Connecting Canterbury

Posted on Friday, 6 November, 2020 by Paul Spence

DandelionFountain1 After nearly a decade of rebuilding, much of the baseline physical infrastructure needed for the regeneration of Christchurch is now in place. There’s still a lot more to do of course, but there’s now some breathing space to think about working on social infrastructure as well. Developing a vibrant and better connected local ecosystem will be the key to unlocking a wider pipeline of innovation across Canterbury.

Building a more connected innovation community also demonstrably aligns with the city-wide Prosperity Framework established by economic development agency ChristchurchNZ in 2018. This framework underpins business attraction and capability building activities across the city for the following decade and is strongly informed by the United Nations Sustainable Development Goals (SDG) and the New Zealand government Treasury Living Standards Framework. Environmental sustainability, inclusion, scalability and confidence are therefore viewed as pillars of a recovering and strengthening city economy and are encapsulated within the adjacent Supernodes Strategy.

The Supernodes Strategy, in its current form, has a focus on four designated areas of Food/Fibre/Agritech, Aerospace, HealthTech and High Tech services. All of these areas are obviously predicated upon a well connected ecosystem that is strongly underpinned by world class capabilities in software, high tech manufacturing and research. But it is less clear where important and enabling innovation infrastructure itself sits within the strategy. For example, platform based digital services and game offerings are amongst the highest value and fastest growing companies globally. Should we consider creating a local niche to include these sectors?

The Supernode strategy also speaks strongly about inclusion, especially in cultivating diversity of thinking and about better engaging young people with the business community. The strategy seeks to achieve progress through “a collaborative approach between education, industry and the government…to ensure a prosperous future for the city and the region”. So actively building these bridges is a mandated priority.

Resilient infrastructure and fostering sustainable and inclusive innovation incidentally also forms the basis of SDG Goal 9, a global commitment that central government signed us up to. Supporting small business growth and facilitating investments in research and development are fundamental to this goal. This is especially salient in the context of a post-quake, post-Covid economic rebuild in Christchurch. So there are many brilliant reasons to foster connectivity across the innovator community in Canterbury. One of the strongest arguments for doing so is that there is plenty of untapped capacity, unlike in some of our other main centre cities.

Pandemic related disruption has unfortunately hindered community-building activities throughout much of 2020, but has ironically amplified the need for it more than ever. Community minded responses have thus far averted a public health crisis. In the meantime people in education and business found ways to keep working together. Maintaining and building robust, collaborative communities is more important than ever in the disrupted, remote working and rapidly changing world to which we must adapt.

Paul Spence is a commentator and serial entrepreneur, a recently exited co-founder of a New Zealand based technology venture, a co-founder and director of Creative Forest and principal at GeniusNet Research. You can follow Paul on Twitter @GeniusNet or sign up for a free weekly digest of startup, tech and innovation related events curated by him through New Zealand Startup Digest. Paul is a co-author of the Entrepreneurship Manifesto 2020.

Image credit: Renea Mackie

When Will CellTech Disrupt Our Economy?

Posted on Monday, 26 October, 2020 by Paul Spence

What do a vegan Middle Eastern prince and a Singaporean cheese maker have in common? Not a joke. In fact it’s a rather serious question for New Zealand. Earlier this year Saudi based KBW Ventures invested over US $3 million in a “seed” round backing a company that claims to have developed a proprietary technology for producing milk from bovine mammary cells, by hosting the live cells within a laboratory bioreactor. The long term implications of this technology for the New Zealand economy are obvious.

This was the second tranche of funding for Singapore based TurtleTree Labs within six months. It is probably no coincidence that the first round was achieved just prior to lock downs due to the global pandemic. The increasing interest in lab raised food comes at a time when food security is under the spotlight more than ever. It has now become clear how easily global supply chains can be impacted in a crisis. No doubt these emerging technology stories are also of great interest to the food obsessed and security conscious residents of Singapore who currently import the vast majority of their food resources, due to very limited space for agriculture on the island.

