Investment in research and development (R&D) plays a key role in driving productivity, which in turn leads to better living standards and economic competitiveness. Concerningly, Australia’s business R&D spending has fallen to half that of peer countries.

The report provides real world examples of how large business R&D investment has a positive spillover effect on the economy, by creating better environments for commercialising innovations, entrepreneurship and finding new discoveries.

It proposes six targeted reforms that could unlock $7.72 billion in annual economic output, generating $5 of value for every $1 of government expenditure over the next 10 years. 

Key findings

• Australia’s business expenditure on R&D as a share of national output is half that of peer nations.
• Large businesses support R&D ecosystems by generating spillover benefits, making their underinvestment in Australia particularly concerning.
• Australia’s R&D costs are among the highest of peer nations, disincentivising business R&D investment.
• Subsidies, grants and incentives fail to improve Australia’s R&D cost competitiveness.
• Australia’s tax settings discourage commercialisation, with peer nations attracting commercialisation activity with lucrative incentives.

Recommendations

1. Simplify Research and Development Tax Incentive (R&DTI) rates to a consistent offset of 18.5% above the company tax rate.
2. Remove the $150 million R&DTI cap.
3. Introduce an R&DTI collaboration premium for partnerships between businesses and higher education or government research institutions.
4. Introduce an R&D commercialisation incentive, providing a concessional tax rate of 10% for the Australian commercialisation of Australian-developed intellectual property.
5. Streamline R&DTI compliance requirements to reduce the administrative burden on businesses.
6. Consolidate R&D grants into fewer, nationally significant programs.