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Treasurer Ed Husic’s Comments on R&D Tax Policy ahead of March 25 Federal Budget

Due to the timing of the upcoming Federal election, the 2025 Federal budget will be held on Tuesday 25 March 2025, which is earlier than the traditional May timeslot.

It is probably unexpected that there will be any R&D Tax Incentive changes announced in the March 25 Federal budget given that:

• There was a material change announced only recently in the December 2024 MYEFO, which announced exclusion of R&D activities related to gambling and tobacco from eligibility for income years starting on or after 1 July 2025;
• The government is currently undertaking a strategic examination of Australia’s R&D system that has not yet handed down any recommendations, and the consultation does not close until after the March 25 Federal budget is delivered.

While R&D Tax changes are not expected in this budget, organisations such as The Business Council of Australia have urged the Government to remove the R&D tax incentive threshold (which caps claimable expenditure to $150m) or at least increase it to $250m+.

In comments recently published by The Australian, Industry and Science Minister Ed Husic has rejected calls to increase the R&D tax incentive expenditure cap.

In response, Mr Husic argued that businesses should conduct R&D because it was “good for them”, telling the National Press Club of Australia, “I don’t need a tax incentive to brush my teeth”.

Mr Husic said, “A lot of businesses get the value of R&D. I don’t think they should just say: ‘We’re not investing in R&D unless we have a tax incentive’.”

Australia’s R&D spend is 1.66% of GDP, lower than the country’s 2.3% expenditure in 2009, and much lower than countries such as Japan, Germany and USA, which each spend more than 3% of their GDP on R&D.

However, Mr Husic said he was hesitant of “throwing money” at the tax incentive without a “firm evidence base” to justify it.

“We are consistently among the top performers for research at our unis,” he said. “We’re at the bottom of the class for getting that research into the economy.”

Expenditure on the R&D tax incentive last financial year exceeded Industry Department forecasts by close to $860m.

Mr Husic was also asked whether the Government might revisit a reduction in corporate taxes, as a means for Australian R&D to stay competitive following Donald Trump’s vow to slash the US company tax rate to 15%.

In response, Mr Husic said he would not endorse that, and instead “stick to” other R&D approaches.

Swanson Reed supports The Business Council of Australia’s call for the removal (or increase) of the $150 million cap on R&D tax incentive claims, and this should ideally happen at the earliest.

The change announced in the December 2024 MYEFO will require the passing of legislation and in theory, removal (or increase) of the $150 million cap could be done as part of the same legislative instrument.

Swanson Reed does however note that the budget is coming under pressure and whilst the removal (or increase) of the $150 million cap on R&D tax incentive claims would be nice, such an increase should only be made if it did not sacrifice other elements of the R&D Tax incentive in its current form.

In particular, there should not be any changes such as:

• Reducing support for smaller companies who are more reliant on the R&D Tax Incentive than the large companies that would benefit from an increase to the $150 million cap; or
• Any further reductions in the scope of activities or companies that qualify for the R&D Tax Incentive.

Swanson Reed plans to participate in the consultation process for the strategic examination of Australia’s R&D system and will be advocating for maintenance of a broad based, market driven and stable R&D Tax Incentive system.

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.