The Abbott government shouldn’t reduce the R&D tax incentive if it is serious about growing the startup ecosystem, according to the founder of a company who says the scheme is the reason why many startups stay in Australia.
The Abbott government cut the Research and Development Tax Incentive scheme by 1.5% in the 2014 budget, meaning an estimated $70 million per year is unable to be claimed by Australian companies.
The changes are being debated by the Senate, however Labor and the Greens have pledged to vote against the legislation.
Simon Lee, the co-founder and chief executive of secure payments platform PromisePay, says the government may save money in the short term but will ultimately lose tax revenue from startup employees should companies move their operations offshore to chase more attractive incentives.
“Everyone I’ve spoken to in the startup community has talked really highly of the R&D tax incentive and it’s the reason why I see many startups are keeping development onshore,” he says.
“Without it, it’s cheaper to do it in Asia. Or, for us for example with offices in San Francisco or St Louis, you have to ask if it is worth moving your resources elsewhere and getting other breaks. We were in St Louis last year, and we had the state of Missouri offering us tax breaks to come over there.”
His views are shared by the Australian Information Industry Association, with chief executive Suzanne Campbell telling StartupSmart in a statement that Australia’s spending on R&D tax relief is already low when compared with other countries.
“In the globally competitive market in which Australia operates, we need to invest in the business innovators that will drive our future productivity and competitiveness before it’s too late,” she says.
“Technology companies and their employees are more internationally mobile than other industries. Without the right incentives they will find it relatively easy to move their R&D activities to countries with more attractive measures in place.”
While the government has insisted it has to work within a frugal budget environment, opposition leader Bill Shorten has called for Australian R&D spending to be bolstered in order to the secure “the jobs of the future”.
In his budget reply speech, the Labor leader said the nation’s spending on research and development to be 3% of GDP by 2030.
“Digital technologies, computer science and coding – the language of computers and technology – should be taught in every primary and ever secondary school in Australia,” he said.
“A Shorten Labor Government will make this a national priority. We should aspire, together: universities, industry, the people and the Parliament to devote 3% of our GDP to research and development by the end of the next decade.”
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Broede Carmody is a former senior SmartCompany reporter. Before this, he was a co-editor of RMIT University’s student magazine Catalyst.
