The Australian Industry Group (Ai Group) has released a survey suggesting the Government’s proposed changes to the R&D tax concession will lead to a “significant fall” in business research and development in Australia.
According to the report, more than 45% of respondents currently using the R&D tax incentive would reduce their innovation efforts if the Government's proposed changes were implemented.
In its Federal Budget in May, the Government announced a proposed increase in benefits available to companies investing in research and development, by moving the R&D tax concession from a tax deduction to a tax credit scheme. The Government also proposed to restrict supporting activities claims which are said to make-up a proportion of R&D expenditure claims.
According to Ai Group chief executive, Heather Ridout, in making only minor amendments to its R&D Bill, the Government has lost the opportunity to remove the severe restrictions on eligibility for the tax incentive.
"While to date, Ai Group has supported elements of the changes to the R&D tax incentive, the Government’s decision to continue with its flawed approach leaves business little choice but to call for the Bill to be opposed in the Senate,” said Ridout.
“While regrettable, this now appears to be the only way to avoid the damage to business research and development that our survey confirms would flow from the Government’s approach.”
Ai Group’s survey, called Business R&D, included large and small businesses from across a range of industries, including manufacturing. The report backs-up feedback reportedly received by Ai Group from across its membership.
The report points to the disconnection between the design of the proposed new R&D tax incentive and the reality of how business R&D is carried out.
"The Government’s approach is based on a narrow conception of R&D as laboratory work and does not adequately recognise the nature of the real innovation process. If implemented it would see a large proportion of existing investment in R&D activities ruled ineligible for the tax incentive,” said Ridout.
“According to the Ai Group survey, more than 45% of respondents currently using the R&D tax incentive would reduce their innovation efforts if the Government's proposed changes were implemented. For smaller businesses the outlook is worse with more than 54% expecting to reduce their R&D activities. A further 10% of all businesses remain uncertain of the impact and less than 7% would increase their R&D investments.
“A reduction in R&D would undermine the significant progress business has made over the past decade in boosting expenditure on R&D as a share of GDP. Instead of fostering innovation and business R&D, the Government’s plan will put it into reverse.”