AusBiotech presents to Senate Inquiry

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AusBiotech last week gave evidence at the Senate Inquiry on the legislative Bill that includes the R&D Tax incentive (RDTI) reforms, urging the Inquiry not to recommend its passage, until the impacts are better understood and can be mitigated.

AusBiotech CEO, Lorraine Chiroiu, said: “…we are confused about why damaging changes to the RDTI have been included in a Bill about “making sure multinationals pay their fair share of tax”. This is unhelpful in the extreme and changes to this centrepiece programme for Australia’s SMEs is poorly placed in our view.”

“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 more importantly, clinical trials.”

Over the past decade AusBiotech has made submissions into every consultation, review and Inquiry that had been conducted, including leading active advocacy for the RDTI conception and development, especially the refundable component.

AusBiotech urged the Senate Inquiry not to recommend the passing of the legislation as it appears. As a first move it ought to be split from the other measures in the Bill. If changes are eventually found to be warranted, the impacts ought to be better understood before implementation, so that they can be mitigated.

Announced in the RDTI reform package “ambush” on Budget night was a plan to separate the RDTI benefit from the corporate tax rate. At first glance this seemed benign enough, but nothing could be further from the truth.

For SMEs in the refundable space and in tax loss (that is they don’t pay tax), their immediate loss if the Bill is passed will a 2.5 percent loss of cash refund (that is, it reduces the refundable component to 41%). This is because the corporate tax rate has just dropped for SMEs. Not much help if you don’t yet pay tax. And if the corporate tax rate drops to 25 percent as mooted, the benefit will drop to 38.5% (a total of 5% loss of refund). This is a critical blow for start-up and spin-out companies commercialising medical research that has typically come from our medical research institutes and universities. 

The Federal Government is claiming the changes are in response to the Ferris, Finkel, Fraser Review, however this cut of benefit for SMEs did not form part of the review’s recommendations.

“It came as a complete surprise, “ said Ms Chiroiu.

The sector is concerned about a number of further key issues, but especially that larger companies in the sector are grappling with the impacts of a new intensity measure and the calculation that will see a reduction in support for most, if not all but one company. It adds a significant layer of complexity and uncertainly about eligibility threshold until after R&D spend has been made, thereby eliminating the incentive component.

Given the decline in research and development in Australia (measured by GERD and BERD), AusBiotech is concerned that these ill-informed changes to the RDTI are being pushed through the Parliament without due consideration.

The full submission can be found online.