In the wake of the recent 2024-25 federal budget announcement that the government will conduct of review of Australia’s research and development system, business leaders have been quick to declare that any change must NOT seek to reduce R&D tax incentives.

This was highlighted in an article published by The Australian Financial Review last week.

The independent expert review, expected to span 18 months, is part of a strategic effort to halt the decline in Australia’s R&D investment, which has reached a two-decade low. Researched published by the Australian Industry Group (which has historically supported the R&D Tax Incentive) last November revealed that national R&D expenditure sits at 1.68% of GDP, compared to around 3% in countries such as the US, Germany, and Japan. Establishing that the need for reform in Australia is evident.

Industry and Science Minister Ed Husic has emphasised the intolerability of the current trend, stating that the review will explore how science and research can bolster manufacturing and commercial capabilities. This aligns with the Albanese government’s Future Made in Australia policy, aiming to rejuvenate local innovation and address the major structural and strategic challenges the Australian economy faces.

The Australian Financial Review has highlighted the complexity and bureaucracy involved in applying for federal R&D funding, which is dispersed across 227 programs and 15 federal portfolios.

Dr Larry Marshall, former CSIRO chief, points out the decline of Australia’s R&D capabilities, lamenting on the lack of a system which effectively converts invention into innovation. Dr Marshall notes, that Australia was once in the global top ten, and the only Australian entity to ever break it into the Thompson Reuters Global top Innovators, beating Nasa.

Veteran venture capitalist Daniel Petre, on the board of the National Reconstruction Fund warns that Australian companies in oligopoly industries spend minimally on genuine R&D, often merely adapting overseas innovations. He calls for increased onshore investment to secure a place in the future’s technological vanguard.

Sally-Ann Williams, CEO of Cicada Innovations, stresses the importance of a balanced approach to R&D investment, supporting both fundamental discovery and the commercialisation of later-stage technologies. She urges the government to adopt a long-term, “decadal approach” to establish a framework that will serve Australia for the next century.

Hon Weng Chong, founder of Cortical Labs spoke out in support of R&D Tax Incentive stability, noting “Fiddling with a known system that works risks a flight of industries from Australia that contribute heavily to our economy” .

It’s unclear at this point what the scope of the review of Australia’s research and development system will be, and whether it may involve the R&D Tax Incentive specifically. However the increased cost of the R&D Tax Incentive programme reported in the May 2024 budget may bring it under review

As the review unfolds, business responses will be pivotal in shaping Australia’s R&D landscape, and hopefully if the review does include the tax system, business will continue to speak out in support of stability in the R&D Tax Incentive programme.

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