After over a decade of substitutions for the R&D Tax Incentive in annual budgets, the Government released an unchanged line-up for this budget.

Stability has frequently been touted by major R&D players as a fundamental ingredient to success and the Government has listened.

This is supported by a myriad of funding commitments towards different key industries for R&D programs. The only own goal of note was the lack of mention or commitment to the hotly anticipated patent box program introduced in the last two Federal Budgets.

RSM INSIGHT  

"For the tech sector, the Budget is a case of ‘not enough, but a step in the right direction’ – there were really no big ticket items this time around.”

Mathavan Parmeswaran,  
National Technology Leader

Redirection of Manufacturing Funding

Off the back of a Government spending audit, the 2022-23 Budget is looking to improve the quality of spending by redirecting funding measures that had been announced by the previous Government (in relation to the Industry and Science Portfolio) and reprioritising existing funding towards higher priority initiatives and budget repair.

This includes redirecting $303.7m over three years from 2022–23 for the partial reversal of the 2022–23 March Budget measures and includes reversing uncommitted funding in the Modern Manufacturing Initiative (MMI) and not proceeding with a third round of the Manufacturing Modernisation Fund (MMF).

Establishment of the National Reconstruction Fund (NRF)

In support of national manufacturing priorities, the Government will invest $15b over seven years from 2023–24 to establish the NRF. The aim of the NRF is to support, diversify and transform Australian industry and the economy through targeted co-investments in seven priority areas, including:

  • resources, agriculture, forestry, and fisheries sectors;
  • transport
  • medical science
  • renewables and low emission technologies
  • defence capability
  • enabling capabilities

As part of the establishment of this fund, this includes:

  • $15b in targeted co-investments through independently assessed projects;
  • $50m over two years from 2022–23 to the Department of Industry, Science and Resources, and the Department of Finance to establish the NRF.

Supporting Australian Industry

These measures aim to support Australian domestic manufacturing capabilities and to upskill the manufacturing sector workforce. The Budget announced that $113.6m will be provided to assist with the following:

  • $50m to upgrade the Nyrstar Hobart zinc smelter in Tasmania

  • $17.2m for a pilot Food Manufacturing Innovation Hub in New South Wales

  • $12.6m to support Cytiva’s Springfield BioPark project in Queensland

  • $11.1m to support Ingham’s Carbon Zero Certified Business Model in Tasmania

  • $10.1m to support Flinders University Factory of the Future in South Australia

Support for Defence and Manufacturing Industries

 Against the backdrop of intense global uncertainty, the new manufacturing measures will provide $37.3m over three years from 2022–23 to the Department of Defence to support the development of defence and fuel manufacturing industries.

These measures include supporting the construction of the North Queensland Simulation Park in Townsville, Queensland to support the development and growth of the defence industry in the region as well as supporting the development of sovereign capacity in renewable fuel manufacturing, particularly for the Australian Defence Force.

Other measures to support manufacturing

Additionally, a number of other  manufacturing measures have been proposed as part of the 2022-23 Budget to assist in Australia’s general manufacturing capabilities, including:

  • $49.5m over four years from 2022–23 to increase the security of the diesel exhaust fluid (DEF) market in Australia. This relates to $45m over four years from 2022–23 to secure a stockpile of five weeks of emergency supply of technical grade urea, a key ingredient for DEF, and to create a grant program for small-scale DEF manufacturing projects.
  • $800,000 over three years from 2022–23 for MATES in Manufacturing for field officers to run workshops aimed at preventing suicide in the manufacturing sector.

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October Federal Budget Report 2022-23 | Superannuation
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October Federal Budget Report 2022-23 | Innovation

Key Tax Considerations of the Australian Innovation Economy

Over the past two Federal Budgets, the two key areas of interest relating to taxation of the innovation economy were “Where to next?” for the R&D Tax Incentive and “When will we actually see it in play?” in relation to the Patent Box Regime.

With suggested tweaks to the R&D Tax Incentive becoming a part of the furniture for Federal Budgets over the past decade, it was pleasing to see no suggested changes to the program in this Budget. This is particularly crucial for stability as major changes were introduced into law from 1 July 2021 and the Government authorities have recently implemented a much welcome early engagement model to compliance.

The proposed Patent Box Regime announced in the 2021-22 Federal Budget had been gaining traction until the change in Government, with the draft legislation having been introduced earlier in 2022 and debates amongst many on which industries to extend the measures to. The measures were a positive step to bring Australia in line with many of its OECD counterparts in terms of taxing profits arising from R&D. Given the effort which has already gone into the draft legislation and lobbying by a number of stakeholders, the lack of mention in this Budget was disappointing.

DIRECT FUNDING COMMITMENTS FOR WIDE RANGE OF KEY INNOVATION INDUSTRIES

With regards to additional funding commitments towards R&D, this Budget provided a scattergun approach. Both from the perspective of the industries supported and the types of support, wide-ranging measures have been proposed. Those who will benefit from the proposed measures will need to carefully search their own industry and circumstances to piece together which measures are relevant. Key measures included:

Technology

  • $141.1m over ten years to support carbon capture technologies.
  • $4.8m over four years to support the development of Australian quantum technologies.

Industry-Specific Measures

  • $204.8m over five years to support industry training and R&D to improve innovation and assist with Australia’s timber industry.
  • $15.3m over two years to support improved scientific expertise at the Coastal Marine Ecosystems Research Centre.
  • $50.5m over four years to establish the Australian Critical Minerals R&D Hub.
  • $10.0m over three years to support R&D to advance new commercially viable projects for methane abatement.
  • $14.3m to support drought resilience research.
  • $8.1m to support R&D and other activities relating to the commercialisation of seaweed.

Training and Research

  • $2.9m over the next year to support the Prime Minister’s National Science and Technology Council’s provision of science and technology advice.
  • $118.9m over four years for the Trailblazer Universities Program to support select regional universities to boost R&D.
  • $47.2m over six years to the development of talent and leadership in Australian science and technology
  • $13.5m over four years to strengthen coordinated policy capability relating to the development of critical and emerging technologies.
  • $10.3m over six years to support Australia’s engagement in science in the Asia Pacific region.
  • $10m over three years to continue delivery of Questacon outreach programs to engage young Australians and science teachers in science, technology, engineering, and mathematics.
  • $5.8 over five years to support women in science, technology, engineering, and maths (STEM).

Health

  • $4m over five years to develop a medical research centre in Tasmania.
  • $77m over five years to contribute to the establishment of the Bragg Comprehensive Cancer Centre in Adelaide.
  • $2m to the Autism Cooperative Research Centre to continue autism research, coordination, collaboration, and advice.