Innovation carrot missing the mark

28 September 2016

The findings of the R&D Tax Incentive Review have been released.

The Incentive is the federal government's main mechanism to support industry investment in R&D, accounting for around one-third of the $9 billion of total government support for innovation. In 2013-14, the scheme supported around 13,700 entities performing $19.5 billion of R&D at an estimated cost to government of $2.95 billion.

Australia, the Netherlands and Canada stand out among OECD countries in supporting business R&D mainly through an R&D Tax Incentive. As a share of total government funds for R&D, Australia's Tax Incentive scheme was only surpassed by the Netherlands in 2012. Neither Germany, Sweden, Finland nor New Zealand use this kind of measure, but rather support business R&D directly, such as through competitive grants (click infographic to explore.

Infographic on direct and indirect government support for business R&D across OECD countries in 2013. Click image to explore. Infographic published by OECD
The chair of Innovation Australia Bill Ferris, Australia’s chief scientist Alan Finkel and secretary to the Treasury John Fraser undertook the review to assess the effectiveness and integrity of the R&D Tax Incentive, and to identify opportunities for improvements.

The panel found that the program falls short of meeting its stated objectives of additionality and spillovers, and could be better targeted. It provides six recommendations to improve the scheme, in particular in the way it supports collaboration between industry and research institutions, for which it recommends providing a higher tax offset.

The R&D Tax Incentive provides:

Collaboration is not a focus of the current scheme, which the panel believes is a lost opportunity.

The panel's six recommendations (edited*) include:

In releasing the report, Minister for Industry, Innovation and Science Greg Hunt announced it would consider the report in three phases, the first including submissions until 28 October 2016 and roundtable discussions with industry. Further discussions in November and December will then be followed by the Government's response expected to be finalised before the end of March 2017.