R&D Incentive update: A plan for Australian jobs

Flawed R&D plans will disadvantage Australia's small and medium businesses sector

Leading accountancy group Grant Thornton has warned that the Federal Government’s plan to make changes to Research and Development tax incentives is deeply flawed.

The changes were outlined in the Federal Government’s Industry and Innovation statement “A plan for Australian Jobs”, released last weekend.

The government claims that only 20 businesses will be affected by this change, with details of the legislation yet to be released.

However Grant Thornton’s National Head of Indirect Tax Tony Windle said that many small and medium businesses could be disadvantaged by the changes to the Federal Government’s Research and Development incentives.

“If the turnover tests are not written correctly, an investment of 40% in an Australian company by any Fortune 500 company may make the Australian company ineligible for the R&D Incentive, removing support from small start-ups to large centres of excellence,” Mr Windle said.

“Assuming the Government finds a way of limiting the collateral damage from this proposed change, the “big 20” may be in a position to continue their research programs without Government support, initially with a saving for the Government (estimated at $798 million over the next four years)” he added.

“However, this change is likely to force significant structural changes to R&D in Australia, with the “big 20” simply outsourcing more of their R&D to external providers, which will erode the savings over time, or move research offshore.”

The Government proposes to spend $500 million on creating Industry Innovation Precincts. Modelled on the Catapult Centres in the UK and the National Network for Manufacturing Innovation in the US, the proposal is to set up 10 Industry Innovation Precincts with the objective of concentrating expertise in particular locations, through encouraging businesses, researchers and manufacturers by industry group to specific locations.

Grant Thornton’s Mr Windle believes if the success of similar programs overseas can be replicated, the benefits to Australian industry could be significant and worthwhile.

“However replicating such success will not be easy and the outcomes are certainly not guaranteed, Mr Windle said.

$378 million in funding has been allocated to Venture Australia, with $350 million allocated to an additional round of funding for the Innovation Investment Fund program.

Mr Windle said that while grant programs are generally welcomed by business, historically, success has been limited in progressing innovative ideas to marketable products and services.

“Innovation by its very nature is unpredictable. Predicting which projects deserve support is like picking winners on a horse race, often the most promising technology will not be the one that succeeds,” Mr Windle said.

“However, programs such as Enterprise Connect, providing business advice to small businesses, have generally been very successful, and cost effective.”

Much of the proposed industry participation plan is around providing additional obligations for companies involved in large projects, which will be tied to existing government programs designed to encourage large projects. Many of these projects are in the mining industry.

Mr Windle said while there was anecdotal evidence that overseas suppliers are sometimes given preferential treatment, there was little if any hard data underpinning the Government’s stated spill over benefits.

Many local suppliers to the mining industry are operating at maximum capacity and struggling to meet the current demand.

“Excluding the 'big 20' from the R&D Incentive may result in significant short term savings to the Government, but it will also cause a significant structural change to the R&D environment in Australia which will rapidly erode the savings,” Mr Windle.

“There is also likely to be significant collateral damage caused by this change beyond the direct effect on the 'big 20'."

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For more information or to speak with Tony Windle, please contact:

Helina Lilley
National Public Relations Manager
T  +61 2 8297 2421
M  0437 725 520
E helina.lilley@au.gt.com

About Grant Thornton Australia Limited
Grant Thornton Australia provides audit, tax and advisory services to dynamic, growing organisations and is a single national firm operating from eight offices, with over 150 Partners, more than 1,200 people across Australia and national turnover of AUD $232 million. Grant Thornton International is the fastest growing international accounting network in the world, with a global turnover of US$3.7billion and more than 30,000 people and 2,500 partners.