This article is an opinion piece by Breccan McLeod-Lundy, Co-Chair of NZRise and CEO of Ackama Limited. 

While the article is Breccan’s opinion he endeavours to reflect the discussions of NZRise members during COVID lockdown in Aotearoa and as we navigate through this ever changing economic climate of the global COVID economy. One area of contention within the NZRise community is that of taxation. 

The ideas proposed in this article are not necessarily the position of NZRise – instead are designed to stimulate discussion. This article has been released as a 4 part series (read part one and part two) or is available for download as a single PDF. 

If you would like to join this kōrero please reply to this post or email [email protected] .

Create a more cohesive approach to long term investment in New Zealand

Whenever decisions are made about investment by the government there is a key challenge in comparing different projects and investment opportunities. One of our challenges is that we don’t do a good job of comparing investment in different areas and really focussing on the long-term outcomes and potential for a changing world to materially change which investments will be the most valuable.

To give an example, the government views investment in roads and software differently. But, as we have seen during lockdown, working from home reduces the load on core infrastructure dramatically.  A key question we should ask is “What needs to happen for more remote working to happen across the country?”. This includes both working from home and incentives towards regional offices to take the load off Auckland. 

I believe a change in the government approach to view many large technology projects as more in line with roads and less in line with building a website will better reflect both the longevity of many of these systems and the costs in maintaining them. To give an idea of the kinds of projects I imagine in this space (some of which are already in train):

• Completing work on bringing digital identity standards and capabilities up to both an appropriate level of access and ease of use for all New Zealanders to interact directly with government services.

• Eradicate paper forms and replace them with appropriate digital approaches across all levels of government. This especially is a needed step for many government functions we would like to improve with technology in the future – the latest newfangled AI system is not much use if big chunks of information don’t exist in a machine-readable format.

• Make interaction with government through online systems easier and better than working with them in person. For instance, someone on a benefit should be able to complete all of their required activities online including everything from signing up for a benefit through to job seeking and training. This experience should be so much better than going to an MSD office that it serves as a motivation to sign up for the required digital identification.

• Business intelligence and analysis should be flexible and easy to manage across departments. Over time the approach to storing both data about government actions and the rules  and regulations it follows should allow for not just easy interoperability but also a complete programmatic simulation of as much of the overall economy as possible. For instance, if the government were considering a change in benefits, that change should not just be modelled in a spreadsheet but simulated against the actual data of earning levels in New Zealand at the time. This is especially important as we become more aware of the negative effects of inequality – with a simulation we are much more likely to detect when a suggested change will create outliers (either people unfairly harmed by a policy or people given too much advantage) than with a distribution based model.

• Key service areas should have cohesive overarching digital strategies. For instance, health should have a single easily connected patient record database with data controls, and inefficiencies, such as ongoing reliance on faxes, must be eradicated.

• Technology and digital record keeping should be empowered to become a key part of tracking and managing the results of long term social investment in areas like education and healthcare.

• Investment should enhance digital systems for maintaining privacy, limiting the impacts of data breaches and providing dynamic controls over personally identifiable information.

Support R&D and commercialisation more broadly and systematically

New R&D and product development is one of the best ways for New Zealand as the returns and growth in jobs can be large (consider how many high-wage jobs one Xero adds to the economy let alone any of the benefits from the success of the business for shareholders). Unfortunately, at the moment, many of our policy settings don’t support the long view of R&D that could lead to really capturing the benefits.

The current R&D tax credit still refers to novelty or “newness” as part of the test of whether something counts as true R&D which effectively reads as excluding most software based innovation. This thin view of R&D raises several issues and possible responses:

• Many excellent ideas are the application of existing approaches to different problems – Xero was not a technically difficult idea. It was a great idea at the right time, but if you’d found a good developer and described what Xero needed to do, they wouldn’t have told you it was pushing the boundaries of human knowledge which seems to be what the current tax credit suggests should be the case.  We should absolutely be supporting businesses to not just research, but also apply that research into services and thriving industry.

• Without ongoing support of research through to commercialisation, New Zealand is unlikely to see the bulk of the returns on R&D – Any piece of research is a long drawn-out process, but even more difficult is the next step of market research and commercialisation. Because we define the research phase so narrowly, we too often see good early stage ideas or businesses being sold to larger players at a cheap price rather than the potentially larger businesses accruing their benefits to New Zealand. 

