Joint statement on the Research & Development Tax Incentive
Don’t rip the guts out of Australian medical research commercialisation
The MTAA along with other key stakeholders has been working to highlight to Government the importance of R&D tax incentives for the MedTech industry. The proposed reforms by ‘Ferris, Finkel, Fraser’ Review of the Research & Development (R&D) Tax Incentive if adopted would have a devastating impact. MTAA has been proactively engaging with Government to highlight case studies to show the potential decline in this critical activity from members and the impact to the Australia economy.
The R&D Tax Incentive is the most critical centre-piece program in the translation of Australia’s world-class research into treatments, cures, diagnostics, medical devices and vaccines. The program has been successful in helping attract more investment in R&D and fostering a strong Australian life sciences clinical trials and R&D sector.
The changes proposed, especially the $2 million cap and the ‘intensity threshold’, will have significant, disproportionate and negative impact on the MTP sector. Only around 5.5% of research expenditure registered for the R&D Tax Incentive relates to MTP, however comments from the Report’s authors that the impact of the $2 million cap will be “slight” or that other policy measures, like the Biomedical Translation Fund, will balance out damage, fail to understand the impact likely in the sector, its broader ecosystem, or the nature of clinical trials.
Relative to other sectors, the commercialisation of MTP has longer timeframes, due to significant scientific and regulatory hurdles to reach patients and there is higher expenditure on R&D, particularly in later stage clinical trials. We understand the need for the Government to ensure that the tax incentive is sustainable during challenging budgetary conditions; however, the scheme must be viewed as a tool to encourage long-term investment in Australia that creates highly-attractive jobs, attracts clinical research and grows the local economy.
Ensuring that any redesign of the tax incentive does not act as a handbrake on this investment is imperative, so that Australia can continue to thrive as a home for some of the world’s most talented scientists and medical researchers, improve its position as a centre for high-quality R&D in medical science and receive the related spill-over benefits.
The Federal Government has recognised the potential economic benefit of innovation via the National Innovation and Science Agenda and the MTP sector through its designation as one of six industry sectors of competitive strength and strategic priority (MTPConnect). The CSIRO and MTPConnect believe the MTP sector can create a further 28,000 jobs and deliver $18 billion in added value to the Australian economy within the next ten years.
According to the 2017 AusBiotech CEO Industry Position Survey of 46 member companies implementing a $2 million cap will impact the ability to employ staff for 58% of companies, while 45% of companies will be have a reduced capacity to employ STEM graduates, 81% will be affected in their capacity to attract investment and 75% will be less able to compete globally. Companies were on average able to leverage the non-dilutive capital provided by the R&D Tax Incentive at $8 for every dollar spent.
In results from BioMelbourne Network survey of 32 member companies in late 2016: 45% indicated that their R&D Tax Incentive refund would be over $2 million in 2015/16. 77% would undertake less R&D activity, 71% would decrease their clinical trial activity, 74% would reduce late stage research programs in Australia. More than half (52%) said they would move R&D activity offshore, 48% would reduce the level of collaboration with research organisations. More than one third of companies would incur direct job losses (38% surveyed), resulting in reduction of the workforce estimated to be between 10 - 25% and 85% of companies said that the $2 million cap would decrease their current or future outsourced R&D jobs to the wider sector.
A 2016 study of 41 biotechnology companies by the University of Sydney found that 78% viewed the R&D Tax Incentive is either important or very important to the decision for their firm to undertake research and development in Australia and 61% of firm managers said their firm would change their R&D investment strategy if the government were to further modify the R&D Tax Incentive.
Clinical trials give early access to new treatments for Australians and have a pivotal role to play in the economy of the future, which will strongly rely on innovative jobs, exports and productivity. Clinical trials bolster the economy and are already supporting its transition from a post-mining boom. Beyond the economic benefit to Australia, R&D in the life sciences can develop therapies, cures, medical devices and diagnostics for patients around the world.
The MTP sector does not support the proposed changes as a package, most notably the proposed $2 million cap and the ‘intensity threshold’. It is a firm belief that this effort to limit or divert the R&D Tax Incentive will damage the country’s hard-won momentum in life sciences, especially the stimulation of the clinical trials environment which we are fighting hard to keep.