The Federal Government did not announce any significant changes regarding innovation in the Budget.
The R&D Tax Incentive is the primary Federal Government support program for innovation and there were no changes included in the Budget.
Highly anticipated changes to the R&D Tax Incentive, in response to the Finkel-Ferris-Fraser (FFF) Review, were not included.
Minor changes were made to other innovation support programs, the largest target industry group being Advanced Manufacturing, with a particular emphasis on South Australia and Victoria.
While innovation companies will be relieved that the R&D Tax Incentive has not been cut back, there will be an overall feeling of disappointment that no substantial improvements to supporting innovation have been made as well as concerns that a future response to the FFF Review may still bring bad news.
Capital Raising Start-ups:
Positive announcements for the start-up sector in the Budget includes extending crowd-sourced equity funding. The Government proposes to make it easier for start-ups and innovative small businesses to raise capital. Current rules require the use of a public company structure. The Government has released draft legislation to extend crowd-sourced equity funding (CSEF) to proprietary companies. This will open up CSEF for a wider range of businesses and provide additional sources of capital.
Proprietary companies using CSEF will be able to have an unlimited number of CSEF shareholders. Shareholders will be protected by the higher governance and reporting obligations that CSEF proprietary companies will need to meet.
The Government will provide $101.5 million over five years from 2016-17 to establish an Advanced Manufacturing Fund (the Fund) to promote research and capital development for high technology manufacturing businesses. This includes:
- $47.5 million for a new Advanced Manufacturing Growth Fund. The funding is for up to a third of the project cost of capital upgrades to establish and expand high value manufacturing in South Australia and Victoria;
- $4.0 million for the Advanced Manufacturing Growth Centre to support small scale and pilot research projects in advanced manufacturing, benefiting small firms and early stage researchers;
- $20.0 million under the Cooperative Research Centre Projects initiative for larger scale advanced manufacturing research projects, of up to $3.0 million in funding over three years;
- $10.0 million to establish Innovation Labs in South Australia and Victoria to serve industry in a variety of roles, including test centre facilities and business capability development;
- $5.0 million to maintain engineering excellence by investing in student research at universities, technology institutions and in industry to continue the flow of highly trained engineers to the automotive design and engineering sector; and
- $13.5 million tariff reduction on imported vehicle prototypes and components used by Australian motor vehicle design and engineering services that operate in a global network.
Fintech was a particular focus for the Government in the Budget but with little direct support. Enhancements to the financial services regulatory sandbox will be introduced to enable testing of new financial products, and services without having to comply with all of the usual licensing requirements.
R&D Tax Incentive Companies, Ongoing Uncertainty and Inflated Budget:
Highly anticipated changes to the R&D Tax Incentive in response to the Finkel-Ferris-Fraser (FFF) Review were not included. This is positive news for innovative companies, as the changes were widely viewed as damaging and unnecessary by industry, however it is unknown if the Government will respond separately to the FFF Review at a later time.
The cost of the R&D Tax Incentive is predicted to increase from $2.9 billion in 2017-18 to $3.7 billion by 2020-21. Based on the current Budget figures, industry feedback given during FFF consultation that Budget modelling grossly overstates the cost of the R&D Tax Incentive still has not been incorporated. Therefore, pressure for the Government to make changes will remain on the program, due to perceived fiscal sustainability issues.