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R&D Tax Incentive expenditure exceeded the Industry Department’s projections

Reporting by InnovationAus has detailed how the value of Australia’s Research and Development Tax Incentive (“RDTI”) has significantly exceeded the Industry Department’s projections by nearly $860 million for the last financial year.

Recent Government data reveals that the RDTI accounted for 30.9% ($4.23 billion) of all Commonwealth R&D investment in 2023-24, an increase from the expected 27% ($3.37 billion).

The revised RDTI expenditure significantly influenced the total estimated R&D expenditure for the 2023-24 financial year, which increased from $12.6 billion to $13.8 billion. The final budget outcome for 2023-24 estimated actual RDTI expenditure at around $4.58 billion, an increase of $1.27 billion from the previous budget estimate.

The reports of higher-than-expected cost of the programme also come at a time when Treasurer Jim Chalmers expressed concerns about RDTI application to gambling and poker machine development. We understand that the treasurer was recently approached for comment on the matter of reported R&D expenditure by gaming companies (as revealed in the FY22 transparency reports) and responded that he saw the situation as ‘problematic’.

Swanson Reed notes that the situation is complex, and our firm are not an advocate for the gaming industry.

We note the following:

• We maintain our view that for the R&D Tax Incentive to be effective, it must be known, stable, broad based and market driven;
• We respect the current Government for not making any adverse changes to the RDTI since they came to power and note that it’s their right to review the programme as was announced in the May 2024 budget. However It’s unfortunate that media reports on the increasing cost of the RDTI OR the activity of particular claimants often lead to discussions around cutting or capping the program. This is also contrary to the Government’s policy emphasis on boosting R&D expenditure.
• In comparison to prior years, anecdotal evidence and data indicates that the RDTI may now be cleaner, with fewer contested claims and less litigation occurring. If the program is indeed more efficient and cleaner, increases in R&D expenditure should be viewed positively;
• It should also be noted that that there has probably been a lower amount of industry assistance offered to business in recent years than may have been expected. Programmes such as Accelerating Commercialisation have wound down, and programmes such as the NRF are probably rolling out slower than expect (we again respect the current Government for not rushing the NRF so as to not unduly contribute to inflation or reduce taxpayer value for money). An increase in expenditure on RDTI should however be analysed in the context of reductions in other Government industry assistance. Clawback mechanisms will also operate for RDTI claimants that may receive funding from other government sources;

Again this year, there have been calls from some sectors to make significant changes to the R&D Tax Incentive (including changing from a broad, market based, self assessment programme to a grant based system which is assessed based on government identified areas of strategic priority). We believe any such change would be a mistake and undermine business confidence and empowerment to make timely and significant investment decisions

Whilst the cost of the programme is growing, and must understandably be subject to scrutiny to ensure taxpayer value, Swanson Reed will continue to call for stability in the programme as the cornerstone for business investment in R&D.

Please get in touch with our office if you require assistance, would like to speak to someone about a potential claim, or check out our website for more information.