Heavy Engineering Research Levy Increase Implemented

MBIE Minister Steven Joyce, who is the responsible Minister for the Heavy Engineering Research Levy (HERL) Act, announced last month that he formally approved the increase in the industry-funded levy for heavy steel plates to a new rate of $10 per tonne from the present rate of $5 per tonne. This increase will become effective from 1st July 2013 and will be applicable for all imported and locally produced heavy steel subject to Schedule 2 of the HERL Act.

Based on strong industry support, HERA has since 2002 advocated with successive governments for an increase in the industry levy contribution to common good industry research activities. However, a number of government administrative hurdles have delayed its introduction. Following a cross-party vote late last year to lift the levy maxima rate in the HERL Act, it was Minister Steven Joyce who finally was able to announce the increase.

The effective doubling of the industrys research spend linked to the heavy steel levy schedule appears to be significant, but has to be seen in perspective. Since the last increase of the research levy in 1984 to the current $5 per tonne of steel, inflation and in particular wage inflation has been massive and this has slashed the amount of research work that can be done per levy $.

However, HERA managed to maintain a credible research programme through substantial increases in heavy steel consumption linked to the success of its activities until the Global Financial Crisis impacted on the ability to sustain and grow research activities to meet industry needs. This forced HERA to reduce research to an extent where in the last three years we have only been able to focus on core activities, while increasing income-earning activities so as to maintain our highly qualified and specialist staff until the requested increase came through.

The new rate of $10 per tonne of heavy steel adds about 0.5% to the cost of steel. This is not significant when compared for example with the influence of exchange rate fluctuations. However, collectively the total research levy through the heavy steel schedule amounts to over $1 million annually. But more importantly, this core funding leverages twice its amount in further HERA activity through additional industry and government co-funding as well as self-generated income through industry training and consulting.

HERA has demonstrated a record of achieving excellent research outcomes that have lifted the competitiveness of our industry, particularly in steel construction while working under challenging financial goals. This is largely due to the fact that the need for research is industry driven and often directly flows into industry documents such as the Steel Structures Standard NZS 3404. This Standard is used in all New Zealand steel construction and in our view, HERA research paid off in big way in the Canterbury earthquakes where structural steel buildings performed very well.

Looking ahead of what is to be done with the additional research money, HERA Chairman Peter Hutton points out, many pressing research needs could not be funded over the last few years, such as low damage seismic structural systems technology, addressing metals industry sustainability targets or scoping more business opportunities for the non-structural heavy engineering sector in emerging areas such as renewable energy.

As an industry which has recognised how important it is to move from lowest-cost contractor to being high-value products and services providers, but which is also under pressure from low-cost imports, we know how important it is to understand and build our competitive position, argues Peter Hutton.

HERA research underpins our industry strategy development and enables us to address industry issues and build our potential. HERA through its many international contacts knows how important it is have stable core funding to consistently provide industry innovation. Our heavy engineering research levy-based funding system is not unique in New Zealand where the Commodities Levy Act and other research levies, such as the building research levy, help fund industry research. It is especially important in the case of a small country which has a very limited range of large companies contributing to our nations research efforts.

HERA believes as long as an industry is behind cross-sector industry research and able to agree on its spending and the targets, consumption based research levies are ideal funding schemes with very little options for free riding. Particularly in economically challenging times where company profits are under pressure and everyone agrees R&D provides a way to the future, being able to continue providing innovation is essential.

HERA staff, and surely also our industry members, are grateful that Parliament and Government has now turned this industry request into more industry driven R&D.

As announced in the levy increase consultation with the membership, the Voluntary Heavy Tubular Section Levy scheme set up to address the funding shortfalls for HERA will be cancelled with the start of the new levy rate on 1st July.