R&D Tax Incentive Review: Submission to Innovation and Science Australia in Response to the Review Issues Paper

This submission to Innovation and Science Australia responds to the Issues Paper for the review of the Research and Development (R&D) Tax Incentive. Research Australia notes that medical and health sciences are the fourth largest area of reported R&D expenditure under the scheme and maintains that the incentive already performs well against the review’s criteria of effectiveness, integrity and additionality. Drawing on the Issues Paper, it cites Centre for International Economics (CIE) findings that the scheme materially influenced 54% of R&D decisions by small and medium-sized enterprises compared with 34% for large firms, with additionality of 0.9 to 1.5 dollars per dollar of tax forgone for SMEs, and OECD data showing Australia’s subsidy is 20 cents per dollar for small firms against an OECD average of 15 cents. It stresses that certainty about the scheme’s continued availability is essential to investment decisions and recommends no major changes until a proper evaluation of its economic impact is possible, which will take several years. In the meantime it proposes reducing compliance costs, estimated by CIE at around $437 million a year or 14% of benefits, with effort targeted at the refundable offset where most claims are small. Noting that only 9.5% of registered projects involved collaboration, it also suggests encouraging collaboration with research organisations through lighter registration and claims requirements or earlier access to refundable payments, measures that would require no additional Commonwealth spending.