Stuart Kennedy
May 14, 2018

Gloves are off: R&D tax debate

Budget 2018

Gloves are off: R&D tax debate

Roy Green: The cuts to R&D tax incentives were not replaced by much needed direct grants

Australia’s science and innovation community has been dudded by the Coalition’s 2018 budget reform of the R&D Tax Incentive scheme, with much less direct, targeted funding going back in than was pulled out of the tax incentive.

“Some reform of the RDTI was required and advocated by Innovation and Science Australia,” says Roy Green, a Special Innovation Adviser at the University of Technology Sydney and chair of the UTS Innovation Council.

Professor Green is a long-term observer and participant in Australia’s innovation ecosystem policy.

In the 2018 Budget, Treasurer Scott Morrison deleted $2.4 billion from the R&D Tax Incentive over four years and promised to crack down on misuse of the scheme, strengthening anti-avoidance laws and giving the ATO additional resources to catch cheats.

The cost of the scheme had ballooned from $1.8 billion annually when it was introduced in 2011-12 to nearly $3 billion for 2016-17.

Professor Green says Australia’s ratio of R&D tax incentive investment compared to direct government support for innovation projects was out of whack, with about 90 per cent being invested through the R&D scheme.

“The proportion of RDTI in our total R&D spending by government is too high,” he says.

“It’s around 90 per cent of total government R&D spending, which is second only to the Netherlands in the OECD in terms of the proportion.

“Most other comparable countries engage a much higher proportion of direct and targeted spending measures. Some countries like Finland have no R&D tax incentives at all – it’s all targeted spending.”

But the government’s cure for RDTI is worse than the disease. Instead of shifting the ratio to a more equitable level, the government has ripped off the direct, targeted investment side of the ledger.

It’s all in the timings, says Professor Green.

"The understanding was the funding would shift into direct programs. That funding was not shifted, it was simply a cut to the RDTI and disguised by some timing tricks."

The “timing tricks” relate to the governments promise to offset the cut to RDTI by funding science and research infrastructure to the tune of $1.9 billion.

That pot of money will go towards science and tech related stuff like $225 million for satellite positioning to create a better GPS system in Australia and $41 million for the new space agency and as yet unnamed projects in health, manufacturing and agriculture that will be selected and supported through the government’s National Collaborative Research Infrastructure Strategy.

The problem, says Professor Green, is the $1.9 billion for science and research infrastructure is spread over 12 years, compared to four years for the $2.4 billion slash in RDTI.

“A four period is the only period that really counts,” says Professor Green. “Anything beyond four years is pie in the sky.”

Members of governments looking at a 12-year horizon really don’t expect to be around when the calendar ticks by, says Professor Green.

In a time when technical disruption is ripping through world, government needs to spend more on targeted projects, not less.

The ISA board had worked long and hard at coming up with targeted science and research spending measures in its 2030 Strategy Report, Professor Green says, but had been short changed by the government.

“The problem with the budget is that it contains no such spending measures that ISA was proposing, at least in terms of new spending.”

Meanwhile, Federal government science and innovation projects and policy initiatives were spread across so many agencies and portfolios they were almost untraceable.

“This is the product of a ‘system’ where measures are so widely and incoherently distributed across portfolios that no one can take a view of the whole,” says Professor Green.

The answer too the problem of a lopsided RDTI versus direct spending situation was to build up a “repertoire” of direct measures and then enact them in a time period that was a lot shorter than 12 years.

“How do we build up a repertoire of direct measures that in the end can achieve what RDTI set out to do, but to do so more effectively,” Professor Green says.

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