Technology companies say the National Party's tax plan to abolish research and development tax incentives will drive research and development offshore.
The 15% tax rebate for businesses conducting R&D in this country came into effect in April, but National plans to scrap it to help fund tax cuts if it becomes the Government.
Some businesses say cutting the rebate, worth an estimated $700 million, is a backward step and will force them to do R&D overseas in countries such as Australia which has the tax credit..
The National Party says it has seen little evidence of increased R&D spending due to the credit, and abolishing the scheme will help fund its tax cut package.
But John Walley from the Manufacturers and Exporters Association says that is a daft comment because no tax returns have yet been filed, as the tax credit was introduced only in April.
The technology company, Imarda, which designs vehicle fleet-management technology, says the decision to axe the tax credit is likely to force it to go overseas to do its research rather than stay in New Zealand.
Chief executive Selwyn Pellett says the policy is cynical electioneering, and shows a lack of understanding for the issues facing many businesses.
And another high-tech company, Endace, says the policy flies in the face of the drive to build a knowledge economy.
Endace, which employs 70 people in Auckland, is worth more than $150 million and has been growing at 50% a year.
Chief executive Mike Reilly says scrapping the scheme would make other countries' offers much more enticing and contribute to the brain drain.
Mr Reilly says the irony of the situation is that Endace opened a state-of-the-art research and development facility in Auckland just this week.
Business New Zealand chief executive Phil O'Reilly says while the R&D tax credit announcement is disappointing, the package as a whole is sensible.
Mr O'Reilly says the National Party needs to look at different ways of ensuring companies can invest more in innovation.
Agricultural and Horticultural Science Institute president John Lancashire says scientists will be disappointed at the proposal to remove the research incentive for the private sector, especially as it goes further than what National proposed in its own science policy.
Responding to criticism, Mr Key said scrapping the tax credit would not widen the productivity gap between New Zealand and Australia.
Mr Key says National would put $100 million more into publicly-funded research such as that conducted by Crown Research Institutes and universities.