After Treasurer Josh Frydenberg's budget speech, Australian businesses were left wanting more in terms of incentives for R&D and innovation.

The criticisms continued a theme which arose after last year’s budget, where a number of CEOs were critical of the government’s decision to introduce a A$4 million cap on refunds for R&D expenditure for companies with less than $20 million in revenue. A crackdown resulting from the move saw many startups forced to repay substantial sums.

Earlier in 2019, the Australian Industry Information Association urged the government to renew its focus on innovation-friendly policy, including tax incentives and addressing skills shortages. Alex McCauley, CEO of advocacy group StartAus, has also said that the country had lost its way on innovation policy, which had become overly politicised and badly defined.

R&D and innovation in the budget: “More could have been done”

University of Queensland’s Dr. Sarel Gronum, a Lecturer in Innovation at the University’s School of Business, told The CEO Magazine that “more could have been done (in the budget) to further stimulate investment”.

“There has been a little bit of a pullback on incentivising R&D and innovation-related expenditure as tax write offs,” he says.

“That is to be criticised as without that, the commercial incentive isn’t there. There are a lot of sunk costs required to get a breakthrough and the cycle is normally four, five, six years. You need incentives for businesses to invest in the long-term and more can be done to incentivise innovation.”

One of the most significant promises in the budget for SMEs was an increase in the threshold for instant asset write-off, which would be increased from A$25,000 to A$30,000. Eligibility to access the write-off would expand from businesses with lower than A$10 million in annual revenue to those with an annual revenue under A$50 million.

Gronum believes this extension is “a good first step” but overall he believes the budget offered a “mixed bag” for innovation and could have done more to assist fledgling businesses and startups access the global market. With uncertain economic times ahead, he says Australia needs to invest wisely to ensure its business sector is robust enough to thrive even in a downturn.

The ‘Innovation Games’ are coming

One of the novel budget announcements in terms of innovation is funding for the ‘Innovation Games’, which will received A$3.6 million of federal money for a trial run of 30 games across Australia.

According to Budget documents, these games will see SMEs and students work together to “solve real-life practical business issues”.

“Businesses and students will work together to solve innovation, technology, and/or digital challenges set by a corporate sponsor. This would improve collaboration between businesses and education institutions, and broaden employment prospects for students and graduates.”

Gronum says the dollar investment is a “drop in the bucket” but it does at least show some willingness to support entrepreneurship.

“Anything in that space would definitely help. I do not know whether that approach is validated by any study that I’ve seen, but it can only help stimulate students uptake in the disciplinary fields.

He says the main goal should not be headline-making “sugar hits” but a focus on structural changes that will set Australia up to compete internationally in the long-term.

“We need to look at competencies in ICT, AI, virtual reality, big data and analytics. We need to seriously look at capacitating small firms by providing them with a pool of suitably qualified people in that area.”

What will Labor offer for innovation in their budget reply?

The government’s spending promises may soon be rendered irrelevant if it loses the upcoming federal election as expected. Labor leader Bill Shorten is due to present his budget reply on the evening of 4 April.

Gronam is not necessarily optimistic Labor will offer more than the incumbent government in terms of innovation and R&D but says there is plenty of scope to improve over what he sees a budget that played it safe.

“Given (Labor’s) mantra on the ‘big end of town’, they may not have the political will to really stimulate business more broadly,” he says. “I would hope they would put more structural initiatives in place that would have a more holistic and long-term impact on the business environment in general. I would hope that they will incentivise R&D and innovation-related investments more.”

Header image credit: Alex Knight