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Industry Minister Comments on R&D Policy Leading into Budget

May 2023 will mark the Labor government’s second budget in this term, as the budget moves back to its traditional May timing.

Leading into the budget time, whether the R&D Tax Incentive is effective, or should be tinkered with (including by changing it to a grant or Government assessment/merit system, rather than broad based self assessment) is often raised by some in the media, politics or academia.

An article published by the AFR in late March 2023 included comments from Industry Minister Ed Husic and quotes Mr Husic as stating:

• ‘improved measures to incentivise R&D spending are under consideration for the May budget, but that no changes to existing tax incentives are planned, and that nothing will happen without industry consultation’

Whilst the past 12 months has been a challenging period for Start Ups in Australia, any negative issues are largely related to capital markets and interest rates being normalised, and are NOT a direct failure of innovation policy.

Swanson Reed agrees with Mr Husic’s indicated approach that no changes are required to the R&D Tax Incentives (or other innovation incentives) at this time for a number of reasons:

1. The R&D Tax Incentive has become ingrained as a critical source of funding for small businesses 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;
2. 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;
3. Other countries 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;
4. 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 applaud the government’s indication that no changes are forthcoming, and 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.