No new modelling or stakeholder consultation on R&D tax cut

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The federal government is pushing the parliament to back cuts to the R&D Tax Incentive without modelling the impact of the COVID-19 pandemic or even consulting with stakeholders.

The federal program provides financial support to companies engaged in qualifying R&D. It is considered particularly important for small-to-medium size life science companies. Many of these companies are pre-revenue with products in early to mid-stage clinical development. The R&D Tax Incentive program provides non-diluting capital to these companies who may otherwise need to raise capital from investors.

Labor Senator Kim Carr, who is widely credited with introducing the current R&D Tax Incentive program as a former industry minister, questioned the budgeted four-year $1.8 billion saving from the proposed changes given the impact of the recession caused by the COVID-19 pandemic.

Treasury officials said any 'parameter change' will be included in October's 2020-21 Budget. Senator Carr challenged this suggestion given the parliament is being asked to consider the enabling legislation before the Budget is announced. 

"We now have the first recession in thirty years," said Senator Carr, adding the parliament could not be confident of the impact of the changes given the implications of the recession for R&D investment.

Treasury officials also joined officials from the Industry Department in confirming there has been no stakeholder consultation on the Bill currently before the parliament. It was introduced in late 2019 before the current recession.

"Not one witness we have heard from today has said they have been consulted on this Bill," said Senator Carr, in response to an official who said there has been "general consultation" on R&D and innovation policy.

"Every single witness has told us this Bill will encourage the offshoring of R&D and/or manufacturing," added Senator Carr.

Treasury officials were unable to answer questions regarding evidence given by industry, specifically ResMed and Medicines Australia, that the proposed new 'intensity test' had the unintended consequence of forcing companies to choose between R&D and manufacturing. 

Senator Carr said they were unable to answer because they had not consulted on the Bill currently before the parliament. A previous Senate inquiry on the proposed cuts recommended they be delayed while the government develop a detailed understanding of their impact on investment in R&D.