Research, Science and Innovation Minister Megan Woods and Revenue Minister Stuart Nash released an R&D tax incentive discussion document yesterday, meeting Labour's coalition commitment with New Zealand First.
Manufacturers appear happy with the proposals but tax accountants are undecided.
ManufacturingNZ executive director Catherine Beard said the tax incentives were a good step towards a higher-innovation economy.
Support for firms investing in innovation was critical.
"For manufacturing businesses, the pace of change has never been faster. Manufacturers must either invest in innovation or get left behind."
It was not possible to be globally competitive and create higher-paying jobs unless companies were at the forefront of R&D innovation, she said.
Surveys of manufacturing exporters consistently showed R&D support as their biggest need.
The Government's proposal could go a long way towards increasing company-level investment in innovation, Ms Beard said.
Polson Higgs tax partner Michael Turner hoped the scheme, when implemented, would last longer than the one brought in in 2008, which lasted just a year.
"If Labour introduces this, if it increases R&D spending, I hope the next National government will leave it alone. Political ideology does not usually allow that to happen."
There were mixed feelings from various agencies, including the Treasury, whether incentives worked, but businesses would see the proposal as positive, he said.
Finance Minister Grant Robertson emphasised in Dunedin this week how important increased R&D spending was to New Zealand's economic future.
Mr Turner did have some concerns about the involvement of Inland Revenue.
"When IRD gets involved in the design, often something gets lost in translation. I guess the devil will be in the detail."
Crowe Horwath tax managing partner Scott Mason said the 2008 experience of R&D tax incentives was a disaster for small and medium-sized businesses.
Compliance costs and barriers of dealing with Inland Revenue were often more than the potential upside.
"It was unworkable and therefore replaced. This is at least acknowledged by the paper but the complexity of the rules suggested, and limitations, mean small businesses spending less than $100,000 on R&D, or start-up businesses in loss positions who cannot benefit from tax credits as they are paying no tax, seem to be left out.
"This is disappointing and perhaps evidence that this package has been rushed."
The definition of R&D had evolved but still had some challenges for software developers, and Mr Mason encouraged the Government to further consider that aspect.
It appeared the "technical" administration might be by people who had a background in technology, rather than what happened in 2008 when it was managed by IRD, whose primary driver seemed to be minimisation, he said.
Dr Woods said New Zealand's gross expenditure on R&D was 1% of GDP, much lower than the OECD average of 2.38%.
"We need new ideas, new innovations and new ways of looking at the world if we are to build a sustainable and productive economy that delivers for all New Zealanders."
Mr Nash said the incentives would have broad reach across the economy, enabling businesses of all sizes to undertake R&D.
He stressed the need to take a careful approach to establishing a tax incentive. The discussion document set out the main design and technical features proposed for the tax incentive.
During the next six weeks, the Ministry of Business, Innovation and Employment, with support from Inland Revenue and Callaghan Innovation, would seek feedback on specific aspects of the proposal to ensure the tax incentive was fit for purpose, Mr Nash said.
