The government did not undertake any consultation on its planned $1.8 billion cut to the R&D tax incentive, with the reintroduction of the significant changes taking major stakeholders by surprise, a senate inquiry has heard.
Changes to the research and development tax incentive (RDTI), first flagged by the Coalition in the 2018 budget, were rejected by the Senate economics committee in early 2019. The legislation was then reintroduced to Parliament at the end of last year with some minor tweaks.
But during this period the government did not consult with any industry stakeholders on the new piece of legislation, Industry department officials confirmed at a public hearing on Monday for the Senate Economics Legislation Committee’s inquiry into the new legislation.
“There was no formal consultations on the draft legislation before Parliament at the moment but we did have the benefit of all the consultation we’d done up until that point and the submissions to the senate inquiry itself,” Industry department official Wayne Calder told the hearing.
“There were no formal consultations, but we did have the benefit of the understanding of where stakeholders were coming from and their views of the intensity test.”
The officials instead argued there had been “continuous consultation” on the planned changes since they were first announced in 2018.
Centre Alliance Senator Rex Patrick said the lack of outside consultation on the legislation was “the quintessential Canberra bubble in operation”.
The legislation introduces an increased expenditure threshold to $150 million, a $4 million cap for smaller companies claiming the tax offset and the introduction of an “intensity measure” to calculate the size of the offset for larger companies.
After being knocked back by the senate committee last year, the government changed the start date of the changes to the 2019-20 financial year and made an adjustment to how that intensity measure is calculated.
The legislation was then reintroduced to Parliament in December. This took many prominent industry groups and businesses by surprise, with none consulted on the new bill or their submissions to multiple senate inquiries.
The senate committee heard from eight industry groups representing a range of sectors on Monday, with all confirming they had not been consulted at all on the RDTI changes.
Ai Group head of influence and policy Peter Burn and Lighting Council chief executive Richard Mulcahy both said the new bill came as a surprise.
“We had no consultation whatsoever from the Treasury or anywhere else in government,” Mr Mulcahy said.
Prominent medical equipment company ResMed, which has been recently lauded by the federal government for its work during the COVID-19 pandemic, was also not consulted on the changes, despite making a number of submissions in recent years.
“To my knowledge we didn’t have any consultation, but we did make a submission…I don’t believe we had any consultation in that period,” ResMed chief financial officer Brett Sandercock told the hearing.
Medicines Australia, the Australian Information Industry Association and Manufacturing Australia also told the hearing they have not been consulted by the government on the RDTI changes in the last 18 months.
On Monday, the Senate committee heard from eight prominent industry groups, and all were critical of the changes to the RDTI and urged the Senate to reject the bill. They warned of companies being forced to move offshore because of the changes, jobs being lost and local manufacturing being particularly negatively impacted.
The main concerns centred on the impact of the proposed new intensity measure, especially on local manufacturing, the prospect of Australian companies moving overseas to more tax-friendly jurisdictions, the retrospectivity of the reforms and a lack of consultation from the government.
Coalition senators did little to stem the flow of criticism, with only one Nationals senator asking any questions throughout the whole day, with these focusing on the impact of the Covid-19 pandemic, rather than defending the legislation.
ResMed’s Mr Sandercock said if introduced, the changes would likely lead to the company investing less R&D dollars in Australia and pursuing further growth in other jurisdictions.
The Opposition has also been growingly critical of the slated R&D changes, and shadow industry minister Brendan O’Connor said more support should be offered to the sector rather than cuts.
“Australian businesses need support more than ever to not only survive but thrive post-pandemic, yet this government’s solution is to withdraw support that gives them that opportunity,” Mr O’Connor said.
“Research and development is suffering under the Coalition, facing further contraction due to COVID-19 and yet the current government seems intent on obliterating private and public R&D,” he said.
“Rather than resorting to cuts, by investing in R&D, the government can provide the resources for research institutions to produce results that inspire innovation, private investment and further research and development.”
“The government must immediately restore business confidence and work with both private and public sectors to increase R&D as an economic necessity.”