Clever cuts? R&D experts fuming as reports hint R&D limits could fund tax cuts

The tax and business community have spoken out against a paper set to be handed down by the Business Tax Working Group next week that will reportedly recommend cutting the company tax rate at the expense of research and development opportunities.

Although SMEs are eager to see the company tax rate slashed to 28% – as Treasurer Wayne Swan had originally promised – organisations, including the country’s peak science body, have rejected the idea R&D concessions should become the sacrificial lamb that funds the cuts.

Yesterday the Australian Industry Group spoke out against the supposed plans, saying the Federal Government shouldn’t touch any spending for R&D in order to pay for the cut.

However, Tax Institute of Australian counsel Robert Jeremenko told SmartCompany this morning that a legitimate discussion on the details of the report should be had over the effectiveness of the tax concessions.

“Certainly the tax community and business community is looking forward to seeing this business tax paper being put forward, but some hard questions will have to be asked.”

“I think a question has to be asked about how much do we actually want a company tax cut? Or is it time to look at these concessions and figure out whether they would benefit the economy as much as a company tax cut would?”

“We can’t answer those questions until we see the detail. But the benefit of a tax cut is a strong argument that some concessions may need to be looked at.”

However, many in the business community disagree with Jeremenko.

CSIRO chairman Simon McKeon has told The Australian the Business Tax Working Group should stay away from limiting R&D breaks.

“If we actually aren’t a bit proactive in this area, I think we have to have the courage as a nation to say, you know what, it’s too hard, let’s not kid ourselves that we are the clever country, let’s rebadge ourselves,” McKeon said.

“If that’s the decision, all I would then ask is that we are clear in identifying who we are.”

Reports have pinned the report as suggesting not only that tax concessions for exploration in the oil and gas industries be snipped, but that access to R&D in other industries be restricted to some extent as well.

Some of those recommendations are also expected to include a restriction on R&D spending for large multinational companies.

Universities Australia has come out against the recommendations as well, along with Commercialisation Australia chairman Andy Sierakowski.

The R&D concessions have been one of the most frustrating tax issues of the past 24 months for SMEs. The former innovation minister, Senator Kim Carr, was responsible for overseeing a change to the new tax concession, which involved several months of negotiations and debate.

The current system provides a credit of 45c in the dollar for SMEs, and 40c for businesses with more than $20 million a year in revenue.