Consumer preference is also tipping towards food sources that are less impactful on the environment. TurtleTree founder Fengru Lin claims that their future product will achieve 98% less carbon emissions than regular cow milk (and that’s without even considering other bovine greenhouse gases). With waterway degradation and groundwater quality under threat from a bloated and insufficiently regulated dairy industry in New Zealand, there’s a pent up demand for greater product sustainability. This only goes one of two ways. Either agricultural nations clean up their act and get on board with new food tech or they suffer enormous losses when the basis of global protein production gets hugely disrupted.

Celltech may not yet be scalable or widespread yet – but it’s only a matter of time. There will no doubt be many more cellular technology companies to follow TurtleTree and eventually technologies for growing lab based food will be licensed widely and become ubiquitous and more acceptable to consumers. That poses an existential threat to nations such as Australia and New Zealand for whom a very large section of the economy rests on animal based protein production.

Photo Credit: Renea Mackie

Entrepreneur Ecosystem Resource Rethink Requested

Posted on Tuesday, 1 September, 2020 by Paul Spence

During the last few months a number of us from the entrepreneur enabler community have been working on a manifesto document aimed at making the case for a more coordinated and vastly better resourced entrepreneurial ecosystem. The initiative sprung from a weekly discussion session that began during the pandemic lock-down and was hosted by the Global Entrepreneurship Network in New Zealand.

As entrepreneurs we are accustomed to dealing with uncertainty and frequently making do with limited funding. But as the economic and health crises evolved, it has become clear that as a nation we will need to do a great deal more together to support entrepreneurship. This is more important than ever now because encouraging early stage new venture development will be fundamental to both the economic recovery and preserving our living environment. In fact we need to be embedding transition thinking into every economic policy decision.

Despite claims by officials to the contrary, government support for early stage entrepreneurship is negligible by comparison to our neighbours across the region. New Zealand is light years behind and it’s time we had an honest conversation about it. Singapore and Australia have already injected hundreds of millions of dollars into developing their ecosystems over the last few years, with demonstrable success – particularly in software and deep tech. There are currently over 4,000 technology based startups operating in Singapore and there was around US $10 billion in venture investments made during 2019 alone. Australia’s “deep tech” incubation program turns 20 years old this year and continues to churn out high tech success stories with publicly funded support through the universities.

But how do we make a case for scarce public funds at a time when there are so many other competing needs? The reality is that we cannot afford to delay any longer. Our innovation infrastructure has been left to languish for far too long thanks to gate-keeping and a lack of a compelling vision. This long-standing under-investment now looks like a threat given the challenges we currently face. So it is our role to inform and educate through the Manifesto document.

Fortunately we could make a huge difference with even a modest increase to resourcing. Through the manifesto we’ve suggested five areas [PDF] that could deliver early wins and for which there are already a number of initiatives in play that could very easily be leveraged and scaled up. Building upon our existing innovation infrastructure is the smartest way to grow economic activity and employment.

For example, there are several excellent educational programmes operating within New Zealand that aim to build entrepreneurial and innovative capability, specialising in various demographics from primary school through to postgraduate research level. All of these programmes bring value to the ecosystem and help to create a pipeline of talent. But there is little in the way of coordination between these initiatives. This is a lost opportunity at a time when there has never been a greater need for high value, new venture innovation across society.

One approach would be to provide an overlay to better align our efforts in educating, encouraging and empowering entrepreneurs from an early age. Furthermore, creating an “innovation nation” is the key to solving the most intractable environmental problems that confront us, whilst also generating positive economic and environmental outcomes across society. New Zealand has a unique window of opportunity to show global leadership in this space right now, in order to attract the capital and talent we will need to rebuild better.

Environmental Entrepreneurship Focus Needed

Posted on Friday, 28 August, 2020 by Paul Spence

fern5 The pandemic induced economic crisis has raised awareness that economies remain fragile since the GFC and that we must urgently shift to more sustainable and environmentally sound forms of economic development if we are to survive as a species. As a nation in the spotlight right now, New Zealand has an opportunity to lead with change. But we need a vehicle to drive this process and we must shift the mindset of the nation towards environmental entrepreneurship.

