chair of one, I think the opinion of another party who happened to be in Opposition and their right to write a minority view is something that should be respected by the Government members and not tried to be altered. The responsibility of whether that report is correct or has inaccuracies is the responsibility of that party or the person who is actually writing the report; it is not the responsibility of the Government members to say whether it is right or wrong.

Having said that, I move on to the actual bill. Talking about the R & D tax credit, I think everyone in this House agrees that the R & D tax credit has a purpose and it is actually a good thing and it can be very supportive for businesses who are trying to grow their business, and I think growing business and growing the economy is very important. But there is just something that I heard that an Australia-based academic has said, and I’d like to actually quote that for you. His name is Professor Göran Roos. He’s an Australia-based Swedish academic, and he says, “None of the top performing R&D countries in the world have R&D tax credits.” And he goes on to say—and I quote—“Most companies actually see the way it works and look at it as a free money. [Then] they reclassify overheads and other things to call it R&D and then they get some free money. It is very common practice. What happens when they do [this]…, of course they report more R&D [but not] do more R&D.”

I am quite concerned about this Government and this particular bill, because, for example, for start-ups, for much smaller companies—and the New Zealand economy is actually made up of a lot of small companies who are hoping to actually grow their business—when they restrict the R & D below $50,000, it could be a problem.

I’ll give you a reason why. When I was running a television production company, I could not afford the big production cost of things like dolly tracks, which big budget movies would use, so instead I mounted a camera on top of a skateboard to emulate the pictures of a big dolly track. Another thing I needed to create was a sort of a desert scene. I couldn’t afford a big wind fan to create this wind to move the sand around, so I used a much smaller scale—I put sand on top of glass and used a hairdryer. So the whole number eight wire mentality in New Zealand actually helps create new things. Perhaps I could have used that less than $50,000 budget help that we could have possibly got to create a new wind machine or a dolly track that doesn’t cost that big budget money, and that could be something that we could have actually exported to another country, for example.

This particular bill does not help people who want to budget under $50,000, and to me that’s a problem. The very fact that a minority view from the National Party was not allowed just tells me that this Government is very, very arrogant indeed. I oppose this bill.

Thank you, very much, Madam Assistant Speaker. The Green Party is pleased to support the Taxation (Research and Development Tax Credits) Bill. We have long realised—and the evidence, as the Minister reiterated, does indeed show—that improving research and development is the key to unlocking, actually, how we address the biggest crises we are facing in the world today, which include climate change and inequality. We’ve always been clear about that in our policy. I applaud this bill coming into the House and going through the path of our House.

What we’ve got at the moment are living standards where not everyone is having a decent go. What we’ve got is worrying environmental degradation and biodiversity failure, actually—habitats and living systems are being ruined around the world, which is threatening the life of native and indigenous species; rivers and oceans are being polluted and continually damaged; and we’ve got a problem with waste. We have got a real problem with how we deal with waste, and the fact is that there is no such magic away place that any country can afford to take for granted any more, and certainly not our one. We also have an issue today of not all families having good jobs and working conditions and quality living standards of life.

Research and development is a core part of—not on its own—transforming the way that we relate to each other and our planet. So this particular bill will provide a 15 percent credit rate for eligible expenditure on research and development, up to $120 million and a minimum threshold of $50,000. This is an essential step, in my understanding, in moving it away from the grant approach, providing a little bit more equity across diverse enterprises and organisations and businesses, rather than just a cherry-picking approach.

I wanted to talk about how, earlier this year, I think, or last year, a Māori woman came to me, we met, and she gifted me this exquisite piece of fabric made solely from harakeke. Now, she had to go offshore, to the UK in fact, to a research and development centre, to actually be able to work—oh, harakeke, there’s an English word: “flax”, I’m sorry—to be able to work flax through to a state of being, I would describe it, like the most high-quality linen fabric that you’ve ever felt, that you’ve ever touched. She had this one precious piece of fabric that pulled on her indigenous knowledge and combined it with research and development to finally, after years, coming up with fabric, that I have to say as I spoke to kuia—elderly aunties—around the country, they said they didn’t think it was possible, and said it was such an incredible plant to try and work with to try and get it into a fabric state. This young woman, who wanted to innovate not only around a sustainable species use of our own but also as a community-building enterprise—a collective, cooperative enterprise—had to go offshore to get an offshore research and development agency to assist her. I want to hope that this bill is part of how we will fix that problem.

