IMF Report confirms R&D incentives increase innovation


According to a report from the International Monetary Fund (Fiscal Monitor, Acting Now, Acting Together), fiscal policy should do more to encourage investment in R&D in advanced economies, enabling a productivity lift in long term GDP growth of up to five per cent.

“Advanced economies can achieve this dividend through well-designed policies that include fiscal R&D incentives and complementary public investments in basic research.”

The report notes that R&D expenditures are widely seen as driver of growth and governments can invest either directly in public R&D or design policies that support private business to conduct R&D, via subsidies or tax incentives.

In the context of the Australian Federal Government considering the Finkel, Ferris, Fraser Review recommendations on the R&D Tax Incentive – which proposes a serious reduction in support for SMEs - the IMF Report says that many countries have recently increased their support of private R&D.

New analysis contained in the report shows that both subsidies and tax incentives increase productivity in the private sector. Although it is noted that the impacts vary across industries, it says: “R&D tax incentives have a larger effect in industries characterized by high R&D intensity and for small firms (those with fewer than 50 employees).”

The life sciences industry is heavily R&D intensive with lengthy and costly clinical trial programs required before a therapeutic, treatment, test or devices can be registered for use in patients. The R&D Tax Incentive’s refundable component enables Australian SMEs, most of which are pre-revenue,  to commercialise medical research and the proposed $2 million cap will adversely impact this endeavour.

The Fiscal Monitor is prepared twice a year by the IMF’s Fiscal Affairs Department. Its projections are based on the same database used for the World Economic Outlook (WEO) and the Global Financial Stability Report (GFSR).