Federal Budget 2019-20

Australia’s R&D program works, but we can’t rest on our laurels

Sukvinder Heyer Sukvinder Heyer

Australia has a successful, clear and robust R&D support program. With no additional investment in R&D from the Federal Budget, a commitment from Labor to increase investment in R&D as a percentage of GDP, and an election looming in May it’s an opportune time to reflect on the real value the R&D program creates in our economy.

We must consider how we can maintain our competitive edge in a global market, create more opportunities for innovation, more jobs, and keep our world-leading companies – and brains – here in Australia.

The Government investment in innovation via the R&D tax incentive is $3billion– a small investment compared with the benefits. Receiving a portion of that, life sciences certainly punches above its weight and is a tangible example of the ROI we receive from the R&D program.

Australia has a reputation as one of the world’s leading destinations for life sciences, developing life-changing innovations that have real social benefit – from the world’s first anti-cancer vaccine to spray-on skin for burns victims. There is no shortage of examples of leading work by our researchers and medical professionals in life sciences, a sector that employs more than 230,000 people across 1,654 organisations (AusBiotech 2018) – the equivalent size of mining’s labour force.

The sector is also a magnet for attracting overseas companies to our shores. They come because of the combination of skills and research abilities within organisations here, and Australia’s R&D tax incentives– which has been fundamental to the current buoyance of the sector. My team would average a query every month from small and medium companies around the world investigating Australia triggered by our R&D tax incentive  .Indeed many state government delegations also tell the world of this program.

But we can’t rest on our laurels

The international market is knocking on our innovation door, dangling all sorts of incentives in an effort to attract Australia’s skills and companies offshore.

CSL has been vocal about the approaches they receive from other jurisdictions, and we know that other countries are developing R&D programs – including our near neighbours in New Zealand.  

According to AusBiotech’s Industry Position survey (which Grant Thornton supports), incentives are at the top of the tree when it comes to helping the sector move along at pace. Would R&D occur without government support (as the Productivity Commission claim)?

Perhaps eventually, but what this support does is help the speed at which new ideas can get to failure or success, and how quickly successes can be taken to the worldwide market. For companies accessing the refundable R&D tax incentive (i.e. a rebate of up to 43.5%) this has a multiplier effect on initial investment and provides assurance to companies that if they meet the rules, they will get real cash back on their R&D investment. For small and mid-sized companies in particular, they can build this into their modelling, cash flow and into their decisions to proceed with another trial or do more investigations, or hire more people to keep R&D happening. Ultimately it means companies have no need to stop work as often to find additional funding. Without it, we’d be turning the clock back six years, a time where it was all stalwarts and no start-ups!

From a policy perspective, greater stability is crucial. The R&D tax incentive is not a handout and requires companies to spend their money on R&D. We must resist the desire to tinker. For companies making investment decisions that project – in some cases – eight or more years into the future, ‘tinkering’ can have significant implications. They want and need stability. The current 43.5% is a good place to be. If it’s going to change, our government needs to set it to the level of support they think we can afford, then leave it so businesses have certainty.

This is a policy that has been very successful. However, we don’t want it to be a victim of its own success and see incentives taken off the table with a view that past R&D successes and investment will self-perpetuate.

With the world knocking on our innovation door, Australian companies are looking for the reasons that will keep them here. Let’s make that decision easy. We must keep our competitive edge in a global market, and to do this we need the government to create stability, and to continue to partner with and invest in, R&D and industry.