Home » News » December 2023 MYEFO indicates cost of R&D Tax Incentive is growing

December 2023 MYEFO indicates cost of R&D Tax Incentive is growing

The 2023‑24 Mid‑Year Economic and Fiscal Outlook (MYEFO) was released by the Government in December 2023.

New estimates within MYEFO show the R&D Tax Incentive (‘RDTI’) is expected to cost an extra $2.1 billion over the next four years, including an additional $432 million in FY22-23.

According to the report, the increase is being driven primarily by claims arising from biomedicine, artificial intelligence, and machine learning activities.

It’s part of a growing trend: software claims accounted for 30% of RDTI registrations in FY19-20, then 36% in the following year, and more than 40% in FY21-22.

The forecast increase comes as the federal government’s spending on R&D as a proportion of GDP hits an all time low, according to data from FY21-22, it’s at 1.68%, well below the OECD average of 2.5% in 2019.

The government has previously committed to pushing the economy’s total spend on R&D towards 3% of GDP.

InnovationAus.com conducted detailed analysis of the RDTI figures in the December MYEFO and also sought direct comment from Treasurer Jim Chalmers.

The Treasurer responded:

• ‘the government seek to get maximum economic advantage out of technological change;
• ‘We need to get much better at adapting and adopting technology. It’s a huge part of modernising our economy and maximising our advantages.’
• ‘We haven’t announced any changes or any new data about the impact of the research and development tax incentive, but we are looking more broadly, to make sure that we’ve got the arrangements right … to make the most of tech change.”

Swanson Reed notes and concludes the following regarding the RDTI figures in MYEFO:

• When in opposition, the Labor party (via Industry Minister Ed Husic) indicated that they may make the RDTI more friendly to software based startups and stated that:
• ‘Labor absolutely and fundamentally recognises the powerful place occupied by the RDTI in the minds of the Australian startup community, and we do not want to make changes that affect the startup community’s ability to access the incentive’;
• ‘the Australian startup community should not be affected negatively by reforms to the R&D Tax Incentive, which they have consistently said to me is the most important form of government support for their work’;
• The RDTI having growing funding over the next four years hopefully indicates that the Labor Government is honouring commitments to preserve RDTI and boost R&D Spending;
• Stakeholders involved with the R&D Tax Incentives should notehowever that it is clear based on recent comments from programme regulators (AusIndustry and ATO) that compliance activity will increase in the coming months. This may or may not be in response to increasing programme cost;
• Swanson Reed encourages all sides of politics to commit to preservation of a stable R&D Tax Incentive;
• Swanson Reed recognises the important role the programme regulators (AusIndustry and ATO)  play in governance of the system, and we seek to work alongside them to maintain the compliance integrity of the programme.