Budget delivers significant news for R&D

Biotech News: AusBiotech congratulates the Government as the Federal Treasurer delivered significant news on the Research and Development Tax Incentive (RDTI).

The announcement demonstrates the Government understands how Australia’s post-COVID-19 recovery will be supported by business expenditure for research and development (BERD) and has provided a welcome change of position on the RDTI that will support and incentivise growth in R&D and manufacturing as we recover from the pandemic.

Lorraine Chiroiu, CEO, AusBiotech, said, “This is excellent news for our industry, and will preserve the highly-skilled STEM-based jobs in Australia. Tonight’s RDTI announcement, together with the support for medical manufacturing, is a recognition of the economic and social value research and development in life sciences delivers to Australia, particularly in response to the current pandemic.

“While the calculations for companies will be dependent on the applicable corporate tax rate, the announcement tonight signifies is an importance and positive shift in the appreciation of the benefits brought by R&D.”

Support for the refundable component of the RDTI has been increased 5 percentage points from the earlier 2019 Bill before the Senate. The $4 million cap proposed on annual cash refunds will not proceed and the complex intensity threshold measure that was planned has been reduced from three tiers to two, with support increased. An increase in the R&D expenditure threshold from $100 million to $150 million, unchanged from the 2019 Bill.

Compared to the reforms before the Senate, the Government is investing a further $2 billion in the RDTI over the forward estimates, that’s $240 million over the forward estimates compared to current policy settings.

“As the most critical policy for the industry, the announcements tonight will support our leading sector by giving companies and investors the certainty they need to commercialise and deliver new, innovative treatments to Australian patients,” said Chiroiu.

“As long-time supporter of the Incentive, AusBiotech has been committed to the RDTI’s preservation and ensuring that it continues to deliver benefits to the Australian economy, the development of new medical products and to the creation of highly-skilled jobs.

“Government support through the RDTI for this sector can provide critical defence against some of the health impacts arising from this and future pandemics. Decade-long investment into the industry has prepared these companies to act swiftly in response to the pandemic, pivoting to fast track
COVID-19 vaccines, treatments, diagnostics and digital health solutions.”

The 2020-21 Budget also includes an investment of $1.5 billion over four years for the Modern Manufacturing Strategy (MMS). Minister for Industry, Science and Technology, Karen Andrews, said the investments highlight the Government’s commitment to making science and technology work
for industry.

“A resilient and competitive manufacturing sector should be at the heart of a modern Australian economy and this Strategy will create jobs, drive our economy forward and make Australia more secure.”

The centrepiece of the MMS is the $1.3 billion Modern Manufacturing Initiative, which will see the Government strategically invest in projects that help manufacturers to scale up and create jobs.

“We are putting our money where our mouth is, to galvanise investment in Australian manufacturing,” Minister Andrews said.

As biotechnology is a long-term activity that requires large investment, with products typically taking 10 to 15 years to market, policy certainty builds business confidence and encourages investment and growth across the sector.

The key announcements in the Budget:

1. No cap on cash refunds;
2. An increase in the R&D expenditure threshold from $100 million to $150 million, unchanged from the 2019 Bill;
3. An 18.5% refundable R&D tax offset above the prevailing company tax rate for small and medium entities (SMEs);
4. A generous 2-tiered R&D intensity measure providing a base rate (intensity < 2 per cent) of 8.5% above the company tax rate and an enhanced rate (intensity > 2 per cent) of 16.5% above the prevailing company tax rate for large companies.
5. Measures to improve the administration, transparency and integrity of the program, unchanged from the 2019 Bill.
6. The package retains the current generous level of support for SMEs to provide them certainty and the confidence to invest for the future.
7. Larger companies will be well-rewarded for raising their R&D investments beyond 2 per cent of their expenses, supporting the key policy objective of incentivising additional R&D beyond ‘business as usual’ investment.
8. The reform package would commence on 1 July 2021.