New report quantifies the importance of R&D Tax Incentive on Australian economy

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A new report says the Australian biotechnology sector increased the country's economy by over $9 billion because of the federal government's R&D Tax Incentive policy, according to a report commissioned by AuBiotech.

The ‘Economic Impact of the Research & Development Tax Incentive for the biotech industry’ report has quantified the impact of the tax incentive that provides direct non-diluting capital for companies investing in R&D.

According to the report, it generated a return of $3.14 for each dollar of forgone tax revenue spent in 2021.

Developed with Deloitte Access Economics, the report estimates that between 2011 and 2021, the tax incentive for the biotechnology industry increased the size of the Australian economy by an estimated $9.1 billion.

The impact has grown over time, increasing more than five times from 2011 to 2021, from $308 million in 2011 to more than $1.6 billion in 2021.

AusBiotech said this reflects a substantial expansion in company numbers and related productivity gains.

For each dollar of forgone tax revenue, the R&D tax incentive has generated an average return of $2.18 for the economy. The return to the economy increases substantially over time, from an estimated $1.32 in 2013 to $3.14 in 2021.

AusBiotech CEO Lorraine Chiroiu said, “This new report demonstrates the value of sustained investment in the sector over time. Highlighted by the compounding productivity gains the RDTI scheme has delivered between 2011-2021, the programme is particularly relevant to the life science sector with its longer lead times and the sector’s pre-revenue characteristics.

“It also showcases what is possible when policy design is fit for purpose and supports the needs of industry. The foresight of the Federal Government to implement such a scheme in 2011 has led to a significant uptick in economic activity which will be felt for decades to come.”

Australia’s biotechnology industry includes over 1,400 companies and employs over 260,000 people. Around 80 per cent of the sector is made up of small and medium-sized companies. The majority of these are in the pre-revenue and pre-market stages.

The report noted that these relatively small companies have high R&D intensity - for small companies, in 2022, the average ratio of R&D expenditure to revenue was around 43 per cent.