Overview & Comments

This report was commissioned by the Australian Business Foundation to explore whether the new R&D tax concessions would be an improvement on the current system. It was written by Dr Nicholas Gruen, CEO of Lateral Economics, who served on the Cutler Review, which proposed changing the existing tax concession scheme. 

Dr Gruen has found that the new proposed scheme is an improvement on the current system, which will promote higher rates of concession, better funding for smaller firms, promote efficiency and transparency, and disallow ‘whole of production’ claims.  

Assistance rates have fallen from 24.5% in the mid 1980s to 7.5%, which generates very little additional R&D. Dr Gruen argues that as most R&D currently taking place would have gone ahead without the assistance of the concession rates, the current scheme generates more costs in administration and compliance than it gives in R&D benefits. The proposed rates will be 15% for smaller firms, and 10% for larger firms, which will enable substantial amounts of additional R&D.  

The scheme also seeks to eliminate incidental production claims that are not directly related to R&D by tightening R&D criteria. Because this change has a negative impact on some firms, this has been the subject of some debate. Dr Gruen has urged policymakers to maximise the impact of these reforms by channelling funds into small business as soon as possible, and even increasing concession rates if there is enough funding. 

For greater transparency, the report has also recommended that the threshold for small firms be reviewed and indexed for inflation every three years and that tax confidentiality be waived to improve the evidence base for evaluating and optimising the scheme over time. Dr Gruen also expressed concern that any delay in passing the legislation could cause small business to postpone R&D projects, which is not in the best interests of boosting innovation.

Related Knowledge

• Presentation by Dr Nicholas Gruen members only (Presentation)
  Mon Aug 08 2011 | Dr Nicholas Gruen, Lateral Economics

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