New Zealand

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  • Service: Advisory, Tax, Business Advisory
  • Type: Business and industry issue
  • Date: 24/05/2012

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Budget 2012 - Implications for economic growth 

Budget- growth

 

Governments around the world are debating the best recipes for economic growth: targeted spending, fiscal responsibility, austerity, tax cuts, subsidies for industry and removing red tape are all on the global agenda.

 

In the G8 countries there is also a growing debate about the balance between austerity and policies or expenditure that will drive growth.

 

In New Zealand our Government is focussing its efforts on fiscal responsibility, investment in infrastructure, and making it easier for business to invest, innovate and grow. 


Budget 2012 continues these themes. It sets a growth track which steadily increases then stabalises around 3% and relies on two main arms to deliver it:

 

  • The rebuild of Christchurch (separately discussed)
  • An environment that encourages innovation to develop new products and more productive ways of delivering our existing economic activities.

 

The second arm is a continuation of policies from last term. There are promises of new infrastructure to assist productivity through the partial assets sales funding the Future Investment Fund ($5 to $7 billion) and a focus on commercialising science to drive business growth ($385 million new funding over the next four years).

 

Science

 

New Zealand’s private sector investment in research and development is low when compared to our international trading partners (see Statistics New Zealand BERD report). Long term this can mean the New Zealand economy relies on traditional products and industries, and growth needs to come through accessing new markets. 

 

Lifting R&D investment will be necessary to support a more productive economy. An economy that encourages innovation can drive new and improved products and services, create new businesses and find more productive ways of producing our existing products. It diversifies New Zealand’s offering to the global market to provide a platform for economic growth. 

 

The Government has signalled the importance it places on the link between science and economic growth. This year it announced a new Ministry of Business, Innovation and Employment (MBIE) which will include current Ministry of Science and Innovation and Ministry of Economic Development 1. MBIE will look at the economic potential in science and also provide a dedicated business facing agency.

 

In its first term the Government removed the research and development tax credits in favour of taking a more targeted approach to encouraging innovation. Budget 2012 is meant to continue development of the targeted approach:

 

  • The transformation of Industrial Research Limited (IRL) into an Advanced Technology Institute (ATI).  This will be achieved through investment of $166m over the next 5 years on top of IRL’s existing funding sources.  The ATI will help support private sector investment in R&D (with a presence in the important economic regions of Auckland, Wellington and Christchurch) that leads to the commercialisation of more ideas and technology
  • The establishment of the ‘National Science Challenges’ programme. This will see $60m invested over the next four years to support innovative solutions that reinforces New Zealand’s economic development. 
  • $100m increase to the Performance-Based Research Fund
  • $59m New funding for universities from changes to the Student Loans Scheme, including increased funding to encourage more science, technology, engineering and mathematics graduates.

 

Enhancing ATIs capability to partner with industry will aid the increase of private investment in R&D, and lead to the commercialisation of more home grown ideas.  We see this as a positive move that will support long term growth. 

 

Infrastructure

 

Governments around the world have acknowledged that infrastructure is a key driver of productivity and growth. We often hear from New Zealand businesses of the limitations caused by the size of New Zealand’s ports and the quality of the road and rail networks.

 

New Zealand’s products and services cannot get to an international market without the support of quality infrastructure. The Future Investment Fund from asset sales will be invested back into infrastructure. $560m of the fund has been allocated through Budget 2012:

 

  • $33.8m for schools
  • $250m towards KiwiRail’s $4.5 billion Turnaround Plan
  • $88.1m for redeveloping hospitals
  • $76.1m of capital to support the development of the Advanced Technology Institute.
  • Irrigation projects are still on the agenda but no funding will be allocated through a Budget until commercial projects are brought forward.
  1 The Department of Labour and Department of Building and Housing will also be within the new MBIE
 
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