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Polity: Labour’s manufacturing plan

Written By: - Date published: 11:37 am, April 18th, 2014 - 10 comments
Categories: david cunliffe, Economy, election 2014, employment, labour, manufacturing, Politics - Tags:

polity_square_for_lynnDavid Cunliffe has launched Labour’s policy to get more manufacturing jobs back in New Zealand:

Labour leader David Cunliffe launched the policy to an Auckland business audience this morning, adding the depreciation and procurement policies to the known suite of Labour’s approach for manufacturing, including research and development tax credits, lower power prices, a more active monetary policy to create “a more stable exchange rate” and a suite of sector-specific “Economic Upgrade” packages.

“Our aim is to influence investment policy overall,” said Cunliffe. “To change the culture of investment in New Zealand so that firms, entrepreneurs, and investors feel confident in developing world-beating ideas here.”

This is very good stuff. Having a tax break for R&D work has always been a no-brainer, and it is great to see it reconfirmed. Adding an accelerated depreciation scheme for new plant is a helpful addition. And partnering with more local firms for more locally-sourced government procurement makes perfect sense, too. Consider a toy example:

  • The government needs a $100 million widget
  • Giving a foreign firm $100 million for the widget costs the government $100 million, and gets us exactly one widget
  • But giving a New Zealand firm $100 million for the widget only costs the government around $70-75 million, once you factor in the income tax, profit tax, etc that the government receives as a result of the deal. And, even better, the government receives not only the widget, but also all the economic benefits that the the injection of $70-75 million into the economy brings. More consumer spending leads to more employment for retails workers, more disposable income leads to greater demand for trades. And so on.

Another no brainer for parties – like Labour – that actually care about local employment.

10 comments on “Polity: Labour’s manufacturing plan ”

  1. RedBaronCV 1

    Loving it. Sensible and overdue.
    Now for a few pragmatic points.
    Depreciation.
    As well as an accelerated depn regime it would help business workloads immensely if the multitude of depn rates could be shrunk to just a few rates. Say about five off the top of my head. Electronic insides, mechanical insides, passive useable, passive moveable , passive fixed – let us have the discussion. Any rate over 50% really means you should expense it. And lift the capitalisation level to $5-10K from the current $500. Firms these days buy a lot of computer grear under that value with a 50% depn rate and in three years it’s obsolete. Limit the capital value of cars that businesses can depreciate to say $30000. Why ids the taxpayer paying for vanity cars.Accelerated depn rates for factory equipment onshore only.
    R & D
    R & D tax credits to be repaid if the knowledge is sold to overseas owners and no royalties/funds kept onshore. Cap on the value claimable, to favour start up type situations so large firms who do R & D to keep market position can’t claim the lot. Requirement to be a citizen too perhaps, so that people can’t be imported, do work and then the lot is lost to us.

  2. Rogue Trooper 2

    a Hot Chocolate with that business breakfast: Everyone’s A Winner Baby!

  3. Macro 3

    R and D is all very good and yes we need more of it, but there is a major flaw in Labours Policy, and it is one of their own making so they are hardly likely to see it.
    For the past 3 decades, NZ govt’s from both persuasions have pursued “free” trade at the expense of almost all else – including manufacturing, and NZ’s self sufficiency. To some extent, this has been forced upon us by the sudden loss of our traditional market UK with it’s entry into the EU, and the need to find additional markets for our meat, wool, and dairy elsewhere around the globe. So to keep our farmers happy NZ governments have been bending over backwards to curry favour with all and sundry. The lolly for the person in the street has been the promise of cheaper imports, and that has certainly been the case. But there is a massive downside, and no amount of R and D, or friendly subsidies is going to be enough to overcome it. Why? because the manufacturing base we are up against is far too big. Able to flood our small market with far cheaper goods.
    I’ve harped on about wine bottles before – but it is an excellent example of why R and D and other mechanisms are just not enough. NZ until 2 years ago manufactured all its own wine bottles – we had a niche glass industry and demand from a well respected wine industry. Enter the Chinese, “we can supply you with far cheaper bottles” – so where does the order go? R and D would not help but an import quota, or trade tariff would. But we are now ham strung with a Free Trade agreement. The wine bottle manufacturing industry has effectively been exported to China. And there are other examples as well, boat building is one I personally know of also.
    Labour got us into this mess – I do not see their Policies getting us out of it.