Institutional leaders such as the World Economic Forum (WEF) and the European Investment Bank predict that the next two decades will see a vast migration of capital from traditional industrial verticals to green investments, “responsible” deep tech and “bio-impact” investment, as the “just transition” to a cleaner, low carbon economy takes hold. Some sources claim that this “green shift” could be worth as much as $6 Trillion[1] per annum as infrastructure replacement and the migration to cleaner industries proceeds. The global effects of the COVID 19 pandemic has only served to accentuate the very urgent need for deep structural reform. In fact the WEF argues further that the fiscal response to the resultant economic crisis absolutely must be tied to a greener economy.[2]

Along with this shift comes increasing recognition from global corporations that profit and social purpose are inextricably linked. Socially responsible companies and those that develop engaged, happy and productive learner employees, will capture a greater share of value within the transition economy. Consequently this will invoke greater delivery on environmental, social and governance objectives (ESG) as part of reporting to boards, shareholders and other stakeholders such as local communities. Indeed, the New Zealand government is a signatory to the UNDP Sustainable Development Goals (SDG) of which SDG 9 has a particular focus on “building resilient infrastructure, promoting inclusive and sustainable industrialization and fostering innovation”. At the same time, governments remain interested in endogenous approaches to economic development[3] that value development of human capital, since innovation through creating new knowledge is essential to sustainable growth and wealth creation.[4]

Problem

With rapidly shifting technologies, the reconfiguration of the global economy and consequent disruption of traditional industries, in what has been described as the “fourth industrial revolution”, there is an ongoing need for discovery, evolution and enrichment of entrepreneurial skills, from an early age and throughout life, supported by better connectivity, greater insight and structured exchange of knowledge. Many of the capability building mechanisms required for this journey already exist in their own silos within New Zealand. But there is no unifying framework or plan in place to fully capitalise on this energy.

Solution

As part of the response to our Entrepreneurship Manifesto 2020 document I am calling for the establishment of a New Zealand Centre for Environmental Entrepreneurship (CEE). This would provide a coordinating role in aligning innovation and entrepreneurship programmes nationwide towards delivering a pipeline of talent fit and ready to address the biggest and most important economic opportunity of our lifetimes – our living environment. Partnership with the CEE would be through an application process with successful programmes receiving additional government funding support. A lean and future focused advisory board would administer the CEE. The board would comprise an equal weighting of experienced founders, business academics and government representatives supported by an executive officer. The CEE could be a virtual organisation as well as rotating hosting among academic institutions with strengths in business and environment.

Impact

Success would be measured thus:

By a more coordinated national approach to entrepreneurship and innovation education in general, through supporting high performing enablers.
By implementing micro-accreditation and NCEA credits for entrepreneurship and innovation courses.
By delivering a talent pipeline with an environmental and social innovation mindset (including migrant entrepreneurs).
By raising the status of entrepreneurs as champions of change and opportunity in the global transition economy.
By a growing pipeline of new ventures that address both the SDGs and position New Zealand as a global leader in green transitional technologies.

Possible Focus Areas

Technological responses to climate change.
Alternative energy technologies.
Social housing solutions.
Management and improvement of flora and fauna ecosystems.
Agritech and food security.
Infotech and data security.
Health Tech solutions for pandemic response.
AI and Education.

References

https://newclimateeconomy.report/2016/
https://www.weforum.org/agenda/2020/05/the-european-green-deal-must-be-at-the-heart-of-the-covid-19-recovery/
Isaac Ehrlich, Dunli Li, & Zhiqiang Liu (2017),The Role of Entrepreneurial Human Capital as a Driver of Endogenous Economic Growth, J Human Capital 11,3.
Maradana, R.P., Pradhan, R.P., Dash, S. et al. Does innovation promote economic growth? Evidence from European countries. J Innov Entrep 6, 1 (2017).

Innovation As Infrastructure

Posted on Monday, 27 April, 2020 by Paul Spence

For the first time in decades, the government has an extraordinary amount of political license available to expend on addressing key social, environmental and infrastructural problems that have become a handbrake on progress in New Zealand. The dual public health and economic disasters visited upon us have provided an unprecedented impetus to unlock the public purse. It is also a once in a lifetime opportunity to transform the economy towards a cleaner, more inclusive, lower carbon future. Innovators and entrepreneurs must be part of that conversation.

