Submitting to an R&D Tax Incentive Review (Again). Why You Should Bother

February 15, 2016 Kris Gale

Last week, we alerted you to the Review of the R&D Tax Incentive (the Review) as part of the National Science And Innovation Agenda (the Agenda) and to the fact that the Review Chairs have released an Issues Paper to assist stakeholders who wish to provide additional input to the Review. (For more information or to view the Issues Paper visit the R&D Tax Incentive Review page on business.gov.au.)

Submissions close in two weeks on Monday, 29 February. The Review implies that the quick turnaround can be justified by the number of recent events through which interested parties may have already made submissions regarding the design and performance of the R&D Tax Incentive (the Incentive) – the Tax White Paper process; the 2014 Senate inquiry into the innovation system; and the 2015 consultation paper from the outgoing Chief Scientist. In addition, the Department of Industry, Innovation and Science commissioned the Centre for International Economics (CIE) to analyse the Incentive looking at its policy rationale, programme design, impact and cost. The suggestion is that the Review may well have enough to be getting on with.

And if you are suffering from review fatigue, given that the Incentive has been under some form of review or pending legislative change continuously since 2008, you might understandably say “Enough already. Let them just do what they want to do and we’ll just get on with it.”

Well, we think it is critical that you consider making a submission this time around and here’s why:

The Chairs Offer New Hope

The Agenda is being co-chaired by Mr Bill Ferris AC (Innovation Australia), Dr Alan Finkel AO (Chief Scientist) and Mr John Fraser (Secretary of the Treasury) under the auspices of Innovation and Science Australia. This is a very eminent group and they are relatively new to the Incentive. They need to hear the stories of companies who value the contribution the Incentive makes to their businesses. We believe that the Review Chairs offer the chance for fresh pairs of wise eyes to take a balanced view of what needs to happen with the Incentive.
The Prior Work Is Not Focused Or Comprehensive

The three opportunities for submission detailed above included the Incentive but were not specifically focused on it in any particular way. In addition, the CIE study did not cover what the Government suggested (“…its policy rationale, programme design, impact and cost.”). The study was headed “Understanding the drivers and consequences of your R&D” and had only four questions out of thirty-six that referred to the Incentive at all (with one of those questions, an ‘any additional comments/suggestions’ type of question, buried in a different part of the survey to the Incentive section).

As such, one cannot be satisfied that the three reviews and the CIE survey will provide very useful input to the new Review at all. We note however that the Review’s Issues Paper seems to draw heavily on the (unpublished) CIE study results which we find genuinely concerning.
The Issues Paper Appears To Be About More Cuts

The tenor of the paper is that there is a cost blowout in the Incentive, that this is a bad thing and something will have to give. In other words, more cuts are necessary. Interestingly, the source of the blowout (if there is one and this will be the subject of another MJA Update shortly) appears to be an increased uptake of the 45% Refundable R&D Tax Offset by the very businesses the Federal Government has been saying should be the major beneficiaries of the Incentive’s support.

There are some genuinely fresh issues for respondents to consider coming out of the Issues Paper. Are the costs of the program being correctly presented in the context of the blowout? Is the small company offering now being seen as too generous? Small claimants generally don’t directly participate in Incentive reviews but their interests may now be at stake. Why are more cuts being inferred when the legislation to retrospectively cut the R&D Tax Offset rates by 1.5 percentage points remains unpassed? And, what has been the impact of the introduction of the $100 million R&D expenditure cap on overall program cost?

None of these questions are answered in the Issues Paper. In fact, the paper does not appear to ask for input on anything in particular with the possible exceptions of the ideas of a pre-registration process and a single agency delivery model.
So, have you got your second wind? If so, have a read of the Issues Paper. It’s only nine pages. And then use this current process as a forum to get on the record how you feel the program is performing, the value of the Incentive to your businesses, the things you like, and the things that drive you mad. It just might be that there has never been a better time and audience (the Review Chairs) to get your message heard.

Should you wish to discuss this matter further, please do not hesitate to contact
Kris Gale on 0411 171 596 or email kris.gale@mjassociates.com.au