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Start me up (Image supplied).
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BusinessMay 27, 2018

Save our startups: an R&D SOS

Start me up (Image supplied).
Start me up (Image supplied).

Budget 2018 signalled significant changes to the government’s approach to R&D. Toby Littin, co-founder of parking and business parking app Parkable, asks Innovation Minister Megan Woods to reconsider her plan to push our knowledge economy into the sea – or worse, Australia.

Imagine an escalator. You’ve got the greying fat cats at the top, lapping up the tax credit cream. Startups filled with hope and creativity at the bottom jumping on with pure energy. And a giant gaping health and safety nightmare hole in the middle.

Well, that’s essentially what our innovation minister, Megan Woods, is proposing for New Zealand’s future by announcing the fading out of the Research and Development Growth Grant scheme and introducing a 12.5% tax credit for businesses who spend over $100,000 on R&D, (they’re the lapping cats), and I’m not OK with that.

Budget 2018 as a whole is introducing some balance back into our economy, and some long overdue investment in health which I’m thrilled to see. The intent behind Woods’ new plan is solid. She is widening the definition of R&D, making applications for support more accessible, making the support itself more ubiquitous and predictable – all of which is awesome. The fantastic programmes provided by both government and private organisations to help new startups… start up… remain untouched, thank goodness.  

The minister has committed a whopping $1 billion over the next four years for R&D. It’s just a shame – and frankly straight-up weird for such a refreshing Labour government – that this $1 billion is targeted towards the very top of the escalator. It’s a decision that scares me, and should scare New Zealand.

So, apart from our company, Parkable, what other businesses are at risk of falling into this gaping hole, and why should you care?

Let’s call them knowledge economy businesses: they love growth and people, not profit. They build high-value jobs and positive economic outcomes, through the research and development of preferably weightless products, (software, AI, robotics), off the back of new knowledge. These are New Zealand products that not only stand up in a globally competitive marketplace, but I believe will also prop New Zealand up when the reality of our reliance on traditional agriculture comes crashing down. But they’ll hopefully provide innovative solutions for that industry too – and more importantly, for our environment and rural communities – before the inevitable happens.

These businesses invest everything they have on growth, people and paying taxes. At Parkable, we spend roughly 50% of our revenue on R&D (the lapping cats, meanwhile, spend around 1.5%), the rest on people and PAYE. You might not have heard of most knowledge economy businesses – they’re not big brands and you won’t see them in your kitchen cupboards or mute their $1.5 million emotionally-extortive TV campaigns.

Here’s just a handful: Vend, Unfiltered, Soul Machines, Private Flight, Booktrack, Unleashed Software, Glide Path, and Pushpay. Until the last quarter, Xero would have even been on this list.

Consider Pushpay, the payment provider for the not-for-profit sector. They’re still growing faster than profit, from the outside looking in, so they’ll be directly impacted by this decision, with any government support delayed until they turn a profit. Given that they’re a company scaling up all around the world, they’re going to be forced to put their R&D teams where there’s better support for it, and that’s a risk to good employment here in New Zealand.

Look at Australia: they’re offering 38.5% R&D tax incentives with beneficial cashback schemes. Canada’s got a big incentive running upwards of 60%; in fact throughout the OECD many countries offer great programmes that consider the full life cycle of a business a little more carefully than what’s happening here.

Still, most of them don’t have a spare $100,000 sitting in their bank accounts to go on a R&D shopping spree. Our knowledge economy businesses entirely rely on support from the government to continue to grow, hire, and add value to New Zealand.

Let me be clear: I’m not talking about corporate welfare. We’re in the middle of a housing crisis, a child poverty crisis, a domestic violence crisis, an environmental crisis, a mental health crisis. Why should we prioritise our precious tax dollars for the knowledge economy? Financially, the investment is a net gain when you add up the tax base of every employee Parkable takes on. Idealistically, I believe that businesses like ours can contribute to solving at least some of the problems New Zealand is facing.

Look at Vensa Health, working to build a virtual consult with doctors in any home. At Parkable we’re trying to enable less congestion and therefore fewer emissions, and we aspire to see big ugly parking buildings ousted to make room for the type of housing our cities so desperately need. I think purpose-driven innovation is the future and should be supported as such.

The Parkable app in action (image supplied).

New studies are showing us that our kids will crave purposeful careers: they want to change the world, which will impact their career choices. They will opt for purpose-led companies doing work that appeals to the common good and has a cause-focused business. The upcoming Generations Z and Alpha think outside the box and are natural-born entrepreneurs and innovators who like solving complex problems. From a young age, they’ll forge their paths and invent new opportunities; 85% of the jobs that will exist for them in 2030 haven’t even been invented.

An exciting future, except where are they going to go? I want my kids to want to stay here in New Zealand. I want an economically prosperous, fair and healthy future for their home, where there are options whatever the career path they choose. The only way to achieve that is to support the development of the knowledge economy, and the only way to do that is to embrace and support high-value growth companies with R&D grants.

Big business R&D and smaller business R&D are not mutually exclusive. All R&D is good and creates spillover benefits for all. However, I worry this Budget decision will mean moving to a future where we’ll see large New Zealand corporates and MNCs not investing more in R&D, but rather reclassifying their activity and accounts to capitalise on the tax efficiency. All while businesses like ours – with the highest rate of employment growth, the highest hope for positive change, driving sustainable economic outcomes for our home – are being driven overseas or left out in the cold.

Businesses like ours aren’t rich, powerful or influential with government, and so we really need your help. We’ve got just till 1 June to submit feedback to the minister on the changes to R&D funding. We’ve presented ours, and we ask you to do the same – right now! My team has made it incredibly easy for you, 3 clicks tops. So please join us in asking the minister to save our knowledge economy.

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