With the exception perhaps of the fibre rollout, it is widely understood that there has been decades of under-spending on key infrastructure which forms the foundations of the wider economy. Resilient infrastructure and fostering innovation also comprises part of the United Nations sustainable development goals, to which New Zealand is a signatory. So as part of recovery investment, we are hearing that there will be government led co-funding for “shovel-ready” infrastructure projects. Debt constrained local bodies are now scurrying to dust off previously paused plans for roads, cycleways, water pipes and much more. Useful works that will provide much needed short term employment – but hardly transformational.

We have also recently seen a proposal from the Greens calling for a $1 Billion investment in the natural environment. The project involves regeneration of wetlands, protection of waterways and restoration of native bush. Apart from providing instant employment, the long term environmental returns would be substantial. The crisis has also illuminated shortcomings and under-investment in the health sector. It is clear that there is room for funding some improvements. There will no doubt be numerous other programmes and waves of investment arising in the future. How can this public investment generate the best return to our economy at a time when external trade is problematic?

With support from government, our innovation ecosystem has grown vastly during the last two decades, so there is plenty of talent available to work in partnership on these problems. Government agencies will require substantial additional capability to quickly deliver on these initiatives and to get cash out the door and circulating within the economy. A collaborative approach involving the rapid roll out of partnerships with local bodies, social enterprises and other businesses will be required. This calls for a bold evaporation of the the risk aversion and gate-keeping that so often derails and delays promising and innovative partnerships with government.

What if we devolved responsibility for identifying, funding and managing discrete environmental projects to regional public-private innovation partnerships? How about an education technology incubator that sits alongside a teacher training institution? What if we had a private sector centre of excellence for IoT and AI tech embedded within the proposed public works agency? How about a FinTech entrepreneur programme engaged with Treasury?

Let’s re-purpose our innovation ecosystem, in partnership with the State, onto solving the really big social, environmental and technological problems confronting us currently. GovTech on steroids, with meaningful funding, actionable deliverables and value creation through protecting and growing any associated intellectual capital.

Christchurch based Carl Pavletich had already been looking at transition processes within organisations when the crisis hit. He realised that, like during the earthquakes, there had once again been a catastrophic transition forced upon us. “Instilling a startup mindset may be our best emergent strategy to adapt”, he says. Paveletich developed Spire, a simple model that guides rapid prototyping of organisational responses and keeps all stakeholders in the loop. This is the kind of thinking that should inform and accelerate engagement between government and the innovation community.

So as the government grapples with how to breathe life back into a dormant post-virus economy, we must ensure that innovation and entrepreneurship are at the forefront of progress. Beyond that, we actually need to rethink how we view the structural aspects of the economy. Glass, bitumen and concrete infrastructure are important, but as futurist and serial entrepreneur Nick Gerritson suggested recently, we all need to start thinking of innovation as economic infrastructure. If the goal is transformational change plus avoiding a terminal economy – the public sector must get onboard with this philosophy, fast.

Paul Spence is a commentator and serial entrepreneur, a recently exited co-founder of New Zealand based technology venture iwantmyname, a co-founder and director of Creative Forest and principal at GeniusNet Research. You can follow Paul on Twitter @GeniusNet or sign up for a free weekly digest of startup, tech and innovation related events curated by him through New Zealand Startup Digest.

The Unjust Transition

Posted on Sunday, 5 April, 2020 by Paul Spence

Environmentalists, social entrepreneurs and green politicians have been warning of the need for a “just transition” to a low carbon, less damaging and more socially inclusive economy for as long as I can remember. Unsurprisingly those who advocate for radical change in how we do business, have been quick to point the finger of blame and to frame this unique moment in history as an opportunity for re-imagining society. In fact change was already underway before the pandemic arose. But it takes a long time to turn a large ship around. Redistribution of wealth cannot be at the expense of wealth creation. Blowing the ship out of the water is not the answer.

