On the back of last year’s savage Budget cuts to industry support and science programs, the biotech industry can be relieved it was not again targeted for direct savings. However, nor does this year’s Federal Budget offer excitement for the industry in terms of innovation stimulus.
Dr Anna Lavelle, CEO of AusBiotech said: “Federal Budget 2015 -16 is underwhelming apart from a few bright spots.”
“Australia’s biotech companies are doing great work in growing jobs and revenue sources for the post-mining boom economy, but this Budget delivers no significant measures to encourage the commercialisation of life sciences innovation.”
Medical Research Future Fund
Perhaps the brightest news was the confirmation that the Government will push ahead with plans for the $20 billion Medical Research Future Fund (MRFF) announced in last year’s Budget, but delayed due to its linking to unpopular savings elsewhere.
The Government said in this week’s Budget it will distribute more than $400 million from the MRFF for health and medical research over the next four years, beginning with an initial disbursement of $10 million in 2015-16. See the table below.
Dr Lavelle, said: “While this is welcome news, there remains no articulation of a specific portion to be set aside for commercialisation of Australia’s world-class research.“
Crowd‑sourced equity funding
The regulation framework for crowd-sourced equity funding will be improved, which will help small businesses access finance by increasing the availability of innovative sources of funding.
The Government says it will provide $7.8 million over four years from 2015‑16 to the Australian Securities and Investments Commission to implement and monitor a regulatory framework to facilitate the use of crowd‑source equity funding (CSEF), including simplified reporting and disclosure requirements.
AusBiotech made a submission in relation to the Treasury's discussion paper.
Dr Lavelle, said: “Start-up biotechnology companies are rarely funded by sales revenue. They rely on angel investors, grants, the Research and Development (R&D) Tax incentive and later on venture capital or share issues to conduct clinical trials and prepare products for registration and to earn revenue. They typically function in a ‘cash pressed’ state for many years and would welcome another form of access to capital to assist their R&D.”
Treasury has confirmed it will now conduct a new round of consultations to determine the parameters.
Employee Share Schemes
The improvements announced earlier this year to Employee Share Schemes were reiterated in this week’s Budget. Legislation was lodged in the Parliament in March 2015, with changes due to take affect by 1 July 2015.
“The reversal of the ESS, altered in 2009, is a big win for common sense. Australian companies have for many years been frustrated by an inability to incentivise innovation employees with shares and options,” said Dr Lavelle.
Small business
Small businesses will benefit from a range of measures including a reduction in the company tax rate to 28.5% for businesses with revenue of less than $2 million, a boost of $3000 per annum, and a number of other measures to allow deductions for business purchases and start up costs, and the abolition of Fringe Benefits Tax on mobile phones, laptops and computers. Individuals who operate unincorporated small businesses will be entitled to a 5% discount on their tax up to a maximum of $1000.
R&D Tax Incentive
Last Budget included plans to reduce the R&D Tax Incentive in line with the reduction in the corporate tax rate of small businesses by 1.5%. The measure was thought to have been abandoned by the Government when it failed to pass the Senate, but appears again in the current Budget papers: “Under the R&D tax incentive, companies can claim a refundable tax offset of 43.5 per cent if their turnover is less than $20 million or a non‑refundable tax offset of 38.5 per cent.”
The Budget papers do not clarify the Government’s intentions regarding this measure. AusBiotech is seeking to clarify with Treasury. Potentially, the Government will reintroduce legislation to this effect. In this event, small businesses with a turnover of more than $2 million which can claim the R&D Tax Incentive will lose the benefit of the 1.5% corporate tax cut and SMEs with turnover over $2 million be disadvantaged by 1.5% reduction in potential claims under the R&D Tax Incentive, without the benefit of the new 28.5% corporate tax rate.
CSIRO, CRCs and Synchrotron
The Budget includes over $3 billion for the CSIRO over the forward estimates. However, the Government also announced four-year savings of $26.8 million by reducing funding for the Cooperative Research Centres programme. The Budget Papers show that it will continue to provide $732.4 million over the forward estimates for the programme pending the outcome of a review announced by Minister Macfarlane in September last year. The 2015 Budget also delivers $20.5 million to keep the Australian Synchrotron in Melbourne operating in 2016-17.
Supporting innovation
Dr Lavelle said: “Australia has excellent potential to be a nation driven by bio-innovation. We have a strong education system, stable government, good regulatory, intellectual property and legal environment and a proven track record in innovation. However, we have unstable public policy supporting innovation, constantly changing programs and a handful of critical gaps, notably a tax regime to support our international competitiveness.”
“If we as a nation are serious about innovation, we must address the gaps and leaks, as outlined in this submission, to create the right environment for innovation to thrive – and the coming Tax White Paper provides a not-to-be-missed opportunity.”