We are a smart country. We have got potential here to be doing things on site, here, without having to go offshore. Adding value is not just about not shipping off raw logs; it’s about our own people as our value, our own mātauranga—our traditional knowledge—and our unique New Zealand Aotearoa scientific knowledge working together and collaborating. That is the stuff that actually is going to solve and address the big issues before us. That is the stuff. We need new ways not just of operating: new ways of thinking about our relationship and sustainability for how we use our resources and our living systems, new ways of working with each other and making sure that we are pulling on the gifts and the talents from people in our communities to be able to have these cooperative enterprises, these new ways, these new ideas.

This piece of fabric blew me out of the water, and I’ve got it sitting at home, covering my dresser. It’s world-leading stuff. We are world leaders—we have been that for quite some time, our nation—but our thinking at our grassroots and in our communities needs a hand. It needs a hand to get to this incredible place.

So, yes, the Greens support this. I wasn’t supposed to be this long; I got a little bit carried away. So, yes, the Greens support these steps in the right direction for research and development. Of course, like most pieces of legislation, it doesn’t stand on its own; it’s got to work alongside other funds, like the Green Investment Fund, like the Provincial Growth Fund—other funds and other projects, actually—to make sure that we can also allow equity across, empowering social innovators. I know that that’s the intent of this piece of legislation. It’s actually so that it’s not just favouring already established players, and that’s one of the most important things for me. The bill wants to commit to allowing for new innovators, for new businesses to come through, and that, for me, is really, really core.

Just to say that I’m really pleased to stand up, actually, and have an opportunity to have a kōrero on this bill. More of it, more of the thinking, more of allowing New Zealand’s unique talents and our living systems—oh, another example was the nannies on the coast. On the East Coast, where I come from, where I whakapapa to, they are long-frustrated and hōhā with raw logs being sent off that have been plucked out of their ngahere and their whenua, but they see the potential in mānuka products and having our young rangatahi on the East Coast actually working and drilling down into the science and finding out that it is East Coast mānuka in particular which has some of the highest-potency properties in the world. That’s also allowing our young people to become the researchers and the innovators and is training and building capacity in those skills.

So we’ve got it here. We’ve got it all here. We can absolutely continue to be world leaders, and I look forward to seeing how this bill helps us on that step. Kia ora.

Thank you, Madam Assistant Speaker. It’s a pleasure to take a short call on the Taxation (Research and Development Tax Credits) Bill. Clearly, I think, across the House, however we implement these sorts of initiatives, the House is in favour of this type of initiative; it’s just the method we use to get the end result that I think is of interest. Duncan Webb said this is one of the best pieces of legislation he’s seen come through the House. Well, as my colleague next to me, Brett Hudson, said, you’re in trouble if that’s the best you can do. None the less, I shouldn’t carry on in that vein.

The bill came back for its third reading, and there were a few things that I think are still an issue, and one of them was the issue that Duncan Webb raised, actually. He went to the extent of using “the generosity continues”, but, actually, I’m not so sure that generosity does continue, because, whilst we’ve had a lot of information on how the take-up of this might work and how much it may be taken up, I think the cost of compliance and the difficulty of application will preclude many of the firms that it’s aimed at from ever making an application. They may make an application, but they may not get there.

I think that one of the challenges that this bill has got is how it’s implemented in the future, and I think it’s been estimated that there could be in excess of 2,000 businesses that will make applications for this. Of course, those businesses have got to make applications before their applications are granted. The other challenge of this—and it will be a challenge for those awarding the opportunity to claim these R & D tax credits—will be how they decide what is just a transfer of other costs to an R & D tax credit and what is genuinely a new initiative, I guess, to spend money on R & D. I think that will be challenging, because some of the companies involved in this will be very large borrowers. So that’s one of the challenges, and the challenge of making judgments on this will be quite significant as well, I think. So the approval process, I think, will be difficult.

There’s a number of other issues that I think will be challenging, but I do think that it’ll be interesting to see the result of this in a couple or three years’ time and just how much money has actually been spent promoting the R & D tax credit system.