The dark stain of social inequity has often formed the basis for arguments against our prevailing economic system. Yet even the most ardent critics of capitalism agree that proportionally less of the global population live in (extreme) poverty than a century ago. The looming spectre of climate change has increasingly emboldened demands to discard capitalism and move beyond GDP as a measure of progress. Yet the already emergent transfer of capital away from polluting industries into regenerative, more socially responsible activities possibly offers the greatest hope of a cleaner, more equitable economy. Innovators and entrepreneurs are an important part of the solution. But this will not be enough on its own.

Today’s global public health crisis is symptomatic on every level of how political structures have failed to distribute the benefits and reduce the risks of a globalised economy. The highly corrupt and distorting nature of political systems in China, Iran, Italy and the United States created the breeding ground for this disease and allowed it to take hold worldwide. But plagues and looming environmental disasters are agnostic when it comes to politics. It is how we respond that is most important. Unfortunately failed governments, autocratic leadership and internal competition for resources do not allow for an informed and timely response.

Instead of tearing down the existing economic model, we first need to adapt political systems to a new way of working. There is no place for confrontational and divisive politicking during a global crisis. The lack of a coordinated response to the pandemic has been most notable in federations such as the United States and the European Union. It also illustrates the reasons why we are failing to address the problem of climate change. Self interest and exceptionalism by the militarily most powerful are materially inconsistent with wise stewardship of a globalised, highly interconnected economy.

Redeployment Of Capital Needed For A Greener Future

Posted on Monday, 16 December, 2019 by Paul Spence

fires This year has seen extreme heatwaves in Europe, numerous and more frequent devastating tropical storms across all of the world’s oceans and a record number of destructive bush fires in both Australia and North America. Politicians may not agree on the causes, but there is no doubt that climate change represents a huge risk to economies and quite possibly an existential threat to some nations altogether. But climate change action and reduction of CO2 in the atmosphere may require re-framing as an economic opportunity in order to make progress.

For example, industrial scale sequestering of CO2 seems like science fiction right now, but the point at which this technology will become essential may be closer than we think. Developing countries are increasingly switching to renewable energy sources by constructing hydro dams, solar cells and wind turbine farms. How do we redirect funding away from polluters towards such vast projects or to many others that involve greentech solutions to solve global problems like energy, transport and food? The manner in which financial investors engage with impact enterprises requires considerable re-imagining.

Finding new approaches to carbon removal does not absolve humankind from acting more responsibly of course. Government mandated reductions in CO2 production are a starting point, but that alone may be insufficient to heal the atmosphere. The disappointment of the COP25 talks this week unfortunately illustrates that we cannot wait for governments to solve these issues. In the meantime, what can us ordinary citizens do to minimise our own impact on the planet when the problem seems so overwhelming?

In 2015, under the leadership of our former Prime Minister Helen Clarke, a working group at the United Nations delivered the Sustainable Development Goals (SDG). These 17 integrated goals seek action across the many systemic issues facing the world, calling for promoting economic prosperity, human health and especially protecting the environment. If you work in government, you will probably have some awareness, as this ambitious programme has slowly percolated within the public sector. But the general public have precious little understanding of this initiative.

So in order to continue to be ambitious and remain relevant, the project needs wider exposure. The SDG provides a framework by which we can all work towards a cleaner and fairer world. At a University of Auckland talk earlier this year, Clarke herself described the SDGs as, “a blueprint to achieve a better and more sustainable future”. So 2020 is the start of the United Nations “decade of action” now aimed at accelerating progress on the sustainable development goals. There’s never been a better time to think about how business can get involved meaningfully.

The SDGs also provide corporations with a basis to improve how they operate in society generally, especially in mitigating impact on the environment. More and more businesses are beginning to accept that social and environmental concerns must be part of a sound business strategy. This is critically important because it is becoming clear that governmental organisations alone have insufficient resources to aid the transition to a greener more equitable economy. It will require partnerships between public sector and private finance to find a new way forward and in particular a huge boost in impact investing globally will be needed.

At GeniusNet, we want to play our part and have some interesting developments in the pipeline. Watch this space!

