The government is cutting the Research and Development Tax Incentive for businesses with an Australian turnover of over $20 billion a year in order to fund the government’s jobs package, which it says will assist small to medium businesses.
Treasurer Wayne Swan and Industry and Innovation Minister Greg Combet announced the changes yesterday, which will provide an estimated $1 billion in savings to fund the government’s industry and innovation policy statement, A Plan for Australian Jobs.
Swan said the changes, which will apply to income years starting on or after July 1, 2013, will better target the incentive to ensure businesses most in need of support can grow and prosper and will affect less than 20 businesses.
“The R&D Tax Incentive is one of the most important elements of the government’s support for our innovation system. It will continue to provide generous, easy-to-access support for around 10,000 companies each year who are undertaking eligible R&D,” he said.
Businesses with a turnover of less than $20 million doing eligible R&D can receive an uncapped fully refundable offset if they are in tax loss and, from 2014, eligible companies will be able to receive refunds as quarterly credits.
The government says this will improve cashflow and help them conduct more R&D.
A Plan for Australian Jobs is aimed at assisting SMEs through a $378.6 million Venture Australia package to facilitate the growth of Australian innovation-driven businesses by improving access to finance and business expertise.
The government will establish up to 10 “Industry Innovation Precincts” to boost collaboration between businesses and researchers to develop the skills, technologies and capabilities needed for business success.
The precincts will be modelled on those in California’s Silicon Valley and Italy’s Biella textile district and each will help direct a total of $236 million in Australian Research Council grants.
Combet described these precincts as the “centrepiece” of the policy. The first precincts have been announced as manufacturing precincts in Adelaide and Melbourne and a food precinct in Melbourne.
The government also announced a $27.7 million Enterprise Solutions Program to help SMEs gain access to public sector markets and the extension of Enterprise Connect, the government’s business advisory service, to provide important services to more Australian SMEs across more sectors.
It will also launch a Growth Opportunities and Leadership Development initiative to provide focused support for SMEs with high growth potential.
“The government’s Plan for Australian Jobs will improve opportunities for Australia’s small to medium-sized businesses to innovate, grow, export and create new jobs so we continue to build a diverse and flexible economy,” Combet said.
Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, told SmartCompany the measures deserved support from the business community but warned they would not assist the majority of SMEs.
“The government’s willingness to support research and development in small and medium enterprises is welcome but it comes on the back of some past cutbacks in that area which were damaging to our industrial base. So I think the government has made up some ground that had previously been lost,” he says.
But Anderson says the range of small businesses which are commercialising innovation for market are relatively few in number and restricted to specialist industries.
“Most SME operators will not feel the benefit of the change; they are more concerned with the daily pressures of making ends meet. So the government’s announcement yesterday, while welcome, is no warrant for the government to divert attention from the other regulatory issues that small business requires immediate attention to,” he says.
Anderson says these issues include changes to the tax system to ease compliance obligations and changes to the industrial relations system to make it fairer for small business and for the government to consult much more meaningfully about small business policy.
“I do think it is robbing Peter to pay Paul by taking a tax benefit from R&D and redistributing it to the wider economy and the reason for it is you weaken the resources industry at the risk of weakening the whole economy and I think that is short sighted,” he says.
Australian Industry Group chief executive Innes Willox was also critical of the funding of the program by cutting the tax break for big business but said the measures announced by the government would strengthen the capabilities of Australia’s SMEs.
“For smaller businesses, the issues really revolve around whether the denial of the tax incentive means these very big businesses cut back on their R&D spend and, if so, what impact this has on the broader innovation system,” he says.
Indeed, the rationale for having an R&D Tax Incentive is that economy-wide benefits flow to businesses other than the business actually spending the money.”
However, Willox says a number of the measures announced are important for big-employing sectors under “extreme pressure” including in metals and metal product manufacturing, plastics and chemicals, retailing and residential and commercial construction.
Peter Strong, executive director of the Council of Small Business of Australia, says the changes are a good thing.
“I like the idea of having precincts. In the main it seems to reflect an understanding of how the true innovators behave and how we need to bring them together,” he says.
“The great innovators in Australia are small business… big business is good at taking those innovations and turning them into big business.”
This story first appeared on our sister site, SmartCompany.