Blog Layout
Govt. slashing $1.8bn from R&D tax concessions
Paul Brescia
Business to be hit with $26m in regulatory costs, as access to scheme changes
The Federal Government has received blowback following its attempt to slash the Research and Development (R&D) Tax Incentive, which offers a tax incentive to companies which primarily undertake their R&D in Australia.
The proposed changes from the Government would reduce the benefit of the scheme, cutting $1.8bn from the budget over four years, while introducing an estimated further $26m in compliance costs to business under the new Bill.
The Government’s argument is that the R&D Tax Incentive is being claimed by companies for R&D activities that they would undertake regardless, and thus not achieving the Bill’s stated goal- to increase investment and innovation in Australia.
Innovation Intelligence spoke with David Gelb, Global Head R&D Tax Incentives at KPMG, on what the changes mean, and how they will affect Australia’s competitiveness on the world stage.
In his view, “The changes are negative, and are likely to significantly reduce the impact of the R&D Tax Incentive, and accelerate Australia’s downward trend in R&D spending.
“Many large companies will have their R&D incentives halved, and this will have a flow-on effect to SMEs and start-ups which are often reliant on collaborative projects.”
Gelb says that SME’s in critical industries, such as agriculture and manufacturing will be disincentivised from continuing to do R&D given the surprisingly low 4.5% rate on offer.
“The rhetorical carrot of a higher rate is based on the flawed ‘intensity’ model which is unobtainable for many of those businesses.”
AusBiotech, which represents the emerging Australian biotechnology industry, has said, “The vast majority of SMEs and companies in life sciences will be disadvantaged in their claims if the proposed changes go ahead.
“As the most critical policy for the industry, the proposed changes have the potential to significantly damage the sector, and ultimately impact its capacity to deliver new, innovative treatments to Australian patients.”
Business expenditure on R&D has fallen in Australia
since its peak in the 2013/14 financial year, from $18.8bn to $17.4bn in the 2017/18 figures.
As a proportion of GDP, overall expenditure on R&D in Australia has fallen to an all-time low of 1.79% in 2017/18, well below the OECD average of 2.38% and Business expenditure on R&D as a percentage of GDP has fallen even further to 0.9% in 2017/2018.
Professional Scientists Australia has called for R&D investment to be increased 2.5% of GDP by 2025, reversing the decline of government R&D funding.
A spokesperson from the organisation notes, “This would allow us to sit in the middle of the OECD table, and we should use science and R&D to kick-start growth.
“Investment in science and R&D determines the size and impact of future dividends paid back into the economy. Cuts to science are false economy - we need a coordinated set of policies that encourages and incentivises business investment in R&D so we can support emergent industries and the creation of new jobs.
“Properly funded science and R&D should be central to the federal Government’s commitment to economic growth and increasing our competitiveness in the global economy.”
The United Nations’ World Intellectual Property Organisation (WIPO) annually ranks member states’ innovation potential, with Australia currently ranked 22nd worldwide, and sixth in the region.
This is a fall from Australia’s peak in 2014, when it reached as high as of 17th.
Gelb says that the proposed changes may result in a loss of opportunity for Australia’s economy.
“R&D Incentives exist in many countries, and the measures put forward will place Australia at a significant competitive disadvantage to other countries.
“One of the key strategic reasons to have a R&D incentive is to encourage companies to come and stay. When it comes to the world of tech, it is not difficult to pull up good teams and move to more attractive locations in Singapore or New Zealand,” he explains.
Another significant concern raised by Gelb is that the Government is proposing to retrospectively apply these measures. If enacted as currently draft, this will claw back benefits arising from expenditure companies have already made in relation to:
- Spent funds on R&D
- Employed people to do R&D
- Invested in facilities and equipment to do R&D
- Moved to Australia to do R&D
- Entered into contracts to do R&D
To mitigate some of the negative effects, Gelb says, “There should be grandfathering of any changes for at least two years, on the basis that companies have already made commitments.
“It is unfair for companies who have invested in good faith, on the basis of expecting stability in the law.”
Getting asked what we look for in deals is one of the most common questions I get as an investment manager.
The Small Business Association of Australia is dedicated to supporting SMEs, acting as their voice to government and helping them connect, grow, and prosper well into the future.
Sensibles may sound like science fiction, but this revolutionary technology is making waves in aged-care facilities, and has the potential to transform health monitoring at scale.
Alice Springs and the deserts of Central Australia don’t sound like a food basket, but they are for businesswoman and bush foods innovator Rayleen Brown.
A new report aims to lay the foundations for a deeper and more meaningful and equitable relationship between Indigenous and non-Indigenous Australians in the mining transition sector.
If the health and medical research sector in Australia is to move forward, it must address gender equity, diversity, and inclusion- which means making the sector a safe and inclusive workspace for all.
A ground-breaking sheep technology system is bettering the businesses and lives of Australian sheep breeders thanks to a revolutionary combination of software, hardware, and support never before combined into one cohesive unit.
