Can Australia catch the next wave of entrepreneur investment without R&D tax incentives?

One hundred years ago, Albert Einstein, whose birthday is today, published his general theory of relativity describing how gravity warps and distorts space-time. He also predicted the existence of gravitational waves.

On 11 February, the Advanced Laser Interferometer Gravitational-Wave Observatory (aLIGO) announced to the world that their detectors had finally confirmed their existence. An audio grab of black holes colliding echoed around the world. And the clarity of the sound was due, in part, to a collaboration with Australian scientists and data analysts who played an important role in eliminating the noise from the radio telescope data.

It’s the physics equivalent of a tax consultation paper becoming law.

In the words of Barney Glover, Chairman of Universities Australia, “There can be no innovation without investment, and no technology transfer without deep and sustained collaboration between government, universities and industry”.

R&D tax incentives, together with breaks for speculative investors investing risk capital in new and high tech enterprises can drive repeat sets of waves of innovation delivering a higher standard of living for all Australians.

Unfortunately, Australia is in the bottom quartile amongst OECD nations for companies collaborating with higher education or specialist researchers.

In surfing terms, the companies are catching waves on their longboards whilst the hi-tech university surf boards remain on the beach.

Aussie universities have advanced from dipping their toes in the shallows to charging through the waves. They have created technology rich incubators and accelerators that are linked to post graduate subjects with practical entrepreneurship skills development.

KPMG’s Western Sydney office involvement in the Western Sydney University Launch Pad is one exciting example revealing the depth of talent in Western Sydney and the viability of business and university collaboration. The willingness of companies who are a local success to position their innovation teams in the Launch Pad and to actively provide support and mentorship to entrepreneurial students highlights that Australia can make its own luck.

As announced by the Prime Minister in December 2015 under the National Science and Innovation Agenda, the government will soon complete its review of the Research & Development (R&D) tax incentive, angel and venture capital investment, and Early Stage Venture Capital Limited Partnerships. The reviews aims to “identify opportunities to improve the [incentive’s] effectiveness and integrity” and encourage “additional R&D expenditure”.

The review is significant in light of the government’s ‘ideas boom’. R&D tax incentives account for roughly 90 percent of the government’s support for innovation among Australian businesses and around 30 percent of the government’s total spend on science, research and innovation.

The review of the R&D tax incentive program, which is now in its fifth year, presents an interesting dilemma. The government wants to catch the innovation wave but needs to avoid ‘cutting in’ on innovative entrepreneurs who have subsidised their R&D through the R&D tax incentive. The prospect for change undermines stability, which is crucial for investment in innovation in the areas in which Australia excels – medical technology, agriculture, mining, which all have multi-year duration project cycles. It would do nothing for innovation if the R&D tax incentives are downgraded and innovative collaborative investors suffer from ‘tinker fatigue’.

Here’s hoping that the government errs on the side of investing in our future and we can all ride the innovation wave.

Surfs up!

Read the full KPMG Submission to the government in response to their review.

Black holes colliding
Black holes colliding
Image credit: The SXS (Simulating eXtreme Spacetimes) Project

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