The federal government’s “ill-informed” reforms to the research and development tax incentive will damage Australia’s burgeoning life sciences sector at a time when it is at the forefront of the fight against the coronavirus pandemic, AusBiotech has told a Senate committee.
In a submission to the Senate inquiry into the changes to the research and development tax incentive (RDTI), AusBiotech raised concerns about a reduction to the tax refund for smaller biotech firms, and about other changes that “disproportionately disadvantage” SMEs in the sector.
The Senate Economics Legislation Committee is currently investigating the $1.8 billion cuts to the popular scheme, with changes that include an increase of the expenditure threshold to $150 million, a $4 million cap for smaller companies and the introduction of an intensity measure to calculate the tax offset for larger companies.
If passed by Parliament, the changes would come into effect retrospectively to include the 2019-20 financial year.
The proposed cuts to the RDTI would unfairly impact the biotech sector due to the long development cycles and need for long-term confidence, AusBiotech said, and now is a time when these companies are especially important.
“AusBiotech is concerned that these ill-informed changes to the RDTI are being pushed through the Parliament without due regard to the damage it will cause to our hard-won momentum in life sciences,” the AusBiotech submission said.
“Australian life sciences is at the forefront of global responses to the coronavirus outbreak, which is continuing to rapidly spread across the world, and a summer of catastrophic fires across Australia. The life sciences community is rallying to address the crises.
“[We are] disappointed and frustrated that the RDTI is again under serious threat, and therefore so too is Australia’s competitive advantage in biotechnology and clinical trials.”
According to a recent study conducted by the organisation, more than 60 per cent of surveyed biotech companies said the changes to the RDTI would threaten the sustainability of their business, 57 per cent said they would impact the amount of R&D they undertook in the future, and nearly a third said it would lead to a direct reduction in R&D.
Biotech companies with turnover less than $20 million would straight away see a 2.5 per cent reduction in their R&D tax offset, which would “impact the entire development pipeline and ecosystem in Australia life sciences”.
“We urge the senate inquiry to consider the potential damage that will be caused to this burgeoning sector and the negative impact on its work in clinical and pre-clinical trials, if this legislation pushes ahead in its current form,” AusBiotech said.
“Any measure that compromises SME growth is unpalatable, and nonsensical.”
Constant uncertainty about potential changes to the scheme that would be applied retrospectively is also unfairly hitting the life sciences sector.
“The constant reviews, threats and tweaks to the RDTI are unsettling for biotechnology developers, who have long development cycles, and undermines business confidence,” it said.
“Pre-revenue companies in tax loss are reliant on access to capital to complete their R&D programmes and reach commercialisation. Biotechnology development is a long-term activity that requires large investment.”.
If these planned changes are passed, it leaves these companies are “tiny horizon” to change their activities, the submission said.
“This is an unconscionable position in which to place a company with a clinical trial in progress. There has been no dialogue about how companies will be supported to implement or mitigate issues, as there are no provisions for phasing or supporting clinical trials under the current arrangement until their completion,” AusBiotech said.
“The negative impact that uncertainty of funding support has on product development and innovation companies is destabilising and the government’s programme changes cause one of the greater costs, in practical terms.
“It is the most critical centrepiece programme in translation of Australia’s world-class research into treatments, cures, diagnostics devices and vaccines.”
In a separate submission, digital health firm ResMed said the RDTI changes would create a “disincentive for investment in Australia” and lead to a lower return for most companies in the sector.