Optimising Our Knowledge Networks

Posted on Monday, 8 July, 2019 by Paul Spence

Instructing the Super Fund to channel $300 million of investment into emerging tech firms, as well as a recent call for delivery of a “deep tech” incubator to assist commercialisation of public funded research in New Zealand, illustrates that the government has been listening to the concerns of the high tech business community around the need for greater support in the commercialisation of knowledge. Health, environment, food production, robotics and AI – there are many problem areas in which we can excel. But whilst a broadening of activity in the innovation ecosystem must be seen in a positive light, new entrants may face an uphill battle.

Some say that government involvement in the sector is long overdue. Not a month goes by without the media reporting the departure of a promising high growth, high tech firm such as Rocket Lab, for example. The paucity of follow on capital and expertise available locally is often quoted as the culprit. Successive previous governments failed to address the problem due to being ideologically opposed to what has sometimes been unfairly branded as corporate welfare. But interestingly the most vocal critics of incubation and government directed investment funding tend to be wealthy and well-connected individuals who have no problem sourcing capital for their own ventures.

Since the public purse is already funding universities and research organisations in one form or another anyway, is it really such a stretch for government to facilitate obtaining an economic return on those investments? Those who mutter in their beards about “level playing fields” should take a look around. We are losing the battle with our neighbours in the Asia-Pacific region with whom we compete for capital and talent. Australia, Singapore and Korea all provide substantial support for startups and the commercialisation of publicly funded research.

So where does that leave New Zealand with its newly rediscovered enthusiasm for investing in science and technology commercialisation? Well there was an additional most welcome announcement this week of new funding for an existing body that has already made considerable inroads into surfacing promising research and turning it into businesses. That seems to foreshadow where government thinking might be heading in terms of who is now best equipped to develop a formal incubation programme.

But research commercialisation is actually a network optimisation problem involving many and diverse stakeholders. A post graduate study that I conducted on this topic a few years ago is still relevant. The most creative ideas and opportunities are found at the boundaries where disparate networks overlap. Hence the direction we are heading with, GeniusNet. It is therefore absolutely essential that we have an open innovation based ecosystem and a diversity of players in the incubation and commercialisation marketplace, if we are to lift our economy up the value chain.

Paul Spence is a commentator and serial entrepreneur, a co-founder of New Zealand based technology ventures iwantmyname and Creative Forest and principal at GeniusNet Research. You can follow Paul on Twitter @GeniusNet or sign up for a free weekly digest of startup, tech and innovation related events curated by him through New Zealand Startup Digest.

Capital Punishment: Is It Time To Accept That Wellington Has A Crisis?

Posted on Tuesday, 14 May, 2019 by Paul Spence

civic Let me begin by stating that I like Wellington Mayor Justin Lester as a person. He’s way more approachable than the previous two incumbents and I respect that he is doing his best to navigate the council through a very difficult patch in the city’s long history. He’s been a business owner in the Capital and will be acutely aware of the many challenges confronting the inner city right now. So when he announced his policy platform for re-election, I must admit to being a little disappointed.

Eliminating homelessness and assisting refugees are very worthy goals and not to be discounted of course. Good luck with all that. But Wellington has even more pressing problems. Because it is now finally beginning to dawn on city dwellers that there are very widespread structural problems which have gone unaddressed for many years. Removing vagrants from the street may become a moot point, if the central city declines into an unliveable wasteland.

Wellingtonians are political animals by nature and in recent years have been very effective at rallying support to challenge poorly planned developments around the city where there was often insufficient public consultation. Shelly Bay and the Queens Wharf hotel are classic examples, as was the Basin Flyover that was knocked for a six and the dog’s breakfast that now passes for the Island Bay cycle lane. The highly questionable airport runway extension proposal has also been defeated (for now). These lengthy battles have been a huge distraction for councillors and previous Mayors, who should have been focused on much more pressing needs, as it turns out. Public advocacy is a good thing of course, but, for their part, opponents to infrastructure projects must also come to the table with fresh solutions to offer, not just blanket opposition. Developers and investors will soon stop calling. Some already have.

