Research and development expenditure

IBISWorld forecasts research and development expenditure to increase by 2.4% in 2023-24, to $5.65 billion. This anticipated increase in R&D expenditure in the current year is largely due to wider economic recovery from inflationary pressures. The Central Government (Te Kawanatanga o Aotearoa) introduced new tax incentives designed to spur R&D investment in May 2019. As part of this tax incentive, the Central Government aims for R&D expenditure to reach 2% of GDP by 2028. Consequently, this tax incentive is expected to continue to drive R&D investment in 2023-24. Furthermore, additional funding outlays for the public sector are likely to support R&D expenditure. However, despite increasing business confidence is anticipated to remain negative in the current year due to lingering heightened interest rates. Dampened business confidence and higher borrowing costs are likely to constrain R&D expenditure, particularly from the business sector over the year.

R&D is intended to improve products and services, by increasing profitability, efficiency, or market access. R&D is typically an iterative process, requiring long-term investment to deliver overall improvement. R&D expenditure increased from 1.12% of GDP in 2007-08 to an expected 1.91% in 2021-22. The acceleration of R&D expenditure has been driven by the growth of start-up businesses, government support schemes, and the increasing willingness of businesses to make innovation an ordinary business activity.

In 2021-22 (latest available data), the business sector accounted for $3.1 billion of R&D expenditure. The business sector's share of R&D expenditure has grown steadily over the past five years, while the government and higher education's share of R&D expenditure has declined. While R&D expenditure by the government and higher education sectors has grown over the past five years in total value, it has not kept pace with strong growth in business sector R&D. Within the business sector, computer-related services have accounted for the bulk of R&D expenditure and have ramped up rapidly over the past five years. Meanwhile, manufacturing industries have increased R&D spend only modestly over the same period.

In 2019-20, a new R&D tax incentive scheme came into effect. This scheme involves a higher tax credit of 15%, enabling businesses to receive a tax credit of up to $18 million on eligible expenditure. The definition of R&D has also been expanded, enabling easier access to the credit across all industries. The new tax incentive has also been made available to state-owned enterprises, industry research cooperatives, and minority-owned subsidiaries of select Crown entities. To qualify for the scheme, businesses have to carry out more than $50,000 worth of R&D expenditure per year. As of March 2024, the scheme has supported over $3.3 billion in R&D activity since its inception. Overall, IBISWorld forecasts research and development expenditure to increase at a compound annual rate of 5.5% over the five years through 2023-24.