RDTI inquiry to be pushed back again

Denham Sadler
National Affairs Editor

The senate committee tasked with inquiring into the government’s controversial plan to cut $1.8 billion from the research and development tax incentive for a second time is likely to now receive another extension and won’t report until the end of the year.

The Senate Economics Legislation Committee was originally due to report on the changes to the research and development tax incentive (RDTI) in April, with the Coalition planning to pass the legislation this financial year and the changes to come into effect in the 2020-21 financial year.

But the committee’s report was delayed by five months due to the COVID-19 pandemic, with a series of planned public hearings canned.

Parliament House
Postponed: Parliament inquiry on the R&D Tax incentive postponed again

The legislation has not been on the government’s radar during the coronavirus crisis, and the committee is likely to now be given until December to produce its report, InnovationAus understands. It will hold public hearings in the coming months, but submissions are unlikely to be reopened.

This means the RDTI legislation won’t be passed this year, raising questions over whether the contentious changes will be retrospectively applied or altered to not begin until the 2021-22 financial year.

Treasurer Josh Frydenberg declined to comment on whether the government was reconsidering the reforms in light of the COVID-19 pandemic.

“The government is committed to backing R&D investment and the economic opportunities and jobs it generates. The government will continue to support R&D activity as a means of improving the future competitiveness and productivity of the economy,” Mr Frydenberg told InnovationAus.

The changes to the RDTI were first announced by the Coalition in the 2018 budget, but were later knocked back by the same Senate Economics Legislation Committee.

The legislation was reintroduced to Parliament earlier this year with a few minor tweaks, but the main changes to the scheme remained the same: an increase of the expenditure threshold to $150 million, a $4 million cap for smaller companies and a new “intensity measure” to calculate the size of the offset for larger firms.

The small changes included pushing the start date back a year and a slight alteration to how the intensity measure would be calculated.

The planned changes, which amount to a $1.8 billion cut to the scheme, have been widely criticised, with fears they could lead many companies to relocate R&D activities overseas, and that the changes would unfairly impact smaller firms and particular sectors.

There have also been many calls for the federal government to pay the RDTI refunds early to help companies survive the COVID-19 pandemic, but this appears unlikely to happen.

In a submission to government, entrepreneur and investor Adir Shiffman said paying the offset early could save thousands of jobs and avoid some of the money going towards creditors or administrators instead of the companies.

“Many smaller fintech companies rely on the RDTI for their survival, and among these companies there is an established body of academic data demonstrating that the RDTI payment delivers significant additionality and spillover effects and is predominantly used towards employment costs,” Mr Shiffman said.

He argued that companies that have previously claimed the RDTI should be eligible for a one-off forward payment of the refund in the form of an immediate cash payment based on their previous claim.

“This one-off bring-forward will not increase forward estimates, is not a structural change to the budget, and does not require a broader discussion of the current RDTI legislation being considered,” he said.

The Opposition has flagged some “major concerns” with the RDTI cuts, and is likely to move a series of amendments when it is finally debated in the Senate, probably not until next year now.

“We want to have a very good look at this bill. We want to have a real and genuine engagement with the stakeholders who are going to be impacted by the proposed bill if it was not to be defeated or amended,” shadow industry minister Brendan O’Connor said in Parliament earlier this year.

“Labor will seek to improve the bill, but before we formalise our final position on this matter we do need a comprehensive examination of the effects of this proposition upon companies across all sectors of our economy.”

Shadow innovation minister Clare O’Neil said the legislation does nothing to address the falling rate of R&D in Australia’s public and private sectors.

“Most notable about this bill is what’s not here. What I see when I look at this piece of legislation is a gut-wrenching lack of ambition about how much this Parliament would be doing to fix the very significant problems that our innovation system faces as a country,” Ms O’Neil said in Parliament earlier this year.

“We need to start thinking about some new ideas in this Parliament and this bill before us is not going to help us do that.”

The senate inquiry received nearly 100 submissions, with virtually all of them highly critical of the planned cuts to the popular scheme. While other inquiries have reopened submissions due to the COVID-19 pandemic, submissions to the RDTI inquiry have been closed since March.

Do you know more? Contact James Riley via Email.

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