Now Civic Square is dying with the much loved library and both the Town Hall and council buildings buggered due to quake damage. This is a heavy loss. The Square was once the lively centre piece of the city. If the wooden footbridge leading to the square has to close, as has been suggested recently, it will be the final nail in the coffin as the central city is cut off from the waterfront. Dozens of at risk commercial buildings in the CBD are already untenanted, unfixable and possibly uninsurable and thousands of older homes around the CBD perimeter are in need of major refurbishment – or demolition. And let’s not even mention the failing transport networks with buses and trains that don’t work, congested arterial roads and the hellish nightmare of simply trying to find a car park in the CBD.

This is Christchurch all over again, but in slow motion. It’s time to accept that the underlying framework of the city is in real crisis now. A crisis that has crept up on the current council, but which has been in the making for decades. A complete re-visioning is needed to future proof the city, also taking into account threats related to climate change. A Christchurch style solution might be the inevitable conclusion, but more likely spread over a longer period of time. Retain and strengthen a few key edifices, bulldoze and start over with the remainder? Unfortunately I fear that it will take a much broader political will and a lot more time than one election cycle, to get things back on track.

Paul Spence is a commentator and serial entrepreneur, a co-founder of New Zealand based technology ventures iwantmyname and Creative Forest and a mentor with Startup Weekends and Lightning Lab. You can follow Paul on Twitter @GeniusNet or sign up for a free weekly digest of startup, tech and innovation related events curated by him through New Zealand Startup Digest.

Will CGT Deliver “Well Being”?

Posted on Sunday, 3 March, 2019 by Paul Spence

The findings of the Tax Working Group are in and (unsurprisingly) the recommendations lean heavily towards introducing a full blown capital gains tax (CGT) into New Zealand from 2021. About the same time, the Prime Minister fronted with her first economic speech of the year in which she clearly signaled that the next budget will be focused on “well being”. Only a very cold-hearted person could deny this is much needed, but there are huge political risks attached to both these initiatives.

Lifting the economic, social and mental well being of youth seems to be front of mind for our government. Quite rightly so, young people are our future. Growing an increasingly impoverished and disenfranchised group in society is in nobody’s interest at all. But equally, ignoring economic realities and the role of business in society is a dangerous road to tread. Young people need jobs and hope and we cannot deliver this in a shrinking economy. The government must continue working on the infrastructure deficit and especially deliver on intelligently supporting economic growth in the regions, where there are many latent opportunities.

This point is important because youth unemployment and social needs are high in our rural areas, smaller towns and cities. Interestingly, farms, small businesses and family owned property holdings are likely to bear the brunt of a full CGT. Not exactly a recipe for economic growth in the provinces. But I think we all know that a comprehensive CGT is unlikely. The political risk is enormous and even the most optimistic of economists agree that, although beneficial in the long term, CGT will crush economic growth – at least initially. So the government needs to be ready to take that one on the chin.

A small blip in the economy could be weathered perhaps, but keep in mind that we are not a high growth economy in the first place. Forecasts (without considering CGT effects) place New Zealand at about 2% growth, compared to 3% average globally forecast for next few years. During my recent visit to Singapore, I noticed there was much hand-wringing in the media that their GDP growth had dropped to 7%! We are not in such an envious position and even a small drop has huge implications on tax revenues, thus cancelling out the resources for “well being” projects.

Another worry is the looming threat to businesses owners. Those who invest time and capital into growing their businesses may now be penalised when they come to realise gains from their efforts. Taxing habitual property traders and business that impact the environment is certainly something we should do, but taxing entrepreneurs for employing people, paying GST and income tax while strengthening the productive part of the economy, is a very bad idea.

Companies that produce high value “weightless exports” such as software are likely to be disproportionately penalised because these ventures tend to be started with minimal shareholder capital investment. Therefore almost all of the value at time of disposal will be subject to taxation. No doubt the government has an eye on the tsunami of baby boomer business owners that will be exiting in droves over the coming years. But who will replace them? In a world with an uncertain economic future, the current no-CGT regime on sales of business assets is one of New Zealand’s few competitive advantages.

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Technology, innovation and entrepreneurship in New Zealand.

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