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Australasian Biotechnology, Vol. 11 No. 2, 2001, pp. 8 LETTER TO THE EDITOR Peter Rogers Freyer Street, Williamstown, Victoria Code Number: au01018 Dear Martin Your recent comments about the Government’s Innovation Statement offerings to industry are right on the money. A step in the right direction by all means; but I hate to think what is in store for commercial R&D if, as the ABA President Peter Riddles says, this ‘package is ..... symbolic of where we are going’. Perhaps the public sector is still getting over the surprising size of their package which represents more funding overall than either the Chief Scientist’s report or the report of the Innovation Summit Implementation Group (ISIG) had proposed. Interestingly 18 of the 20 recommendations in Robin Batterham’s report The Chance to Change were accepted including the doubling of the ARC’s budget, greater funding for infrastructure in Universities, partnered funding for major national research facilities, more CRC funding and the creation of a pre-seed fund for Universities and research agencies. Even so the proposed funding will only mean that the funding has returned to 1996 levels. Sadly the major recommendation of ISIG’s report, to increase the R&D tax concession to 130% and offer up to 200% for additional R&D was considerably watered down. In addition the changes to the definition of R&D will make it much harder to access than in the past. It is true that enhancements to the 125% tax concession include an a175% premium tax concession for additional investment in R&D and a tax rebate for small companies in a tax loss situation. But the sting in the detail offsets much of the potential value of these changes. Applicants must now show that their projects are both innovative and involve high risk. Previously only one of these criteria had to be satisfied. And companies will have to write off equipment and plant over the full working life rather than over a 3-year period. The Government will allocate $460 million to the new 175% Tax Concession; the effect of the changes to the ground rules will take back $345 million resulting in additional expenditure of just $115 million over FIVE years of operation. The value of the Premium Tax Concession to business is questionable as it will only apply to companies that have invested in R&D in 3 consecutive years; it only applies to the labour costs; and it only applies to the incremental funding over the average R&D spent for the preceding 3 years. This means that overall the Premium Tax Concession will pay 22.5% of increased labour costs and 7.5 cents in the dollar for other R&D costs. Once R&D management accounting costs are removed these figures become very line ball for many companies. In addition, and this is often forgotten, R&D covers a wide range of business activities including IT and ecommerce initiatives. Recent IT / ecommerce R&D expenditure by many trading companies, means that even significant increases in technical R&D expenditure will not be eligible for the 175% concession for several years. Given the high cost of tracking eligible expenditure many companies may simply decide that the effort is not worth it, which thus sours the climate for real growth in innovation spending. The fact is that companies continuously benchmark one another, and we end up in a spiral of declining technical R&D investment. Senator Natasha Stott Despoja has warned that fewer than 10% of R&D project applications would meet the dual eligibility criteria of innovation and risk taking. She also believes that the Government’s intention is to exclude supporting activities such as market research, new product development, and standards compliance form the R&D definition. As company profitability depends on technical excellence as well as brand management we could be left with a crop of orphan technologies. Of course the 175% concession may help some companies, probably established companies that are increasing their R&D investment. Conversely it won’t help young ventures, which have invested heavily in early stage research and are entering product diversification and are growing their sales. At best I think that the R&D policy has little relevance to decision making on R&D investments. Consequently, these changes will have no real effect on investment in research and innovation and the 175% tax concession will be a waste of tax payers’ money. As corporate growth is linked to international markets and acquisitions, it is likely that R&D opportunities will miss out if we don’t maintain adequate infrastructure and activity. Many in industry think that a more comprehensive policy is desperately needed to convince big companies to spend on innovation risk linked to profitability. That means a bigger accessible tax concession or changes to tax relief on sales. When Robin Batterham’s report was released, the President of FASTS, Sue Serjeantson, described it as ‘... a clever balance, calling for greater national investment in people, in ideas and commercialisation.’ I think that it is a good description. We are still far from this synthesis. Science degree enrolments are significantly down this year; the number of scientists working in industry is way down; membership of peak science bodies in industry has sharply dipped. There has been strong support from the higher education sector for its focus on education and research, and increasing concerns expressed by industry about some aspects of the package. We are in a science recession. It’s a shame. It will be a shame too if the science community doesn’t pull together to better public policy. Yours sincerely Peter Rogers Freyer Street, Williamstown, Victoria Copyright 2001 - AusBiotech |
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