By Marieke D’Cruz , Author of ‘Committing to the Innovation Nation’ for The Huffington Post Australia
The outlook for my generation these days is pretty grim. During the next 30 years we will have to face more extreme weather events brought on by climate change; an ageing population which will leave both a higher public health and welfare bill, with fewer taxpayers to fund it; and rising automation leaving many of us without a job and with fewer prospects for another.
On top of that, we are currently experiencing a housing affordability crisis which the Government has repeatedly refused to take any real action on.
Although most of us recognise that the Government must make trade-offs when deciding which industries or programs to invest in, there is one program that will help drive growth for the future that is again under review.
The R&D Tax Incentive gives a cash refund or tax deduction to eligible firms undertaking research and development (R&D). The Government has provided funding for private R&D since 1985 because R&D drives innovation, and innovation is the major driver of economic growth.
However, the Government is shortly due to announce their response to the Review of the R&D Tax Incentive, the tenth review of its kind since 2003, and the fourth since 2014. The release of the Review for public comment in September last year also coincided with a 1.5 percent reduction to the rebate in the Federal Budget Savings (Omnibus) Bill, passed by the Senate in the same month.
My recent report for The McKell Institute, Committing to the Innovation Nation, considered how all these reviews and changes have affected investment in the biotechnology industry in Australia.
A survey of biotechnology firm senior managers found that 61 percent now feel uncertain about the future of the R&D Tax Incentive. Further, 62 percent said that if further changes were to be made by the Government, their firm would change their R&D investment strategy. Likely effects of further change would include taking investments offshore; conducting fewer R&D activities; and reducing the number of staff working in their firm.
My research also found that firms are attracted to Australia because of the policy. 78 percent of biotech firm managers said that the R&D Tax Incentive was either important or very important in their decision to undertake R&D in Australia. The Incentive offers a generous cash rebate for small and medium-sized firms who invest in innovation, which attracts savvy businesses to Australia to both base their operations and conduct their clinical trials for medical products.
While many Australians might not know what biotechnology is (essentially, it’s the application of science to natural organisms for the benefit of humans and our world); it is an industry that has the potential to drive growth for many decades to come. It is science-reliant and future-facing, and because of Australia’s immature venture capital industry, relies heavily on the R&D Tax Incentive to get innovations to market.
This is the type of industry that could help drive Australia’s prosperity for many decades to come. It is the type of industry that the Government itself has stated it wishes to support; sitting within the Prime Minister’s Innovation Agenda. As a young person thinking about our future, it is exactly the type of industry I would like to see my tax dollars go towards.
As a trade-off between property tax breaks such as negative gearing, it seems like a no-brainer to invest in the R&D Tax Incentive. It would require better communication from the Government to sell this trade-off, but I’m willing to bet most property owners would prefer our politicians act for the future prosperity of our nation, instead of protecting the status quo.
My research found that if the Government continues to review or modify the R&D Tax Incentive, businesses will either relocate overseas, invest less in research, or overseas investors will head to more attractive markets. This will then leave the economy with fewer jobs, patents and investment funds, and fewer hopes for future generations.
I would counsel the Government to carefully consider the effect excessive reviews and modifications of an integral policy can have to an industry; and urge the Government to seek bipartisan support to leave this policy alone for a few election cycles. Because if we can create a biotechnology boom anywhere near as strong as our current property boom, we will all be the richer for it.
Marieke D’Cruz is a fellow at The McKell Institute, and author of Committing to the Innovation Nation.