Budget 2018: Concerns deepen over Govt’s R&D tax incentive crackdown

Budget 2018: Concerns deepen over Govt’s R&D tax incentive crackdown

Comes as the Government reveals $2.4 billion in funding for science and technology initiatives

The local tech industry’s reaction to the Federal Government’s Budget 2018-19 sees praise for fresh IT spending and technology initiatives, but includes disquiet over new tax crackdowns.

Australia’s Treasurer Scott Morrison handed down the Federal Government’s Budget 2018-19 on 8 May, flagging new tax crackdowns, tax breaks and public sector IT spending.

Among the big name IT spending tickets revealed by Morrison on Budget night was $92.4 million in funding during 2018-19 the Government’s new digital identity solution for accessing government services, the so-called GovPass program.

At the same time, the Government announced an additional $250 million for the Skilling Australians Fund to deliver businesses with the people and skills they need to grow their business.

Both of these initiatives have met with glowing praise from the Australian Information Industry Association (AIIA), the peak body for organisations in the local digital ecosystem.

“We applaud the $92.4 million investment in the digital identity program and Government’s increased focus to make this a priority,” the AIIA CEO Rob Fitzpatrick said. “The lack of a digital identity has been a handbrake on progress, so Government’s increased funding and emphasis on the delivery of GovPass, the digital identity program, shows pragmatic leadership.”

As for the additional $250 million committed to the Skilling Australians Fund, Fitzpatrick said that the AIIA is, “particularly pleased to see the focus on encouraging women to pursue STEM careers.

“STEM education is important to develop the foundations that support innovation and jobs of the future,” he said.

This Budget measure was also lauded by Salesforce A/NZ and Southeast Asia public policy director Sassoon Grigorian.

“The government is making a move in the right direction, with the commitment to a 10 year plan to increase female involvement in STEM education and careers,” Grigorian said. “Now is the time to invest in improving female participation in the digital economy, which will benefit from a more diverse workforce.

“Industry has a responsibility to back the government’s focus on female participation in STEM and invest in programs which will move the needle,” he said.

However, the AIIA and Fitzpatrick expressed deepening concern over the Government’s move to crack down on the nation’s Research and Development Tax Incentive scheme.

The Government said it would undertake a “refocusing” of the R&D tax incentive -- which is often employed by the likes of independent software vendors (ISVs), larger IT providers and global vendors operating locally.

Among the measures to be taken by the Government in its efforts to ensure the scheme is meeting its stated objectives, will be a cap of $4 million on cash refunds and convert the rate of the R&D tax offsets to a premium above each claimant’s company tax rate.

Administrative and compliance improvements aimed at helping to improve the ongoing sustainability, transparency and integrity of the R&DTI will also be implemented.

For Fitzpatrick and the AIIA, which had expressed concern over potential changes to the R&D tax scheme prior to Budget night, the changes could constrain innovation by discouraging companies from local investment.

“Australia is in the midst of an R&D recession with a $2.2 billion decline in investment, according to the latest data,” Fitzpatrick said. “While some elements of the 3F review now being implemented are better than those considered earlier, the rhetoric focuses on ‘crackdown’ rather than expansion and growth. Australia’s global competitiveness is reliant on a buoyant R&D mindset.”

A key area of concern, according to Fitzpatrick is the Government’s so-called intensity testing -- from 1 July 2018, the Government will target the tax incentive towards larger R&D projects, with concessional rebates up to $150 million for companies with turnover of $20 million or more.

“While this measure is not as severe as initially proposed, we need to encourage both broad and deep investment in R&D across all technology-related industries,” Fitzpatrick said.

“We need to ask whether the financial benefits will constrain Australia’s global competitiveness,” he said.

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