November 18th, 2019
At a recent speech, shadow minister for Innovation and Technology Clare O’Neil has made some high-level comments with respect to the R&D Tax Incentive and Australia’s innovation policy.
Key points from the speech included the following:
- Australia’s national spending on R&D is about 1.8% of GDP. World-leading countries are spending more than 4%, and the OECD average today is well above Australia’s at about 2.4%;
- 2016-17 was the first year R&D spending in Australia actually went backwards;
- Labor noted that they see a potential reform opportunity in the R&D Tax Incentive, which is an indirect broad-based programme, and costs approximately $2B per year;
- Labor referenced the Ferris/Finkel review of the programme and noted that best practice countries are doing much more direct spending on R&D, for example, through grants programs, than Australia. Labor further noted that whilst they are not advocating a full direct-investment approach, R&D funding could perhaps be made more direct and focused, in line with national strategic objectives.
Whilst these comments are not definitive, they could suggest that Labor may consider redirecting funds from the R&D Tax Incentive to more direct investment programs.
These comments may also be interpreted as a change in position from commitments Labor made during the election campaign, whereby Kim Car stated:
- Labor would seek to double the number of companies registered for the R&D Tax Incentive;
- Labor was committed to the preservation of the R&D Tax Incentive;
The current comments also follow recent indications by the government that proposed cuts to the R&D Tax Incentive may potentially be retabled, with treasurer Josh Frydenberg suggesting in recent months that the proposed ‘intensity threshold’ mechanism may be reintroduced. The bill to enact previously proposed reforms (Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018), did not pass through the Senate last year, and a Senate Economics Legislation Committee recommended that the bill should be deferred from consideration until further analysis of the bill’s impact is undertaken, particularly with respect to concerns around the proposed intensity threshold and refundable offset cap.