There is strong theoretical and empirical support linking business research and development, innovation and productivity growth at a national level. There is also strong evidence of spillovers from business R&D. The magnitude of these spillovers is economically significant and warrants subsidies. Evidence also suggests that a mix of discretionary and non-discretionary policies is likely to be required. New Zealand looks increasingly unusual in the OECD in terms of its sole reliance on discretionary grants for business R&D. This paper proposes implementing a well-designed non-discretionary R&D assistance scheme aimed at stimulating a sustained increase in levels of business R&D.