Uncertainty on R&D Tax Incentive causing harm


Constant reviews and recent changes to the Research and Development (R&D) Tax Incentive are jeopardising Australian innovation and prompting Australian biotechnology firms to reconsider their R&D investment strategy, says the McKell Institute.

In a recent report, Committing to the Innovation Nation: Why the R&D Tax Incentive is so important for Australia, the McKell Institute examined how R&D policy instability affects the Australian biotechnology industry.

The McKell Institute called for the Government to leave the R&D Tax Incentive in its current form, emphasising its essential role in advancing Australia as an innovation nation.

The report recommended that the Government should commit to the R&D Tax Incentive for at least the next eight years and reject the $2 million refund cap, as proposed in the Review of the R&D Tax Incentive.

Writing for the Huffington Post, the report’s author and member of the McKell Institute’s policy team, Marieke D’Cruz, counselled the Government to consider the effect of “excessive” reviews.

The report surveyed 42 managers and senior decision-makers from Australian biotechnology companies, 78 per cent of which indicated that the policy was either important or very important to undertaking R&D in Australia.

“The Government should be aware of the impact of their actions when announcing reviews and modifying policies that are designed to stimulate investment. Uncertainty caused by such actions is likely to stifle investment; and continued uncertainty may be more difficult to overcome if firms don’t believe the Government when they say this modification is the last one,” said the Report.

“Many respondents indicated that further policy modifications would cause organisations to reduce R&D expenditure or take investments offshore to more stable economies.

“Other respondents were concerned that further uncertainty would reduce the number of international firms investing in Australia.”

Positioning biotechnology as a “field of the future”, the report outlined benefits of the R&D Tax Incentive in supporting an industry that is essential to Australian innovation.

As biotechnology is an industry that relies profoundly on R&D, young firms tend to focus on progressing their product through development and into the market. The Report notes that faced with product pipelines of up to 15-20 years, these firms must overcome the notorious ‘valley of death’. With the help of the refund component of the Incentive, biotechnology projects can progress with limited funding and even reduce length of the development phase. The Incentive promotes investment by giving investors leverage and reducing the risk of a project.

One survey respondent said: “The Incentive was critical to our decision to relocate to Australia. We have factored it into our clinical trials program. If it was significantly changed for the worse it would negatively impact investor confidence right at the time we would need to raise additional capital to cover any shortfall. Also because of the Incentive we have been actively promoting the Australian clinical trial industry to several offshore biotech companies. Adverse changes in policy would send a clear signal that Australian policy cannot be trusted in the medium term.”

The Government is expected to shortly announce their response to the Review of the R&D Tax Incentive, the tenth review of its kind since 2003, and the fourth since 2014. The release of the Review for public comment in September last year coincided with a 1.5 per cent cut to the rebate in the Federal Budget Savings (Omnibus) Bill.

View the full McKell Institute report here.

Read AusBiotech’s submission in response to the ‘Ferris, Finkel, Fraser’ Review of the R&D Tax Incentive.