Griffin on Tech: Budget 2025 - All sizzle, no silicon

Tech Week has been running this week and seemed to be a subdued, low-key affair compared to previous years, other than Auckland Mayor Wayne Brown outlining his vision to create the “Silicon Valley of the South Pacific” in Auckland.

Brown also asked the Government to locate its new advanced technology public research organisation in Auckland “rather than Wellington”, and is setting up a tech industry alliance to try and boost the tech sector in Auckland, which is underperforming compared to similarly sized cities around the world when it comes to innovation. 

It’s a worthy goal - how many other local government leaders are setting out with the stated goal of making tech central to their local economies? But getting there will be no mean feat and Budget 2025 illustrate at a higher level the issues he will face resourcing his tech push.

Yesterday’s Budget has drawn a mixed and often critical response from the country’s tech sector and science and innovation communities. While the Government has highlighted measures aimed at boosting economic growth and reforming the science system, many in these sectors view the Budget as underwhelming, with much of the new activity funded by cuts and reprioritisation rather than fresh investment.

The centrepiece for business is clearly the Investment Boost Tax Incentive allowing businesses to deduct 20% of a new asset’s value from taxable income, in addition to normal depreciation. That’s an instant incentive to invest in new technology, equipment, plant and machinery and certainly helps address the weak capital investment in our economy.

Elsewhere, it was a story of taking money from existing or disestablished initiatives to fund new priorities. For instance, $212 million will be cut from existing business, science, and innovation programmes through to 2028/29, with these funds redirected to support new initiatives and agencies. This includes savings from dismantling Crown Research Institutes and reductions to core research funds.

Gene technology is the big winner, claiming $107 million of that reprioritised funding to support the establishment of a new gene tech regulator to free up researchers and companies to pursue gene editing developments, addressing a major competitive disadvantage we’ve long had in that burgeoning area of advanced tech. 

Funding has been allocated for the creation of the Prime Minister’s Science, Innovation and Technology Advisory Council and to support policy advice capacity within the sector, which is good to see, even if the make-up of that advisory body has a distinct slant towards the agricultural sector.

The Elevate fund, which supports start-ups, received a $100 million top-up, and there is targeted funding for the new PROs. However, these are relatively modest compared to the scale of cuts elsewhere.

As IT Professionals NZ CEO Victoria MacLennan told NZ Herald, there was a distinct lack of direct investment in workforce development, entry-level roles, or tangible support for the tech sector’s immediate needs in Budget 2025.

While some welcomed the focus on commercialisation and the establishment of new research organisations, others, like Dr. James Hutchinson of KiwiNet, stressed that start-ups and research-intensive companies need more direct support, not just incentives for established businesses.

The Budget, therefore, is seen as holding funding steady in nominal terms, with real-term reductions due to inflation and explicit cuts to several research funds. This will likely further hinder New Zealand’s ability to retain talent and maintain a competitive edge in science and technology.

While the government argues that reforms and targeted investment will foster a more productive, commercially oriented science and innovation system, without a significant uplift in baseline funding, New Zealand will fall further behind global peers in research intensity and innovation capacity.

Tonight will see the tech sector descend on Wellington for the annual Hi-Tech Awards so it will be interesting to gauge rection from people - once they have a couple of drinks in them. 

With the unpleasant reality that the Budget was only hammered into shape at the expense of the pay equity provisions, which freed up $12.8 billion in future spending provisions, we need our innovative companies to lead the way in growing the economy. We also need significant tax reform given the ballooning costs of superannuation and healthcare. The Government is prioritising the former, but the jury is certainly still out on whether it is putting the building blocks in the right order to allow that to happen.

Congratulations to all finalists in the Hi-Tech Awards, I’ll be there, so say hi if you recognise me!