Shearer David: State Sector Management Bill — Second Reading Instruction to Committee In Committee 
Text is incorporated into the Bound Volume 
Shearer David: State Sector Management Bill — Second Reading Instruction to Committee In Committee 
[Sitting date: 09 December 2010. Volume:669;Page:16272. Text is incorporated into the Bound Volume.] 
DAVID SHEARER (Labour—Mt Albert) 
: 
 I will spend a couple of minutes commenting on the response of the Minister of State Services to questions that arose as a result of some of the probing from this side of the Committee on this part of the State Sector Management Bill. I thought two things he said were really important. First of all he said that the vouchers and the grant scheme that this Government has brought in as its new way of stimulating the economic side of our science and innovation moving forward are oversubscribed. That is the word: “oversubscribed”. It means that a bunch of different companies out there did not get a look in. They did not actually get any of the grants or the vouchers. Why would they not get a look in? One of the reasons might be that with many of these companies that applied for a grant the entrepreneurs behind them have mortgaged their own house have borrowed from friends and have gone to the bank because they have a really good idea. They have an idea like for example Facebook or Google. Those people went to the Government department went to the bureaucrats who decide on the vouchers and grants that are to be allocated and were turned down. 
Members should contrast that with the tax credit. The tax credit would actually universally enable companies to get research and development relief as a result of their own efforts. It would have brought about a cultural change in companies in New Zealand that would lift our appalling private sector research and development which is less than one-third of the OECD average. It would have actually brought about the transformation that this Government says it wants. It would have brought about the step change that it wants. 
I come back to what the Minister said in response to questions. He said that this scheme is superior to Labour’s tax credits. I point out one piece of information that came up in the last few weeks when I was talking to various people. First of all companies want the tax credit more than they want the grants. That is overwhelming. If members sit down and talk to the chief executive officer of any company they will find that that is exactly what they will say: they would prefer the tax credit of course. But the grant is there so they apply for it. They apply for it because it means they will get more money for research and development and they can use the money they were going to spend on research and development to fund other parts of the company. It is not stimulating more research and development; it is keeping it more or less the same. 
But I come back to the point that the tax credit system is superior. When the Labour Government was putting the tax credit in place it went to Australia and looked at its tax credit system to see what was available and what was being offered. The Australian system was effectively a 7 percent tax credit at that point. It was very hard to administer and was not seen as particularly cutting edge. Our officials came back here and put together the tax credit and it came in during the last year of the Labour Government. It was supported by Treasury. It was a 15 percent tax credit that would cost about $37 million in its first year and rise to about $350 million after 5 years. Foolishly it was voted out by this Government when it came into office. 
What did the Rudd Labor Government in Australia do when it came into office? The first thing it did was raise its research and development budget by 25 percent. If we are looking to try to catch Australia we should consider what Australia did. That was the first thing it did. I think there was a 6 percent increase in the total package of reforms that this Government brought in in the Budget versus Australia’s 25 percent. But the really interesting thing that happened was that the Australian officials came to New Zealand looked at our tax credit system and took it back to Australia. Australia right now has an almost carbon copy of the credit system that the Labour Government put in place here. Why is that? It is because Australia recognised that that was the best thing it could do to encourage innovation in companies throughout Australia. There has been an appalling loss of potential in this country as a result of this Government cutting the Labour tax credit.