Finally, I just want to say a very brief word about the minority view. I want to agree with our chair of the Finance and Expenditure Committee. I too feel sorry for the officers, but for a different reason: they were only implementing Government policy, at the end of the day. Thank you, Madam Assistant Speaker.

I’m delighted to take the final call on this excellent bill which is before the House now, the Taxation (Research and Development Tax Credits) Bill. I want to address a small number of the issues that have been raised by the Opposition as concerns—which I think actually have been addressed—just to reassure those who are watching.

There have been some issues as to what happens for a business that is in loss as to whether or not they can get the benefit of a tax credit—because, necessarily, to get a tax credit, you must pay some tax in the first place. It’s interesting to note that the bill does include some refundability in year one for a start-up. For taxpaying firms that are in loss and nevertheless have R & D expenditure, they will be able to cash out their tax credit. So there is a way for them to get some cash in hand even though they aren’t in a taxpaying situation.

So this is a serious attempt to develop a way of addressing tax losses and still allowing R & D tax credits—that’s because we do want to support firms that are in start-ups. The Opposition have raised concerns about the re-characterisation of expenditure, about whether some expenditure that is business as usual will suddenly be re-characterised as R & D expenditure in order to get the tax credit. Again, the bill does address this: there is a set of criteria to ensure that business as usual does not suddenly get called R & D. It is one of the areas that have been addressed in depth in the bill, and IRD will be looking at it.

The speaker immediately before me, Mr Ian McKelvie, raised some issues about the approval process. I think this goes to a little bit of the difference between a grants process and a tax credits process. When you go through a grants process you must meet a set of approvals, but then it’s still not clear that you will get the grant. You may not get it because someone else might just be slightly better, or there may not be enough grants to go around. A tax credit operates slightly differently; if you meet the criteria, then you do get the credit. There is no further approval. The approval process that Mr McKelvie was talking about was one where firms can apply to inland revenue in advance to get some certainty around whether their expenditure will fit the criteria for the research and development tax credit. Then, if it fits, they get the credit. It’s not about a yes or no, go-no-go decision; it’s not about whether one firm is better than another. It’s simply about giving certainty to taxpayers. As such, it’s an excellent addition to the tax credit process.

Now, finally, we had one of the speakers from the Opposition worrying about whether her skateboard and her hair dryer she was using in the production company would have, in fact, been eligible for the tax credit, and was this going to be an issue. Well, the skateboard, I think, would have cost about $80 and the hairdryer maybe about $40—that’s $120. Actually, in order to be eligible for the tax credit, you need to spend at least $50,000 on R & D. There’s a good reason for that; that’s to make sure that it is serious research and development. It’s not just the backyard stuff; it’s actually genuinely serious research and development activity. Fifty thousand dollars is a lot for a small firm, but, actually, when someone is engaged in research and development, you’ll go through that fairly quickly; so it’s a pretty sensible criteria, a pretty sensible lower threshold.

Finally, in terms of issues raised by the Opposition, I want to just have a final word on that minority view. I would note that two of the people who’ve spoken about it this afternoon were not in the room—were not in the room—and did not see the members’ own colleagues pleading with the member to change one sentence so that the member was not implying that officials had said things that officials were not comfortable with—the implication that they’d said them. That was it; one sentence, a few words. That was it. It was a real shame that that happened, and it was very interesting to see that the members of the Opposition who were in that room have not actually particularly spoken to that minority view issue.

This bill addresses a fundamental problem in our economy: that we do not spend enough on research and development. The question is whether it is best to address that through grants or through a tax credit. If we look at our actual total expenditure on research and development, it’s low and it continued to be low while the Callaghan grants scheme was in place. The grants were not working well enough; that is why we are moving to a tax credit. The great thing about a credit, as opposed to a grant, is that anyone who meets the criteria gets it—anyone. As long as you meet the criteria, the person who meets those criteria will get the tax credit. There is no picking and choosing, there is no grace and favour, there is no sense that anyone is sitting in judgment. All it is is if a firm meets the criteria, then they will get the tax credit. On this side of the House, we believe that that change from a grants scheme to a tax credit scheme will spur investment in research and development, and will make a difference in our economy. That is why we are promoting this bill. That is why we are supporting it. That is why this bill is an excellent bill. I commend this bill to the House.