R&D Tax Incentive outdated?

December 2016

Bill Ferris, the chair of Innovation and Science Australia, has questioned the effectiveness of Australia's prime vehicle for stimulating R&D in business.

In Australia, around 30% of total Government spending on science, research and innovation is delivered as an indirect stimulatory measure of R&D in businesses, the R&D Tax Incentive. But in a speech at an event of the Committee of Economic Development of Australia (CEDA), Mr Ferris said that Australia’s reliance on indirect tax based incentives may be out of step with other more innovative nations.

In fact, many leading countries - including Germany, Sweden, and Israel - do have either no or only limited indirect government support mechanisms for business R&D. Instead they rely more on direct measures, such as grants.

Direct versus indirect government funding of business R&D
figure from Bill Ferris speech CEDA

Mr Ferris pointed out that Australia's business expenditure on R&D (BERD) relative to GDP, recently dropped, from 1.3% in 2008 to 1% in 2016. This is at odds with the trend in many other nations, where the amount and rate of business investment in research is increasing.

Turning this downward trend around is one of the objectives of a strategic plan for innovation out to 2030 which ISA delivered to the Australian Government in November.

Yet to be released to the public, Mr Ferris said that the strategy calls out 5 imperatives to be tackled in Australia "to close the considerable gap in innovation performance between it and key competitor nations". These are:

Mr Ferris said that given Australia's ageing population, the challenge for Australia by 2030 was unlikely to be a shortage of jobs, but rather a shortage of workers appropriately skilled to fill these jobs.

He acknowledged community concerns about the potential loss of jobs through innovation and disruptive technologies, but said that these fears were not new.

Innovation should be celebrated and encouraged, not treated like an 'elephant in the room' as it is a combination of innovation and education that helps create new jobs, and helps people adapt.

About ISA's plan he said that the recommendations could be delivered with only a moderate increase in funding.

"This is because the report focuses on a stronger leveraging of the Government’s existing investment with an ambitious but credible growth target for BERD by 2030."

More information: www.industry.gov.au