Increasing research and development (R&D) investment is critical to lifting Australia’s productivity, raising living standards and strengthening economic resilience. It drives new industries, improves productivity in established sectors and builds the capabilities Australia needs to respond to economic and global shocks. A strong R&D ecosystem is therefore central to a more productive, diversified and secure economy.
The Business Council of Australia strongly supports the Government’s objective of increasing business investment in R&D. At a time when Australian business R&D remains weak by international standards, the Research and Development Tax Incentive (RDTI) should provide a strong, simple and internationally competitive incentive to invest in Australia.
The BCA supports the proposed:
- increase in offset rates for eligible R&D activities
- reduction in the intensity threshold for the higher non-refundable offset from 2 per cent to 1.5 per cent
- increase in the turnover threshold for the refundable offset from $20 million to $50 million
- increase in the minimum expenditure threshold from $20,000 to $50,000
- increase in the maximum expenditure eligible for the premium offset from $150 million to $200 million.
The BCA considers this a positive step, but maintains that the threshold should be increased to at least $250 million and indexed, with a longer-term objective of removing it altogether.
However, the benefits of these reforms should not be offset by measures that arbitrarily restrict access to refundability or narrow the range of legitimate R&D expenditure supported by the scheme.
The BCA therefore does not support the proposed 10-year limit on access to the refundable offset, with a 15-year extension for eligible therapeutic goods R&D. Company age is a poor proxy for R&D impact and maturity, and long development cycles are not unique to therapeutic goods. The age restriction should be removed or replaced with an outcomes-based approach consistent with the Strategic Examination of R&D (SERD) final report, Ambitious Australia.
The BCA also does not support removing supporting R&D activities from the scheme. Instead, these activities should be retained through a simplified deemed-rate approach, as recommended by Ambitious Australia, to reduce complexity while continuing to support legitimate R&D expenditure. In addition, the definition of R&D should be modernised to reflect the reality of innovation and ensure Australia is internationally competitive.
The Government has described these reforms as the first stage of its response to the Ambitious Australia report, with further reforms to be considered. The BCA considers the next stage should include stronger incentives for commercialisation and collaboration, including a production and commercialisation incentive, and measures to strengthen collaboration between industry and the research sector.