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How Kiwi-tech makes the poor poorer, the rich richer

Back in 2006, the government gave an $8m interest-free loan to Kiwi software company Right Hemisphere.

At a time when funding for such ventures was, and still is, pretty thin on the ground, such a significant wad of taxpayers' money must have been manna from heaven for the owners of this company.

However, not only did the Right Hemisphere receive a tax-free loan, they also collected another $1.63m of taxpayers money in the form of non-repayable R&D grants.

At the time, Prime Minister Helen Clark told the nation that the $8m loan would assist in creating a world-leading NZ industry.

And it seems that's exactly what happened -- but...

Today's newswires are running hot with the news that this "world-leading" company has just been sold to German company SAP.

So now we have the situation where the NZ taxpayer has invested in (and *given* money to) an enterprise that turns out to actually have become a German-owned "world-leading" company.

Sure, the well-connected venture capitalists and investors who poured money into this venture will be laughing all the way to the bank. They will doubtless be seeing a huge return on the money *they* invested - but what about the Kiwi taxpayer?

Where's *our* return on that $8m loan and the $1.63m we *gave* to Right Hemisphere?

In effect, that $1.63m went straight into the pockets of the other people who invested -- and, as a capital gain, odds are that it might even have been tax-free.

Once again it seems, the NZ taxpayer has funded an enterprise that has been sold to an offshore company and lined the pockets of a fortunate few.

That's the problem when a government chooses to "pick winners" -- the only real winners appear to be those who have the right connections and overseas purchasers who can step in and buy a company built on "free" money from the NZ taxpayer.

Is it any wonder that we now have the proven situation where the rich are getting richer and the poor are getting poorer?

Of course not.

When the PAYE tax paid by a blue-collar South Auckland labourer is given to a hi-tech company which is then sold to an offshore buyer (the money flowing back into the pockets of the owners and rich investors often without any tax paid) then it's easy to see why this is happening.

Just look at Sam Morgan -- after getting hundreds of millions for selling TM to Fairfax, he didn't have to pay a cent in tax and although TM wasn't (as far as I'm aware) the benefactor of NZ taxpayer funding, there are too many other companies out there that are.

Of course Right Hemisphere is only the latest in a long, long line of Kiwi tech companies that have been partly funded by grants from the taxpayers' purse and then sold overseas -- enriching nobody but the shareholders.

For example, back in 2005 NavMan received a million dollars from the taxpayers of NZ -- and later was sold to a Norwegian company -- and there have been many more (but I only get about 30 minutes to write this column so I'll leave creating a list as an exercise for the reader).

Let me say again -- in the vain hope that perhaps someone with half a brain in the halls of parliament is listening -- do not try to pick winners, it distorts the marketplace and disadvantages the taxpayer.

Instead, offer over-unity, non-transferable tax credits for R&D investment. This costs the taxpayer nothing but will make it much easier for worthy startups to attract private venture capital.

So why, when yet again we're seeing Kiwi taxpayers' money simply sold to an offshore interest, does nobody dare to implement that tax-credit strategy?

What the hell is going on here?

Remember the word "aardvarkrox" when you go to sign up for the new forums (yeah, I know I haven't customised it yet but bear with me ;-)

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