The Productivity Commission is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. It states its role is to help governments make better policies, in the long term interest of the Australian community.
In early August 2022, The Productivity Commission published its annual review of trade and assistance which it notes is to keep a record of assistance.
Some notable extracts from The Productivity Commission annual review relevant to the R&D Tax Incentive include the following:
o Budgetary outlays — program funding provided by the Australian Government that assists businesses. Budgetary outlays most commonly take the form of grants, subsidies, loans, guarantees or funding for organisations to perform commercially beneficial services.
o Tax concessions — assistance by way of differential tax treatment that provides benefits to some businesses but not others.
o R&D Tax Incentive Refundable Offset Cost increased from $1,868M in FY20 to $2,119M in FY21;
o R&D Tax Incentive Non-Refundable Offset Cost remained steady at $570M from FY20 to FY21.
The AFR has reported that the Productivity Commission report could be used by incoming Treasurer Jim Chalmers and Finance Minister Katy Gallagher in identifying “waste and rorts” in the budget ahead of the new Government’s budget to be handed down in coming months. It has previously been reported in the media that concessions such as diesel fuel rebates may be a budget savings target.
We believe that it is not likely that the incoming government may target the R&D Tax Incentive for budget savings, particularly for small business, since:
It is, however, not inconceivable that changes may eventually be proposed to the R&D Tax Incentive for larger companies, since “Ensuring Multinationals Pay Their Fair Share of Tax” was also a key policy objective of the newly elected federal government. When Labor was last in power, the Gillard Government proposed reductions to the R&D Tax Incentive for large companies by caps and offset changes. If the R&D Tax Incentive were to be reduced for large companies, such a move would be regrettable, since larger companies’ capital is more mobile and they are able to choose to conduct projects in jurisdictions that offer better or stable R&D Tax Incentives.
We call on the new government to maintain and commit to stability in the R&D Tax Incentive, which would increase the programme’s effectiveness and give companies confidence to make long term investment decisions.