Budget 2024: What the tech sector wants to see

Here are seven areas many in the tech industry would like to see included in Thursday’s budget, and how likely the government is to deliver results.

Action on AI

New Zealand is falling
lags behind the rest of the world in artificial intelligence (AI) in that it has no major government funding initiatives to increase the use of the technology or any regulation of AI.

Surveys have shown that most Kiwis are afraid of the dark side of AI and want to see some guardrails put in place.

Why would anyone in the private sector want to wrap AI in bureaucracy?

Buddle Findlay special advisor Damien Steel-Baker says many New Zealand companies are looking to invest in artificial intelligence systems. They believe that some degree of regulation is inevitable at some point, but they don’t want to waste money now on creating products and services that may conflict with rules that are not yet known. “As a result, some people will have some uncertainty, which will stifle their innovation,” Steel-Baker says.

In the United States, President Joe Biden has issued a comprehensive series of directives on artificial intelligence. The European Union has adopted a law on artificial intelligence that includes security criteria that artificial intelligence systems must meet and prohibitions (exceptions to warrant enforcement) of the use of artificial intelligence in CCTV footage, predictive police profiling or “emotion recognition” systems in the workplace to give some examples.

Australia’s 2023 Budget has committed A$101.2 million ($108.6 million) to the Critical Technologies Fund to help build AI governance frameworks and support the adoption of AI technologies by small and medium-sized businesses (as part of the broader technology implementation fund, which exceeded AUD 1 billion). The 2024 Budget (announced on May 14) includes another $40 million for national AI hub programs to support the safe and responsible deployment of AI. Will we see similar initiatives on this side of the Tasman? You can bet Technology Minister Judith Collins will unveil an AI strategy soon, but with tight wallets, significant Crown spending on streamlining technology updates is slim.

Development of broadband Internet in rural areas

A briefing for new Minister (or ‘Bim’) for Media and Communications Melissa Lee (since replaced by Paul Goldsmith) said the city’s ultrafast broadband (UFB) network is “world class” but “despite significant government investment “Rural New Zealanders use communications services that are slower, less reliable and more expensive than urban New Zealanders.”

The Technology Users Association of New Zealand (Tuanz) advocates for improved broadband in rural areas, and Chorus recently reiterated its proposal for the Crown to co-invest in PPPs to expand the fiber network in rural areas. The NZX-listed company has envisioned a 10-year public-private rural fiber rollout worth $2 billion to $2.5 billion over 10 years. This likely represents too much sticker shock for Goldsmith – at least in the 2024 budget – but the government could still expand more modest wireless broadband and cellular efforts, or simply expand the pilot project to subsidize Starlink installations in remote areas.

USD 300-500 million for start-ups

Will Elevate be lifted?

In 2020, the previous government provided $300 million (most of it through the New Zealand Super Fund) to create the Elevate Fund, which leveraged new funds created by private venture capital firms that in turn invested in tech startups.

With that $300 million almost exhausted, the Labor-led government’s Startup Council, made up mostly of people from the private sector, recommended a replenishment of Elevate – this time for $500 million. This and other suggestions were not taken into account.

Recently, one of the partners of Blackbird – Australia’s largest venture capital fund and recipient of Elevate’s $30 million to NZ Fund 2 – wrote an open letter to the Coalition government, also recommending a $500 million top-up to Elevate.

It’s hard to judge Elevate’s success at this point. From early 2020 to early 2022, there was a venture capital (VC) boom in New Zealand. But cheap money meant a boom in VC capital around the world. It’s also too early to judge the success of Elevate’s co-investments (and Crown-backed New Zealand Growth Capital Partners, which manages it, always plays its cards on any time frame).

Either way, the top-up is unlikely to appear. Before the election, Collins tamped down expectations for more money for Elevate, citing Crown’s limited accounts and the need to know the situation while in office. And this land looks more rugged than expected.

The Startup Council also recommended tax breaks for investments in start-ups. Collins again cautiously lowered expectations ahead of the election, citing fiscal constraints that have only tightened since then.

