Woods MeganTAXATION (RESEARCH AND DEVELOPMENT TAX CREDITS) BILLThird ReadingHon Dr MEGAN WOODS (Minister of Research Science and Innovation): 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 $50000 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.