Reflections on providing tax incentives for research and development: New Zealand at the cross roads

The debate over the effectiveness of tax incentives to stimulate research and development ("R&D") expenditure has been with us for several decades. The literature is extensive although far from conclusive on the desirability of fiscal incentives for "R&D"; and the measurement of their incremental impact. New Zealand has lagged most members of the OECD in providing fiscal stimuli for "R&D" expenditure. It was only in the last few years that the tax treatment of "R&D" was brought largely into line with the financial accounting treatment, permitting further areas of “black hole” expenditure to be deductible for tax purposes. This article provides an overview of the "R&D" tax incentives for six OECD members that justify consideration by New Zealand, provides a summary of major research findings on the effectiveness of "R&D" incentives, subsidies and grants, and sets out by way of conclusion recommendations for future consideration, specifically for New Zealand policymakers.