Budget Savings (Omnibus) Bill 2016: Submission to the Economics Legislation Committee on the Proposed Reduction in the Rates of R&D Tax Offset

This submission to the Senate Economics Legislation Committee opposes Schedule 22 of the Budget Savings (Omnibus) Bill 2016, which would cut the rates of both the refundable and non-refundable R&D Tax Incentive by 1.5 percentage points from 1 July 2016, ostensibly to maintain relativity with a lower company tax rate. Research Australia describes the incentive as an industry support measure and maintains that Australia’s manufacturing future lies in high value-added, research-intensive industries such as medical technologies and pharmaceuticals, citing growth in exports of scientific instruments and medicinal products, low availability of risk capital for start-ups, and Australian Bureau of Statistics data showing lack of funds was a barrier to innovation for 20% of businesses. It notes that the refundable component provided $6.79 billion to companies with turnover under $20 million from 2011–12 to 2014–15, over 60% of total support, compared with $4.25 billion through the non-refundable component. Because many small companies are loss-making and pay little or no tax, the cut would not be offset by a lower company tax rate and would directly reduce support for them, with retrospective effect on current R&D plans. For larger companies, the linked company tax cut had not been legislated. Noting that the Government’s 2015 review of the incentive was still unreleased, Research Australia recommends that the Senate reject Schedule 22.