Spend tourism money on innovation instead, Treasury told govt

Thursday 18th July 2013

The government's $40 million a year tourism spending boost was a waste by comparison with adding those funds to the pot to encourage high value manufacturing and service industries, the Treasury advised before the May budget.

The advice is contained in an aide memoire on April 5 to Treasury suggested to Finance Minister Bill English and Economic Development Minister Steven Joyce covering proposals to spend an extra $100 million on science and innovation grants, tourism promotion, and international education initiatives.

The funds were to be split 50/40/10 between the three areas, but the Treasury suggested that "focusing more (or all) of this new funding on science and innovation would have greater net benefits."

"Increased science and innovation funding would represent good value for money, and can be easily scaled up," the memo says. "In contrast, the benefits of additional tourism spending are unclear."

There was a risk that increased tourism promotion spending would be "captured by tourism operators, without wider benefits to the economy."

It also suggests an extra $10 million a year for the recently formed Education New Zealand entity, which promotes New Zealand tertiary education opportunities to students in other countries, is premature since the organisation didn't manage to spend its full budget last year and ended up with a $5.8 million surplus.

"It isn't clear that Education New Zealand requires funding at this stage," the Treasury said. Other spending in the tertiary education sector, such as increased funding for the Performance Based Research Fund or Centres of Research Excellence "could potentially offer better value for money."

Given the Cabinet's desire to spend more on tourism, the Treasury suggested cutting the proposed $40 million annual funding to $20 million a year, diverting the $10 million a year for Education New Zealand to university research funding, and increasing science and innovation funding by $70 million a year for the next four years.

"There would be greater gains from focusing on the growth package more intensely on increasing science and innovation funding, in place of additional tourism spending," the memo says.

The budget original allocations did not change.

The tourism initiatives, intended to target high value tourists from Asia and Latin America in particular, were being pursued despite "no strong evidence of market failure being addressed by programmes in this area, and current spending hasn't yet received robust evaluation."

Prime Minister John Key is also the Minister of Tourism.

The advice is consistent with earlier Treasury advice questioning the value to the New Zealand tourism sector and economy of a national convention centre in Auckland, which Ministers believe will improve the country's capacity to attract large-scale international business events.

By contrast, additional spending on grants to assist potentially high growth New Zealand businesses with science and innovation grants, while increased public research funding would accelerate the introduction of the government's National Science Challenges programme and add funds in an area which had seen no increase since 2009.

Other papers released along with the aide memoire detail how innovation grants funding will be more strictly targeted in future, including greater focus on "clawback" provisions where firms who receive taxpayer assistance sell their businesses shortly afterwards.

"It is critical that this funding be used to drive growth in New Zealand businesses and create high value jobs in New Zealand," a Cabinet Business Committee paper of March 28 says. "The grants must not be used as a way for businesses to access inexpensive equity, just to sell the business on and capture the gain at the cost to the taxpayer."

BusinessDesk.co.nz

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