Chief scientist defends R&D tax cap

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Australia's chief scientist has acknowledged the impact of the proposed $2 million cap on the refundable component of the R&D Tax Incentive but described it as "slight".

Dr Alan Finkel, who was part of the panel that reviewed the popular program, along with Bill Ferris and Treasury secretary John Fraser, made the comment in response to questions at Supplementary Budget Estimates.

According to Dr Finkel, who was questioned by Labor's innovation spokesperson Kim Carr, "The overriding consideration was perhaps one of fairness; that there are some limits. What we are capping there is not the amount of entitlement that a company has. What it is saying is that a company that spends around $4.6 million and gets a $2 million benefit is already very generously taken care of through that cash incentive that comes back to them. For anything that they expend on R&D above that $4.6 million, which will earn them additional entitlement above the $2 million, they will still get that entitlement, but it is now in the form of an offset carried forward rather than cash back in respect of that year."

AusBiotech has led the sector's opposition to the proposed cap, arguing it will disadvantage a significant portion of small to medium enterprises in the sector.

Asked how the review came up with the $2 million figure, Dr Finkel said it did not "come out of a computer program or a hard calculation."

"It is really a consideration that we feel a company that is spending just under $5 million a year has existing access to good sources of income that it can invest in R&D, is benefiting from the $2 million and will continue to benefit from any other entitlement above the $2 million."

He said any decision to adopt the cap or increase it was ultimately a decision for government and suggested stakeholders should consider the "whole package" of reforms currently being rolled out.

"...there are new rules for the offsets for investors for which many of those companies will ultimately be beneficiaries. There are new rules for the size and offsets that investors get for venture capital investments. Many of those companies will benefit. If those companies are in the biomedical area, they are likely to at least have a chance of being beneficiaries of the new Biomedical Translation Fund that the government has set up. If you look at the whole of the environment, it is actually an increasingly fortunate environment for these companies to be operating in. I am comfortable with the recommendation," said Dr Finkel.