March 6th, 2023
The freshly appointed Minister for Industry and Science, Ed Husic, recently held a press conference with Chief Scientist, Dr Cathy Foley, regarding the National Science and Research Priorities and the proposed National Reconstruction Fund, which the Labor Government are seeking to pass through the parliament.
During this conference Ed Husic was quoted as stating:
- The amount that we invest in R&D in this country relative to the OECD, we have about 1.8 per cent relative to GDP investment in R&D in Australia, and the OECD average is 3 per cent. We’ve got a lot of work to do.
- If you look, at the moment a lot of money directed through universities that are doing tremendous effort, and we’re very grateful for that effort, but we do need to have a wider look at business contributions in R&D. There are some firms that are doing some great things. There are others that, you know, will regularly say they don’t have the money for R&D yet I see a lot of money going forward into share buybacks and money that could be made available towards advancing the cause of those businesses through research and development and applying that more widely.
Swanson Reed agrees with Mr Husic’s comments that we should be looking to invest Business Investment in R&D, and we consider the best mechanisms that can achieve this are to:
- Maintain stability in tax and innovation policy to give companies confidence to invest in R&D;
- Combine this with policies that provide business access to resources and talent (skilled and unskilled labor) that will allow them to conduct R&D activity using their own capital.
It’s also important to note that investment in innovation leads to increases in productivity, which then potentially reduce inflation. With inflation being the main challenge confronting global economies at the moment, business investment in R&D can be used as past of the toolkit seeking to address these challenges.
Around this time of year (leading into the May budget) whether the R&D Tax Incentive is effective, or should be tinkered with is often raised by some in the media, politics or academia.
We have also noted in more recent times that there’s been some calling for the R&D Tax Incentive to potentially be changed from a broad based, self assessment programme (available to all companies complying with the legislative criteria) to a more grant based programme, which is assessed in advance by the Government and directed towards key priorities.
Whilst Swanson Reed respects the important role that academics play, along with the presence of some grant programmes targeting key areas, we strongly disagree with any mechanical changes to the R&D Tax Incentive for a number of reasons:
- The R&D Tax Incentive has become engrained as a critical source of funding for small business who are conducting R&D Activity. Whilst the programme’s current self assessment system is not perfect, to remove this and replace it with the uncertainty of companies seeking access to the programme being at the mercy of a Government assessment/merit process would present significant uncertainty and challenges to business;
- The innovation that arises out of (1) Australian small and micro businesses is vastly different to that which arise from (2) a university/academic institution OR from a larger business that may have the resources and connections to attain a directly funded grant. Both types of R&D are required within the Australian eco-system;
- Requiring the government to decide which projects qualify for funding would slow down the process of commencing and progressing a project. It’s important that a broad based and well understood tax incentive is available for companies to be able to rapidly instigate projects. If a process of bureaucracy, such as applying for a grant was required to be gone through (taking months or years) before funding was known and R&D activity could commence, it would drastically slow down the agility of business R&D to be responsive to Australia’s current or emerging challenges;
- Countries such as the UK and the USA have recently increased tax incentives for business to conduct R&D Activity in their local jurisdictions. Reducing Australia’s R&D Tax Incentive would diminish the certainty of companies’ incentives to conduct projects here, and thus our competitiveness as a global destination for R&D activity;
- Following the significant legislative amendments to the R&D Tax Incentive passed by both parties in October 2020 (with Bipartisan Support), Australia’s R&D Tax Incentive has only recently emerged from a turbulent decade. Industry has widely applauded the recent changes as providing stability to the programme that has been craved after a period of ongoing instability where the programme was subject to actual and proposed changes. To take this stability away would be a terrible mistake;
We call on the new government to commit to the stability of the R&D Tax Incentive as a key driver to increase business investment in R&D in line with their stated policy objectives.
Please get in touch with our office if you would like to speak to someone about a potential R&D claim, or check out our website for more information.