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Budget 2016 for R&D and innovation: Disappointing

05 May 16

The support for innovation in the 2016/17 Budget can be simply summarised as disappointing tinged with relief in a lack of cutbacks. There are only very minor announcements for innovation support through specific focuses, such as $200,000 for FinTech and $2.4 million for Landing Pads in Singapore and Berlin. 

Given the Government’s continued hype of its support for the Innovation Economy it looks like they are more interested in TV ads than actual programs to support innovation. 

The Budget makes a big deal of referring to their National Innovation Science Agenda (NISA) of $1.1 billion.  So far this Agenda has been confusing and disjointed in its release.  There are some good programs and ideas within it that are being developed and released but it is hard to find how they can justify it as a $1.1billion package. 

A potential unintended benefit for Innovators from the Budget is the impact corporate tax rate cuts have on increasing the benefit of the R&D Tax Incentive.  If the R&D Tax Incentive rate is not cut back to align with reductions to the corporate tax rate, the gap between the R&D rate and the corporate tax rate widens and thus provides an increase in the actual net benefit of the R&D Tax claim.  This is equivalent to leaving the corporate tax rate the same while increasing the R&D Tax Incentive rate.  However, while R&D Tax Incentive rates have not been announced to change in line with the corporate tax rate we assume that this will be addressed during legislation preparation. 

The positive outcome of the Budget for innovation is the lack of cuts, particularly to the flagship Innovation support mechanism, the R&D Tax Incentive.  A review is currently underway with the R&D Tax Incentive and we are holding our breath to see what the outcome will be.  Our hope is that the outcome of the Review is that the cost of the R&D Tax Incentive is finally corrected after many years of inaccurate and aggressive modelling.  Currently we estimate that the program’s budgeted cost is overstated by $1billion per year.  Further, if the budget calculations of the R&D Tax Incentive were based on the recommended Revenue Gain method, the program is potentially revenue neutral at least. 

There is no reference or related commentary as to whether the Government intends to continue to pursue the previously proposed legislation for a 1.5% R&D Tax Incentive cut. As this was included in the last Budget, we expect that if the Government wants to keep this cut they will simply reintroduce legislation and do not need to announce it in this or future budgets.  Therefore, due to this, plus the pending R&D Tax Incentive review outcomes, the Innovation industry is very concerned that the Government is withholding bad news for the time being. 

Finally, Australian Innovation commercialisation results have been below international standards for many years. This supposedly is being addressed through NISA, however it lacks the tax changes that many believe are required to address this challenge in Australia.  Tax levers are a simple and low cost mechanism to address this, through a premium R&D Tax Incentive for research collaboration and patent box style commercialisation incentives, Australia’s results for Innovation commercialisation results would increase greatly. 

Article by Stephen Carroll, partner, RSM Australia. 

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