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Is NZ's funding of research future-focused?

Paul Matthews, ITP chief executive. 12 October 2018, 5:26 pm

There's lots happening on the research side of things, with results of the $249M research investment through the Endeavour Fund announced recently and R&D Tax Credit scheme details released this week.

New Zealand taxpayers spend millions funding and supporting research - but are we funding the sort of research that's going to be beneficial to the future of the country and generations to come? Are we working to move our economic reliance into future-focused areas rather than looking backwards?

Our Economy and Environment

Before getting to the research, let's look at some of the wider environmental factors at play.

The Intergovernmental panel on Climate Change released their latest report last week, and the long and short of it was that the current global targets were a drop in the bucket - to stave off climate change we're going to need unprecedented changes to our environment and economy.

Some quite sobering numbers include global net emissions of carbon dioxide need to fall by 45% from 2010 levels by 2030, and the problem for us as a country is that our biggest economic industry also pollutes excessively: around 54% of NZ's greenhouse gasses are caused by farming.

As hard as this pill may be to swallow, if we're serious as a country about tackling climate change, New Zealand's dairy and agriculture sectors are unsustainable in their current forms. It's that simple. If you're from a rural background, don't shoot the messenger here... these are the facts.

However it's not a case of just cutting back, as then other countries will just fill the gap and we won't achieve anything (other than a destroyed economy).

Separate from the environmental impact, other factors are at play too. For example, the whole way food is created is changing too - as shown by Air New Zealand's infamous "impossible Burger". 

Like it or not, alternative food is coming: A few short years from now, you'll be just as likely to eat meat grown in a lab as a field - and the lab stuff will be grown with next to no emissions.

I personally don't like that much - being a fan of American-style BBQ, the idea of "fake burgers" don't do it for me. But that doesn't change the fact that this change is happening, right now. 

And dairy's in the same boat. It's not a coincidence that Fonterra just made their first loss ever or that the forecast Farmgate price has just been reduced again. Sure, a large part of their loss was write-downs from bad overseas investments, but the underlying trend really isn't positive.

In the context of these changes, the tech sector has become even more crucial to the future of New Zealand. Technology has a huge role to play in making sure New Zealand is at the forefront of research into alternative food: meat in the lab, not the field. But also as a significant alternative industry that simply doesn't have the environmental baggage our current primary exports carry.

And that's why it was so disappointing to see the results of the Endeavour fund recently, a $249 Million Government fund for research that has the potential to be high impact and transformational for New Zealand.

MBIE's Endeavour Fund: $249 Million of research into... what exactly?

Given the above, you'd expect to see a strong balance in research investment between the new economy (tech) and making the old economy more efficient and environmentally sound (agriculture and farm-related research). Both are needed and we're not for a second saying it should all go to tech.

But while there were a couple of really bright lights, overall the balance simply wasn't there. The focus of investment remains on "old economy" thinking and nobody seems to have yet woken up to the fact that New Zealand's economy needs to be truly transformed. Given this fund ostensibly exists to fund economic and environmental transformation, what the heck's going on?

"That's the way we've always done it", I suppose. We're a farming nation.

So while there's plenty of research on "weed control" and "strategic mating", very little seems focused on actually breaking through new industries. To be fair it's not all bad - 1 or 2 of the 23 major research programmes funded were focused on tech, although often in context of agriculture still - for example, using robotics and augmented reality to assist with orchard picking. But that is genuinely great research.

What missed out?

One argument put forward by these research funds when we've raised it in the past is that there weren't good proposals put forward from tech and software researchers, but frankly, that's simply false here.

For example, I know of one major research proposal looking at transforming critical software - scientifically proving trustworthiness of software with huge spinoff applications in all sorts of areas, especially cybersecurity.

Basically transforming software using AI and other technologies to continually make itself more secure, available and reliable. A whole new paradigm for software and a breakthrough to the next generation, at a time when this is needed more than ever. And it wasn't just pie in the sky stuff - the idea was accompanied by a 197 page detailed proposal looking at exactly how it would work. It's seriously impressive stuff.

The project had the potential to significantly change how software is developed and could have been transformation for our sector, which is why the software research teams of all 7 of New Zealand's Universities (that have them) wanted to collaborate on the research, along with 27 of New Zealand's leading tech companies including the likes of Xero, Orion Health, Paymark and Catalyst IT.

Sound good? Not good enough apparently - it was rejected by the assessors largely because they couldn't agree on what "trustworthiness" meant, and because it's a global problem - so why bother solving it from New Zealand?

Um... because we have worldclass researchers here, for a start, and would quite like the economic benefit?

Again, it's not all bad - there is some great research funded and some that has specific tech (in our sense of the word) impact. We're not saying what was funded wasn't any good and we're not actually anti-farming in the slightest.

But if we're spending $249 Million on funding research on things that will transform our economy and environment, perhaps we should also focus on something other than agriculture?

</rant>

... R&D Tax Scheme looks good though

The "other end" of research - industry-based reseach - looks set to get a good boost however, with the updated details of the Government's R&D Tax Incentive Programme announced this week.

The draft version was released earlier this year and a number of folks including ITP raised some significant concerns about parts that could have had the effect of excluding large swathes of the tech sector. Nat Torkington said it better than anyone else on Techblog back in May.

We're really pleased to say that the Government seems to have listened and the changes announced this week are very positive. For example:

  • The threshold for accessing the scheme has been halved to $50,000 (ie how much you need to spend on R&D in a year to qualify)
  • A (limited) tax refund in the first year, rather than just carrying the loss forward. This was a particular concern to the software sector, where often growth is far more important than profit in the early years - basically negating the practical impact of the scheme until much later, when it wouldn't be as needed
  • increase in the incentive from 12.5% to 15%. Still below other countries, but a really good start.
  • Better definition of "R&D" - there was significant concern whether the old definition would exclude software, for example

Overall, these are excellent and very welcome changes.

It obviously remains to be seen whether the scheme will change R&D behaviour (or just accountants' behaviour in tagging things as R&D), but the fact remains that New Zealand was one of the few countries without such a scheme meaning companies were disadvantaged doing their R&D in New Zealand. This is a great first step towards a more even playing field.

RNZ New Technology segment

This was also the main topic of my RNZ Nine to Noon New Technology slot this week - you can listen here.


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