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Government forced to defend new R&D policy

Government forced to defend new R&D policy

World’s biggest tax advisory firms come out against the Government, claiming it is “decimating” Australian ICT research

The Government has been forced to defend itself as a wall of opposition emerges from major financial firms against planned changes to Australia’s research and development tax concessions.

The proposed changes to the R&D tax concession, which stimulates Australian R&D by providing tax breaks to companies, will see conditions for receiving benefits greatly tightened. An increasing variety of multinational tax experts have come out in force to publicly criticised the new rules, claiming software developers, manufacturers and mining firms will be hit the hardest and may even be forced out of business.

A spokesperson for the Treasurer, Wayne Swan, defended the department from allegations of cost-cutting through its new R&D concession policies. Instead, he claimed the current definition of eligible R&D activities allowed claims to be made for activities lacking a strong rationale for public support.

“The Government does not expect any firms will be forced to shut down. The new tax credit is designed to generate additional R&D in the economy,” the spokesperson stated.

But taxation experts from some of the world’s largest consultancies damned the Government’s plans as devastating for home-grown research.

“In essence, I see the draft legislation as being a kick in the guts for business,” PriceWaterhouseCoopers (PWC) national R&D leader, Sandra Mason, said. “These proposed changes will slash support for R&D, despite the Government saying it’s more generous. In particular, the IT industry is going to be hit hard.

“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.

“Our current OECD ranking is woeful and it’s going to plummet as a consequence of this…SMEs will be particularly hard hit because it’s smashing support for them.”

KPMG national R&D partner, David Gelb, claimed the revised program will cost the Government only $500 million instead of the Government’s claimed $1.4 billion per year.

“It is absolutely clear the R&D tax concession is going to be non-existent from July 1, 2010 because what the Government has sought to do, piece by piece, is to decimate the benefits available that have existed for the past 25 years,” he said. “It’s not for any industry support purpose, but for the very obvious ulterior motive of cost-cutting.”

In particular, Gelb said the Government’s changes would make it near impossible for ICT research to take place domestically.

“They’ve sought to make [the definition of R&D for IT] the most narrow and stringent in the world and it takes us out of line with what other regimes have. This will have a direct impact on jobs across the industry and on the NBN [National Broadband Network],” he said.

But the Treasury spokesperson rejected both claims and said the changes would actually support more research and development in Australia.

“The new R&D tax incentive intentionally redistributes support in favour of small- and medium-sized businesses, which are more responsive to fiscal incentives. Larger companies will also benefit from the move to a tax credit model that provides greater certainty about the level of Government support they can access for R&D activities,” the spokesperson wrote.

“In a global economy, companies have incentives to invest in R&D to improve their competitiveness and ongoing profitability…The subsidy provided by the new R&D tax incentive is targeted at R&D activities that are more likely to provide greater benefits to the Australian economy.”

The Government intends to introduce the legislation into Parliament as soon as practicable ahead of the 1 July 2010 start date, the spokesperson added.

ARN contacted the office of Shadow Treasurer, Joe Hockey, but it was unable to comment at the time of publication.


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Tags federal governmentkpmgresearch and development tax concessionsR&DPricewaterhouseCoopers

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