Legendary Aesops

Tech entrepreneur and unsuccessful national candidate for central government in Auckland, Mahesh Muralidhar and the Startup Council are among those who have lobbied the government to abolish tax on unrealized gains on employee stock ownership plans (ESOPs). This would make it financially practical for start-ups struggling with financial shortfalls to offer equity to retain or lure talent from New Zealand or overseas.

Collins said before the election that she was open to such a solution, but would not commit to it 100%. Still, it’s all on the cards.

Some in the start-up community also want the government to tackle the offshore investment fund tax, which they believe constitutes double taxation and discourages high-net-worth individuals from coming to New Zealand and investing in our early-stage companies. So far, there is no appetite for action on this front.

Support for NZ Inc

“NZ Inc” is an acronym for government and private enterprise working together in our small country economy, where everyone knows, where everyone can see that the various sectors in need of Crown support are growing to the point where they are becoming competitive on a global stage – or in the state develop faster.

There have been some negative impacts from the current government so far, with tech-friendly agencies such as Callaghan Innovation and the Ministry of Business, Innovation and Employment (Mbie) stuck with widespread civil servant cuts, and delays to major IT projects contributing to Spark’s recent gains downgrades and pressure on every company doing business with the government – certainly the largest single purchaser of technology products and services in New Zealand – as Crown agencies close.

Cloud software supporting kiwiSaaS, whose six full-time employees are receiving $11 million from the previous government that expires in June, is one of several industry players nervously eyeing the 2024 budget.

It is likely that Collins-friendly New Zealand will continue and even expand public-private efforts to develop the technology. However, the funding may not be allocated with the limited 2024 budget and it is more likely to go its own way rather than renew the previous government’s initiatives.

More about cybersecurity and e-security

Australia has spent more than New Zealand, per capita, on government efforts to strengthen cybersecurity and promote online e-safety. Australians have committed A$86.5 million to establish a new National Anti-Fraud Centre, A$46.5 million for a cyber security coordinator to coordinate multi-agency efforts in the event of a cyber incident, and funding for the Australian Office has been quadrupled. eSafety Commissioner (roughly equivalent to New Zealand’s Netsafe) an injection of A$131 million (total Netsafe funding is approximately A$4.5 million).

It’s unlikely we’ll have spending on this scale here (and indeed there have only been cuts so far, consulting with Internal Affairs on the proposed redundancy of 11 staff in the Digital Security Group) and abandoning plans for a social media security regulator .

In this case, we will certainly see greater centralization and coordination between the public and private sectors and a multitude of agencies on the Crown side of the fence – as Collins noted in her Office of Technology Security and Government Communications (GCSB) and Minister of Trade and Consumer Affairs Andrew Bayly in the area of ​​cyber fraud. However, an immediate increase in funding is less likely.

Digital services tax

After bringing it to the Cabinet in 2019, Finance Minister Grant Robertson (along with new Treasury Minister Barbara Edmonds) finally introduced the Digital Services Tax (DST) legislation on the eve of the 2023 elections. There was not even time for a first reading.

DST would include a flat tax on Big Tech company revenues in New Zealand, regardless of profit – billed as a measure to prevent the so-called shifting profits to low-tax countries such as Ireland.

The bill was welcomed by local tech industry group Ginger NZRise, but Big Tech may have hoped it would die a natural death after the election.

Instead, Treasury Secretary Simon Watts reintroduced the Digital Services Tax Act in December. He recently said Herald he was still wondering whether to continue. The 2024 budget may reveal whether it views the threat of daylight saving time as a useful bargaining chip or an avenue for a crackdown. Critics, including officials at the Ministry of Foreign Affairs and Trade (MFAT), say the amounts obtained will be modest and could be completely wiped out by retaliatory tariffs.

What has already been done?

The government will maintain the 20% research and development tax relief for the video game sector introduced by its predecessor.

The Consumer Data and Products Bill 2024, presented to parliament last week, aims to introduce open banking, which – all as planned – should make it easier for fintech apps to provide such new payment solutions, putting market pressure on contactless payment fees payments. It should also make it quicker and easier to get a loan, compare or switch to another supplier (although banking will be the main focus).

Chris Keall is a member of the association based in Auckland Heraldbusiness team. Joined Herald in 2018 and is a technology editor and senior business writer.