BREAKING NEWS: New tax breaks and grants to spur innovation in Australia

The National Innovation Review has recommended sweeping changes to the way tax breaks are used to encourage innovation and the establishment of a new $150-million-a-year program to give grants to 200 companies.

The National Innovation Review has recommended sweeping changes to the way tax breaks are used to encourage innovation and the establishment of a new $150-million-a-year program to give grants to 200 companies.

The review, which was chaired by Terry Cutler, was released this afternoon by the Federal Industry and Innovation Minister Kim Carr in Melbourne.

One of the primary recommendations is the scrapping of the 125% R&D tax concession, which Cutler says should be replaced by a 40% refundable tax credit for large businesses and a 50% refundable tax credit for companies with turnover under $50 million.

“The refundable tax credit will put the government assistance to business R&D activity ‘above the line’ in firm budgets, will induce higher levels of expenditure by small firms and will induce more R&D expenditure to be undertaken in Australia,” the report says.

Cutler says the tax credit system will be simpler for companies to access and easier for governments to evaluate the impact of the system.

Cutler’s other big-ticket recommendation is the establishment of the Competitive Innovation Grants program, which would seek to assist 200 companies each year at an annual cost of $150 million.

However, the program would not be a free ride – successful firms would need to repay the grants from royalties or revenue streams accruing from commercial success.

Other key recommendations include:

• The establishment of innovation prizes, funded to the tune of $5 million over two years.
• Improvements to immigration policies to ensure Australia attracts human capital.
• Extension of the Enterprise Connect network to include the services sector.
• Full funding of university research programs.
• The extension of the COMET program for another five years and a 25% increase in funding.
• The maintenance of the Innovation Investment Funds, under which the federal government matches private sector venture capital funds. Cutler also recommends the establishment of 10 new funds at a cost of $300 million over 15 years.
• The establishment of a committee of web 2.0 practitioners to advise the Government on the use of web 2.0 technologies.

Carr describes the reviews as “a turning point for the future of innovation in Australia” and says the review proves that Australia has slipped behind global competitors and must lift its game.

“We have every reason to be optimistic about our future – but to fulfil our potential we must embrace innovation.”

“This means finding new and better ways of doing things; it means thinking outside the square; and it means researchers, businesses, workers and governments coming together to play their part in the innovation system, all in the national interest.”

Of course, Cutler recommendations remain just that. The Rudd government has promised to respond to the reveiw before the end of the year and business groups will be watching closely to see just how many of Cutler’s ideas get the funding they need to get off the ground.