March 2020 Australian Financial Review

The research and development tax incentive has been derided as a "blunt instrument" by Cochlear's boss, who said innovation policy based on "picking winners" had kept the cochlear implant giant an Australian company. The R&D tax incentive, which provides a tax offset for money spent on experimentation and commercialisation by any company which successfully applies, speaks for about one-third of the government's $10 billion annual R&D spend.

Dig Howitt and Sally-Anne WilliamsChief executive of Cochlear Dig Howitt and Cicada Innovations' Sally-Ann Williams called for a more direct approach to R&D funding

The government has changes to the R&D tax incentive before Parliament, which aim to rein in growing spending on the scheme and reward intense spenders on genuine innovation, but retain the incentive as the single largest component of the R&D budget. While a greater emphasis on direct grants was preferred, Cochlear chief executive Dig Howitt urged the government to finalise the R&D tax incentive's future one way or another. "We've had uncertainty on R&D for four or five years now and businesses just haven't been prepared to make long-term investments in that environment," Mr Howitt told The Australian Financial Review Business Summit panel on how to drive growth and innovation. "The R&D tax incentive is a blunt instrument, but we do need to move forward and we need certainty."

Had the R&D budget been so dominated by non-directed funding when Cochlear was coming of age, it might not exist today. Mr Howitt said that $4 million received directly from the federal government between 1978 and 1984 had been a crucial factor in Dr Graeme Clark's cochlear implant invention being commercialised, and doing so in local hands. "Cochlear nearly fell over at the commercialisation stage because the business case didn't look good enough, but it was patient and patriotic capital that got it through," Mr Howitt said.

Cochlear is now an $11 billion company that employs over 1,500 people in Australia and 4000 worldwide, and poured $700 million directly into the economy last year. "So there's a pretty big multiplier from picking winners, even if you get a few wrong along the way," said Mr Howitt.

However, while acknowledging individual programs for direct grants like the Biomedical Translation Fund or the Clean Energy Finance Corporation, Mr Howitt said an over-arching scheme for helping promising technology companies commercialise was lacking.

Applying for a grant from a single government agency was less complex than the R&D tax incentive regime currently faced by start-ups, given it is administered by AusIndustry and implemented by the Australian Tax Office, according to Sally-Ann Williams, the chief executive of Cicada Innovations, a Sydney-based incubator for "deep technology" companies. "When those two get misaligned, things fall over – and bear in mind most deep technology start-ups face years before they make revenue, they can't afford expert advice on submitting their plans," Ms Williams said. "So they're doing it themselves and then literally waiting months on that [cash refund in lieu of a future tax offset] in order to proceed.”

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