Government admits going too far on R&D tax concessions

The Government has admitted going too far and causing “unintended consequences” with its proposed R&D tax concession changes.

In a public statement made by the Treasury, the Government received more than 131 submissions on the issue and promised all will be made public.

“With the benefit of this feedback, we understand that in some areas the proposed rules could have unintended consequences,” the Treasury said. “In others the draft legislation needs to be made clearer and less complex.

The Treasury identified five main areas of concern such as the definition of core R&D activities, the definition of support R&D activities, R&D activities involving software, the registration of core and supporting activities, and the augmented feedstock rules.

Shadow Minister for Innovation, Industry, Science and Research, Sophie Mirabella, claimed the proposed legislation had gone too far due to a lack of intervention from the office of Innovation Minister for Innovation, Industry, Science and Research, Senator Kim Carr.

“This is a sign the Government had no regard for the actual impact on R&D,” she said. “Minister Carr has allowed Treasury to run the agenda on R&D out of his portfolio.

“The Government is extremely sensitive on any negative criticism on this issue and the fact there’s been widespread business and industry condemnation has forced them to make these comments.”

But a spokesperson for Senator Carr said the proposed legislation would have never damaged the Australian economy and appeared to contradict The Treasury's admission.

“About 80 percent of funding goes to 100 companies,” the spokesperson said. “Instead of receiving 7.5 cents for every dollar, eligible SMEs will receive 15 cents – the significance of this increase should not be underestimated.

“Our aim is to encourage business to see R&D as a core activity."

The government would like to implement the proposed R&D tax changes in July. But Mirabella said the process could not be fixed in time and called for a re-draft of the legislation.

“This whole thing is so fundamentally flawed they need to scrap it and start again. Not with token consultation with the industry that gets ignored, but with genuine consultation to find ways to improve it,” she said. “That can’t be done overnight.”

Companies opposed to the proposed legislation, from Google to small Australian ISVs, launched a “firestorm of criticism” and financial advisory firms such as Deloitte, KPMG, PricewaterhouseCoopers (PwC) and Ernst and Young, condemned it as a cost-cutting measure.

“The draft legislation is a kick in the guts for business,” PwC national R&D leader, Sandra Mason, said. “If you read what [the Government’s] aims are – revenue neutrality, increasing and expanding business investment on R&D, and bringing global innovation dollars to Australia – none of those have been achieved.”

Australian Information Industry Association CEO, Ian Birks, welcomed the Government’s admission and said he looked forward to seeing the amendments.

“I think it’s good. They're engaging in conversations with industry on how to improve the scheme,” he said. “[The Government’s] public recognition that there were issues is a good thing for clearing the air."

The program will be worth about $1.4 billion.

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