    • Draco T Bastard 3.1

      To some extent, this has been forced upon us by the sudden loss of our traditional market UK with it’s entry into the EU, and the need to find additional markets for our meat, wool, and dairy elsewhere around the globe.

      We only need those markets if we’re not self-sufficient and we can be but not if we keep telling ourselves that we need to export more.

      Enter the Chinese, “we can supply you with far cheaper bottles” – so where does the order go? R and D would not help but an import quota, or trade tariff would.

      As much as I think we need to bring back tariffs in that case R&D could have helped. Building a completely automated system from mining the sand to delivery of the bottles would have had it so that even the Chinese couldn’t have competed.

      Of course, I don’t think that the economy is about producing jobs but about supporting people in a reasonable living standard without jobs and for it to be sustainable. Neither of which our oresent economic paradigm can do.

      But we are now ham strung with a Free Trade agreement. The wine bottle manufacturing industry has effectively been exported to China. And there are other examples as well, boat building is one I personally know of also.

      Yep, so much damage done by such short sighted stupidity.

  4. Draco T Bastard 4

    Having a tax break for R&D work has always been a no-brainer, and it is great to see it reconfirmed.

    Actually, R&D tax credits are a load of bollocks:

    There are many counter examples that would characterize the State as far from an ‘entrepreneurial’ force. Developing new technologies and supporting new industries is not the only important role of the State, after all. But admitting the instances where it has played an entrepreneurial role will help inform policies, which are too often based on the assumption that at most the State’s role is to correct market failures or facilitate innovation for the ‘dynamic’ private sector. The assumptions that all the State has to do is ‘nudge’ the private sector in the right direction; that tax credits will work because business is eager to invest in innovation; that removing obstacles and regulations is necessary; that small firms – simply due to their size – are more flexible and entrepreneurial and should be given direct and indirect support; that the core problem in Europe is simply one of ‘commercialisation’ – are all myths. They are myths about where entrepreneurship and innovation has come from. They have prevented policies from being as effective as they could be in stimulating the kinds of innovation that businesses would not have attempted on their own.

    The Entrepreneurial State by Mariana Mazzucato
    My bold.

    She later describes most R&D tax credits as nothing more than a government bonus to the private sector. One or two have worked but they were very well designed and had massive oversight.

    Almost all of the innovation that has come about over the last few decades has had direct government funding and, more often than not, been directly done by governments. The capitalists are too damn scared to take on the multi-decadal investment that produced goods like the computers that you’re using now.

    The search algorithm that Google uses? Produced by a government funded public university.
    Apples Siri? Produced by a small firm with direct government funding.

    It’s not the private sector that produces innovation but they do have a habit of turning up at the right time and grabbing (stealing) the windfall profits that the governments investment produced. And then they hide those profits in tax havens so that they can avoid paying the taxes that they owe.

    • Stuart Munro 4.1

      Dead right.

      Look at aquaculture – the whole mussel farm system is the result of DSIR work about forty years ago.

      Or kiwifruit – Hayward was a government employee.

      It’s not businesses that offer a better approach than government, but communities. When NZ communities choose to wake up and build something better than this neo-liberal wasteland, NZ will flourish. And like Lange with the nuclear issue, the politicians will jump in late and claim the credit. Which we don’t mind at all if they will just stop screwing up. The current government has unemployment over 6% and underemployment at epic levels and they think they’re succeeding? Guess they don’t have any kids.

      • dave 4.1.1

        key and co will just denie
        there is a problem in there world there is no problem the problem is the poor and that is a crime on planet key!

    • millsy 4.2

      Agreed.

      We are better off directly funding our R and D through the CRI’s and universities/polytechnics.

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