ANCA took an early view to look beyond Australia’s shores whilst developing advanced manufacturing technologies now viewed as ‘business as usual’
As Australia grapples with a critical skills shortage, many are now encouraging young people to embrace a career in the trades, where a wealth of opportunities awaits.
In 2016 I published a blog article titled Moonshots for Australia: 7 For Now. It’s one of many I have posted on business and innovation in Australia. In that book, I highlighted a number of Industries of the Future among a number of proposed Moonshots. I self-published a book, Innovation in Australia – Creating prosperity for future generations, in 2019, with a follow-up COVID edition in 2020. There is no doubt COVID is causing massive disruption. Prior to COVID, there was little conversation about National Sovereignty or supply chains. Even now, these topics are fading, and we remain preoccupied with productivity and jobs! My motivation for this writing has been the absence of a coherent narrative for Australia’s business future. Over the past six years, little has changed. The Australian ‘psyche’ regarding our political and business systems is programmed to avoid taking a long-term perspective. The short-term nature of Government (3 to 4-year terms), the short-term horizon of the business system (driven by shareholder value), the media culture (infotainment and ‘gotcha’ games), the general Australian population’s cynical perspective and a preoccupation with a lifestyle all create a malaise of strategic thinking and conversation. Ultimately, it leads to a leadership vacuum at all levels. In recent years we have seen the leadership of some of our significant institutions failing to live up to the most basic standards, with Royal Commissions, Inquiries and investigations consuming excessive time and resources. · Catholic Church and other religious bodies · Trade Unions · Banks (and businesses generally, take casinos, for example) · the Australian Defence Force · the Australian cricket teams · our elected representatives and the staff of Parliament House As they say, “A fish rots from the head!” At best, the leadership behaviour in those institutions could be described as unethical and, at worst….just bankrupt! In the last decade, politicians have led us through a game of “leadership by musical chairs” – although, for now, it has stabilised. However, there is still an absence of a coherent narrative about business and wealth creation. It is a challenge. One attempt to provide such a narrative has been the Intergenerational Reports produced by our federal Government every few years since 2002. The shortcomings of the latest Intergenerational Report Each Intergenerational Report examines the long-term sustainability of current government policies and how demographic, technological, and other structural trends may affect the economy and the budget over the next 40 years. The fifth and most recent Intergenerational Report released in 2021 (preceded by Reports in 2002, 2007, 2010 and 2015) provides a narrative about Australia’s future – in essence, it is an extension of the status quo. The Report also highlights three key insights: 1. First, our population is growing slower and ageing faster than expected. 2. The Australian economy will continue to grow, but slower than previously thought. 3. While Australia’s debt is sustainable and low by international standards, the ageing of our population will pressure revenue and expenditure. However, its release came and went with a whimper. The recent Summit on (what was it, Jobs and Skills and productivity?) also seems to have made the difference of a ‘snowflake’ in hell in terms of identifying our long-term challenges and growth industries. Let’s look back to see how we got here and what we can learn. Australia over the last 40 years During Australia’s last period of significant economic reform (the late 1980s and early 1990s), there was a positive attempt at building an inclusive national narrative between Government and business. Multiple documents were published, including: · Australia Reconstructed (1987) – ACTU · Enterprise Bargaining a Better Way of Working (1989) – Business Council of Australia · Innovation in Australia (1991) – Boston Consulting Group · Australia 2010: Creating the Future Australia (1993) – Business Council of Australia · and others. There were workshops, consultations with industry leaders, and conferences across industries to pursue a national microeconomic reform agenda. Remember these concepts? · global competitiveness · benchmarking · best practice · award restructuring and enterprising bargaining · training, management education and multiskilling. This agenda was at the heart of the business conversation. During that time, the Government encouraged high levels of engagement with stakeholders. As a result, I worked with a small group of training professionals to contribute to the debate. Our contribution included events and publications over several years, including What Dawkins, Kelty and Howard All Agree On – Human Resources Strategies for Our Nation (published by the Australian Institute of Training and Development). Unfortunately, these long-term strategic discussions are nowhere near as prevalent among Government and industry today. The 1980s and 1990s were a time of radical change in Australia. It included: · floating the $A · deregulation · award restructuring · lowering/abolishing tariffs · Corporatisation and Commercialisation Ross Garnaut posits that the reforms enabled Australia to lead the developed world in productivity growth – given that it had spent most of the 20th century at the bottom of the developed country league table. However, in his work, The Great Reset, Garnaut says that over the next 20 years, our growth was attributable to the China mining boom, and from there, we settled into “The DOG days” – Australia moved to the back of a slow-moving pack! One unintended consequence of opening our economy to the world is the emasculation of the Australian manufacturing base. The manic pursuit of increased efficiency, lower costs, and shareholder value meant much of the labour-intensive work was outsourced. Manufacturing is now less than 6% of our GDP , less than half of what it was 30 years ago!
