By Tony Peacock
Apparently Treasurer Josh Frydenberg, was lobbied on a recent trip to Britain on the possible introduction of a Patent Box tax advantage for Australia. A patent box reduces tax on profits from intellectual property
It is a bad idea.
Australia has enough problems from our over-reliance on the tax system for supporting research and development. Eighty seven percent of support to business for research and developemnt is via the tax system and only thirteen percent via direct measures. In Israel and Germany, 100 per cent is via direct measures. These countries are much better exemplars to look to than the UK. (Yes, Germany and Israel are introducing some tax measures, but we’ve been admiring their innovation performance for many years sans those measures).
Tax measures are vital to R&D in Australia and we all should be concerned by the falling business investment. The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, is so concerned by reports the government “clawed back” $200 million in the 2018 financial year from business R&D tax claims that she has launched an investigation.
The Government took measures in the 2018 Budget to overhaul the scheme and which were always going to lower the Government’s investment. At May’s Collaborate | Innovate | 2019, delegates raised the implementation of the changes with Industry Minister Karen Andrews. There is certainly a view from affected businesses that the ATO’s implementation has been overzealous.
The absolute priority for R&D tax measures in Australia at the moment is to provide certainty to business. They need to understand the rules and understand exactly how the rules will be implemented. It’s irresponsible in my view to be calling for new tax measures, especially ones with very marginal benefits like a Patent Box, in the current climate. Our Treasurer is a very polite guy. I sincerely hope he was just being polite on his UK trip, and there is no serious consideration of such a measure in Australia.
If Government is going to listen to anyone, it should be Bill Ferris. The former Chair of Innovation and Science Australia and highly successful venture capitalist recently called for a quadrupling of the direct support programs already proven over decades in Australia.
Obviously as an advocate for one of those direct support schemes (the CRCs and CRC-Ps) I have a particular bias to direct support. But I’m also involved with two terrific start-up companies that rely on the current R&D incentives and are strong users of IP protection. I can’t see how a Patent Box would make any difference to how they are delivering on their R&D promise. Even the advocates for an Australian Patent Box struggle to point to great outcomes from the UK experience.
Let’s please get the R&D tax system settled. The Government has large range of measures they could choose from to stimulate business investment in R&D, a Patent Box should be so far down that list that it is off the page.
Dr. Tony Peacock FTSE FAICD