The Research and Development Tax Incentive is expected to cost an additional $2.1 billion over the next four years in part due to growing artificial intelligence claims, according to new estimates from the federal government.
The estimate, contained in the Mid-Year Economic and Fiscal Outlook (MYEFO), is more than double what was forecast in the May federal Budget, which followed an all-time record spend of $3.2 billion on the program in the 2022-23 financial year.
In the near-term, the government expects the program will cost an additional $432 million this financial year, more than double the $172 million estimated seven months ago.
Documents show the change will be driven mainly by “increases in the number and value of expected claims in the professional, scientific and technical services sector, including in biomedicine, and the development of AI and machine learning platforms”.
The Research and Development Tax Incentive (RDTI) reduces the taxable income for businesses with R&D expenditure. It is already the government’s largest R&D investment program, accounting for about a quarter of its annual spend on R&D programs.
In 2021-22, software accounted for more 40 percent of all registrations for the RDTI, up from 36 per cent the year before and 30 per cent in 2019-20.
According to an estimate by the Tech Council of Australia and Microsoft, AI could be worth up to $115 billion to the economy by 2030, under a ‘fast adoption’ modelling scenario.
When asked by InnovationAus.com about the factors behind the forecast and whether the increasing cost of the RDTI is sustainable, Treasurer Jim Chalmers broadly noted that he wants Australia to “get maximum economic advantage out of technological change”.
“We need to get much better at adapting and adopting technology. It’s a huge part of modernising our economy and maximising our advantages, and that’s why [Industry and Science minister Ed Husic] is so focused on it,” the Treasurer said.
“We haven’t announced any changes or any new data about the impact of the research and development tax incentive, but we are looking more broadly, to make sure that we’ve got the arrangements right in Ed’s portfolio to make the most of tech change.”
The forecast increase in the value of the scheme comes as the federal government’s spend on R&D as a proportion of GDP hits its lowest on record and MYEFO cuts hit Australia’s newest research commercialisation fund, Australia’s Economic Accelerator.
The government has previously committed to pushing the economy’s total spend on R&D towards three per cent of GDP. According to data from 2021-22, it sits at 1.68 per cent, well below the OECD average of 2.5 per cent in 2019.
An analysis commissioned by peak industry body AusBiotech found that per dollar of BioTech industry RDTI claims, there was a $2.18 return to the economy between 2011 and 2021.
MYEFO also provides $5.4 million over two years to a new battery supply chain and research working group with the United States that will focus on “expanding battery supply chains, battery manufacturing capabilities and battery technology research and development”.
This working group builds on the Australia-US Taskforce on Critical Minerals, which had its inaugural meeting in mid-October. The taskforce formed following the Critical Minerals and Clean Energy Transformation Compact in May.
Overall, the government made $9.8 billion in spending reductions and reprioritisations in the MYEFO, taking the total to $49.6 billion since the Albanese government came to power last year.
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