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R&D tax changes will kill innovation: New survey

22-06-2010
by 
in 

Proposed changes to the R&D tax concession will lead to a significant fall in business
 research and development in Australia, according to an Australian Industry Group survey.

“In making only minor amendments to its R&D Bill, the Government appears to have lost the opportunity to
rethink its approach and remove the severe restrictions on eligibility for the tax incentive, said Australian Industry Group Chief Executive Heather Ridout.

"While to date, Ai Group has supported elements of the changes to the R&D tax incentive, the Government’s
decision to continue with its flawed approach leaves business little choice but to call for the Bill to be
opposed in the Senate.

“While regrettable, this now appears to be the only way to avoid the damage to
business research and development that our survey confirms would flow from the Government’s approach.

"Ai Group’s survey, Business R&D, which included large and small businesses from across a range of
industries, backs up the strong feedback we have received from across our membership. It points to the
clear disconnect between the design of the proposed new R&D tax incentive and the reality of how business
R&D is carried out. 


"The Government’s approach is based on a narrow conception of R&D as laboratory work and does not
adequately recognise the nature of the real innovation process. If implemented it would see a large proportion of existing investment in R&D activities ruled ineligible for the tax incentive.”



According to the Ai Group survey, more than 45 per cent of respondents currently using the R&D tax incentive
would reduce their innovation efforts if the Government's proposed changes were implemented.

For smaller
businesses the outlook is worse with more than 54 per cent expecting to reduce their R&D activities. A further 10 per cent of all businesses remain uncertain of the impact and less than 7 per cent would increase their R&D investments.



“A reduction in R&D would undermine the significant progress business has made over the past decade in
boosting expenditure on R&D as a share of GDP, said Ms Ridout. “Instead of fostering innovation and business R&D, the
Government’s plan will put it into reverse, she said.


“The proposed changes will also be a compliance nightmare. While the existing tax incentive is already
rated as having “high” or “very high” compliance costs, under the proposed changes, over two thirds of all
respondents and over 70 per cent of smaller businesses anticipate a further increase in their compliance costs.



“We are constantly reminded of the important roles productivity improvements and business innovation.


“They are critical in helping business improve the way it adapts to the challenges of globalisation, the two-speed
economy and our growing demographic pressures. “Worryingly, the Government continues to pursue
changes that will undermine business R&D and therefore businesses ability to boost productivity."

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