A $1 billion cut in the research and development (R&D) tax incentive has been added to 20 other savings measures which the government has included in an 'omnibus bill' it will put to Parliament, which returns to sitting this week.
The omnibus bill includes a 1.5 per cent reduction in the incentive claim rates, with the refundable rate dropping from 45 per cent to 43.5 percent and the non-refundable rate from 40 per cent to 38.5 per cent.
“This equates to an effective cut in tax incentives of 10 per cent to start-ups and SMEs and 15 per cent for larger companies, including high-tech and biotech companies. That is a material blow,” said David Gelb, global head of R&D tax incentives at KPMG.
“In a sense, the $990 million cut to the R&D tax incentive is not surprising given how governments have invariably seen it as a cost more than an investment. In the first half of last year, a Treasury-led review of the incentive was announced, only for this to be redirected in December as part of the National Innovation and Science Agenda. Reviews invariably involve tightening of tax concessions rather than expansion,” Mr Gelb said.
“We have had uncertainty over the fate of the incentive for nearly 10 years now, but until the announcement was made on August 18, some hope still remained of a shift in approach. But the government’s decision to proceed with this significant cutback has cast doubt over the strategic priority of R&D in Australia. The rhetoric of support for innovation is undermined by this move,” he said.
Mr Gelb predicts that the outcome of this proposal passing will be that the cost of R&D will increase, which will in turn drive R&D activities offshore where they will be undertaken in a more after-tax cost-effective country.
He also noted that Labor reversed its long-standing opposition to the cut in the incentive during the recent election campaign and says it will now consider the package of measures before committing to a position.
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