Cutting The R&D Tax Incentive By $900 Million – Esoteric or Not Esoteric, That Is The Question

June 23, 2016 Kris Gale

Innovation policy has been getting a decent run in this Federal election campaign. We keep hearing how the word ‘innovation’ is off the banned list and that it’s what is most critical if we are to make the transition to the knowledge economy and keep the dream of this being the best time ever to be an Australian well and truly alive.

It was in that context at the National Press Club earlier this week that the Minister for Industry, Innovation and Science, Christopher Pyne, and the Shadow Minster, Kim Carr, squared off to debate the innovation imperatives.

Following the opening pleasantries, debate moderator, David Speers from Sky News Australia, immediately challenged the Federal Government’s innovation credentials by asking Pyne about the Government’s stated intention to cut $900 million from the R&D Tax Incentive (the Incentive) from the forward estimates. The Minister appeared genuinely startled by the question and said there was no intention whatsoever to make changes to the Incentive. It was noted, however, that the program was under review as part of the Prime Minister’s National innovation and Science Agenda – the Ferris/Finkel/Fraser (FFF) review.

What Christopher Pyne had forgotten (or was not aware of) was the fact that the Government has publically confirmed that it intends to cut the R&D tax offset rates by 1.5% if re-elected and that this was a continuation of the proposal contained in the 2014 Budget Bill (discussed in previous editions of this Update) which lapsed after the Parliament was prorogued. It’s fair to say that Kim Carr was quick to remind the Minister of this fact and an amusing exchange followed.

Once Pyne recalled the Bill, he said that he wasn’t going to be distracted by discussing something that was rejected by the Senate and would have a very small likelihood of getting through if reintroduced after the election. He indicated that there were more interesting things to talk about and he didn’t wish to talk further about such an “esoteric” matter. Apart from giving some insight into the Coalition’s expectations about the balance of the power in the Senate, the Minister’s response shows that the Government appears to have parked the issue of what to do about the Incentive until after 2 July and that the much-awaited (but locked away) FFF review report is likely to have a big role to play in the final reform agenda.

The fact remains that the $900 million cut is the current Government policy. In response, Kim Carr stated that he felt that the cut was not an esoteric matter and one that Labor was very concerned about. As previously announced in Labor’s recent fiscal responsibility statement, Carr confirmed that Labor would not oppose the rate cut if it lost the election though it would try and work with all stakeholders to achieve the savings in a more productive way. If elected, it would also make use of the FFF findings and seek to “refocus” the Incentive towards target industries at the expense of others. Of course, no details are forthcoming at this stage.

So there you have it. Expect the Incentive to provide less support for innovation whoever takes the reins in the second half of 2016. The elected Government will need to hear from the affected innovation community in order to help ensure that any changes are made with a view to minimising the damage and maximising the improvements. MJA will be involving itself in all these matters, esoteric and otherwise.

Should you wish to discuss this matter further, please do not hesitate to contact
Kris Gale on 02 9810 7211 or email kris.gale@mjassociates.com.au