Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019: Response to the Inquiry by the Senate Economics Legislation Committee

This submission to the Senate Economics Legislation Committee opposes the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019, which would amend the Research and Development Tax Incentive (R&DTI) following the 2016 Ferris, Finkel and Fraser Review. Research Australia maintains that the rationale for cutting the scheme has weakened because spending has fallen well below forecasts: the Review projected a 2017–18 cost of $3.485 billion, against an actual estimate of $2.579 billion, and 2018–19 spending was estimated at $2.059 billion. Meanwhile, Australian Government support for research and development fell from 0.67% of gross domestic product (GDP) in 2011–12 to 0.48% in 2019–20, and Australia ranks 93rd on Harvard’s Economic Complexity Index. Drawing on the Centre for International Economics review and a 2019 AusBiotech and Evaluate survey, in which 63% of respondents said the R&DTI materially influenced their decision to undertake R&D, it maintains that the scheme delivers additionality and spillovers, especially for small biological and medical firms and clinical trials. Research Australia recommends that the Senate reject the Bill, make no changes until their effects on additionality and spillovers have been evaluated, reject the reduction in the refundable offset rate and its link to the company tax rate, reject the $4 million cap on refunds, which the Regulatory Impact Statement estimates would affect about 20 of 10,750 claimants, and reject the intensity measure for large companies, which could encourage offshoring of manufacturing. It supports raising the $100 million expenditure threshold to $150 million, with a sunset clause.