Building a Productive Nation
The next priority is Building a Productive Nation so that New Zealanders thrive in the digital age.
The Government has identified the priority areas noted above in presenting Budget 2019 under the banner of “the Wellbeing Budget”. The fourth of those areas is “Building a Productive Nation”. According to the Budget documents, this priority area entails “Supporting a thriving nation in the digital age through innovation, social and economic opportunities”.
Budget 2019 contains a number of different allocations themed around this topic, which are of potential relevance to businesses (particularly start-up businesses), those in the capital markets and venture capital spaces and the education sector.
Productivity growth is a key driver of incomes, both at a household and country level. But New Zealand has struggled for decades to be productive. We are committed to turning this around.
This will require industries and businesses to innovate and adopt cutting edge technology. It also means New Zealanders will need to acquire new skills to take advantage of the opportunities in the changing job market.
Budget 2019 allocates $157 million into innovation, with initiatives to support businesses to become more productive and develop high value low-emissions products. $26 million of this will go towards helping commercialise science and research and turn ideas into products and services.
In the Budget documents the Government has identified investing in R&D and innovation as a key mechanism for the Government to achieve its goal of assisting New Zealand industries to transition to an economy which is highly productive but low in emissions.
The $157m noted in the Minister’s speech comprises $106m of operating funding over four years and $50.6m of capital which will go towards the following R&D and innovation-related initiatives, among others:
- a “Commercialisation of Innovation” package of initiatives which will go towards investment in research and science via funding for the Commercialisation Partner Network Fund, PreSeed Accelerator Fund and Technology Incubator programme at a cost of $25.5m over four years
- funding for a redevelopment of the Gracefield Innovation Quarter in Lower Hutt by Callaghan Innovation at a cost of $25m over the next four years and $50m in capital
- an “Innovative Partnerships Programme”, which would seek to attract globally leading firms and innovators at a cost of $10m over the next four years, and
- a cross-agency digital platform of business-focused services (termed “Business Connect” in the Budget documents) at a cost of $7.1m over four years.
These initiatives (in particular, the funding provided under the Commercialisation of Innovation package) will no doubt be welcomed by new start-up businesses, which the Minister for Research, Science and Innovation has identified in the Budget documents as “the ultimate champions of innovation that often introduce more radical, disruptive innovations than more established firms”.
There is evidence of a gap in our domestic capital markets, which may be slowing the growth of New Zealand firms. This gap is not being filled by current venture capital.
In a productive economy it’s important to have well-functioning early stage capital markets and a healthy start-up ecosystem. New start-ups are well served but expansion after the start-up phase is not well supported.
So Budget 2019 establishes a new $300 million fund to support the New Zealand Venture Investment Fund in making venture capital investments to take start-up businesses to the next level.
The Guardians of the New Zealand Super Fund will support this new investment though [sic] governance and by leveraging their investment expertise.
In Budget 2019 the Government has committed the not insignificant amount of $300m of capital to boosting what are termed early stage capital markets.
Although the Minister’s speech describes the $300m fund as “new”, the underlying Budget documents note that it will be made up of:
- $240m of contributions which were previously earmarked for contribution to the New Zealand Superannuation Fund between 2018 and 2022, and
- $60m from the New Zealand Venture Investment Fund (NZVIF)’s existing assets.
In keeping with this theme, it is noted that the Guardians of the New Zealand Superannuation Fund will administer the fund and that it will be invested by NZVIF through private sector fund managers.
Delving further into the detail, the Budget documents explain that the “fund” will comprise multiple venture capital funds, each with their own specialised capability and expertise.
It is apparent from the Minister’s speech and the underlying Budget documents that the $300m allocation is intended to assist those businesses which are not new start-ups (which will be supported by the $157m allocated to R&D innovation noted above), but rather what are described as “mid-size” start-ups – those between $2m and $15m in size.
The Budget documents also make it apparent that one of the aims in supporting mid-size start-ups is to ensure they remain onshore, by noting that the additional funding is intended to reduce pressure on companies to sell prematurely to overseas buyers.
Interestingly, the Budget documents explain that the Government’s investment here is more in the nature of a loan, as after 15 years all funds (including the principal and returns and the $60m from NZVIF) are to be returned to the Crown to fund superannuation.
The Government wants to make sure New Zealanders are equipped with the skills they need to adapt and thrive as their workplaces change, and to ensure young people entering the workforce are well prepared.
This Government has launched a vital reform of our vocational education and training system. We need more high quality accessible trades training and apprenticeships. But at the same time our polytechnic system is struggling. We need better coordination with on-the-job training and a nationwide coordinated system that supports quality regional provision. This Budget allocates $197 million to support these changes.
The Government has also committed, under the banner of “Building a Productive Nation”, to funding a range of initiatives to improve vocational education and training.
Comments from the Minister of Education quoted in the Budget documents make it clear that this is in response to the oft-mentioned shortage of skilled tradespersons in New Zealand.
Vocational education and training funding initiatives identified in Budget 2019 include:
- a not insignificant allocation of $197.1m over four years for the Government to carry out its “Reform of Vocational Education”
- an increase to subsidy rates paid to Tertiary Education Organisations from the start of 2020, at a cost of $154.8m over four years
- an injection of $49.9m over four years into the Mana in Mahi programme, which assists people on benefits to find and stay in employment, in the form of a wage subsidy to employers who hire someone in receipt of a main benefit and offer that person industry training qualification opportunities, as well as general support for employers and participants
- a ten-year term loan of up to $50m on concessionary terms to Unitec Institute of Technology to assist with Unitec’s cash flow constraints, and
- $6.2m of operating funding and $0.6m of capital funding for an “Industry 4.0” demonstration network for those interested in learning about Industry 4.0 technologies and concepts.
The Budget documents note that part of the vocational education initiatives identified above will be funded out of savings from underspending on the Government’s “Fees Free” programme.
Although not mentioned in the Minister’s speech, Budget 2019 also allocates funding to a number of digital education initiatives under the heading of “A secure digital nation”. The overarching themes of these initiatives could be expressed as ensuring cyber security and encouraging digital literacy.