• By incentivising complexity rather than results we don’t “fail fast” – In startups it has become standard to fail-fast. Or in plainer terms to stop doing things that aren’t working sooner rather than later. When our main categorisation for R&D is being globally “new”, we reward complexity rather than results. Bad early stage ideas receive ongoing R&D funding because no one involved in reviewing them understands them well enough to say they aren’t good R&D. A good example of this in recent years has been the propensity of startups that really didn’t need a blockchain adding a mention of blockchain to their R&D programs because it made it seem more “novel”.

• Create clearer educational pathways to R&D – One of the challenges with universities responding to a focus on preparing people for the workforce is that R&D as a capability doesn’t match up nicely to a career path and is generally better served by the more traditional academic pathways. This is another benefit to reinforcing the role of vocational learning for those who do want clear career paths so that those who want to be on a research path are not so heavily tied to courses within universities that are steadily trending towards job readiness.

• Without broad access to funding and support, entrepreneurship will exacerbate rather than close social divides – One of the key challenges when looking at entrepreneurship as a social level is that starting a company is a really really terrible idea for the founder. Anyone who has the skills to found a business could competently do a much more stable job that produces a stable income, so entrepreneurs (and particularly “growth” entrepreneurs) will disproportionately be from backgrounds that are already well-off. R&D funding comes into this as well since a simpler and more broadly applicable fund is more likely to support people at the right time.

Growing capital in New Zealand

Wealth is security. While it is commonly noted that money doesn’t buy happiness it’s nearly always followed up with the note that the lack of it surely brings unhappiness. New Zealand needs a wealth strategy for the long term. While we have strong individual wealth in New Zealand a disturbingly large proportion of that is based on our eye-wateringly high property prices (39% of household net worth currently being property). 

We have been very lucky that the NZ Super Fund has performed as well as it has over the last few years and Kiwisaver is building up the balances of many New Zealanders to help mitigate the challenges of an aging population. But that’s only one of the many challenges we can expect over the next 100 years, whether it’s global warming, changes in agriculture, disease, or sudden shocks in the global economy – we should expect constant change, and we should expect at least some of those shocks to be worse than any we’ve experienced so far – A resilient New Zealand is not just one with a functioning economy but one that can handle a non-functional economy for as long as possible. 

We need to have a plan for there to be enough capital in New Zealand to allow us to maintain our position globally and not become a dependent state. That doesn’t mean it all has to be private wealth, state owned capital counts, but if successive governments alternate between selling off state assets and discentivising private wealth, then the end result will be no one in New Zealand having any money while states that can leverage their wealth slowly pressure us either financially or politically. Consider the current challenge between the fact that of our major trading partners only China has managed to hold steady financially during Covid while the US is pressuring us to ban Huawei as a supplier. Protecting our independence requires that we maintain relatively high levels of wealth, especially as aggressive financial pressure becomes more accepted as a modern approach to diplomacy. 

In 2013, Piketty’s (*2) book about the growth of wealth inequality outlined the challenges presented by the wealthiest people reaching the point that their wealth generates income at a pace that will steadily increase wealth inequality. This same pattern of wealth inequality will also apply between countries as much as it does between individuals. If New Zealand does not act to encourage the accumulation of wealth inside of New Zealand then for all our good intentions we are at serious risk of creating a country where everyone is more equal internally but we have fallen behind the rest of the world. 

Piketty’s suggestion of a global wealth tax might work if there were ever the global motivation to do so. But a national wealth tax as suggested by the Greens without alignment with the rest of the world would create another disincentive to the local accumulation of wealth. In some countries that might not be such a problem, but in New Zealand we already have difficulty incentivising and building the businesses that will make New Zealand wealthier in the long run. 

~ Breccan.

*2 Source: “Capital in the Twenty-First Century” by Thomas Piketty.

This article is an opinion piece by Breccan McLeod-Lundy, Co-Chair of NZRise and CEO of Ackama Limited. 

While the article is Breccan’s opinion he endeavours to reflect the discussions of NZRise members during COVID lockdown in Aotearoa and as we navigate through this ever changing economic climate of the global COVID economy. One area of contention within the NZRise community is that of taxation. 

The ideas proposed in this article are not necessarily the position of NZRise – instead are designed to stimulate discussion. This article has been released as a 4 part series (read part one and part two) or is available for download as a single PDF. 

If you would like to join this kōrero please reply to this post or email [email protected] .