As one fiscal year draws to a close, and another begins, it’s natural to start thinking about what’s in store for innovation funding in FY23. But this annual crossroads for all things financial is more of an inflection point than it usually is. After nine years of Coalition Government, Federal Labor is at the helm for the first time since 2013.
Sea changes in Australia and beyond
A new administration isn’t the only new element that could reshape innovation in FY23. After two years plus of the COVID-19 pandemic, and the border closures and supply-chain issues it triggered, seismic shifts are in play across human capital, future-focused infrastructure and sovereign capability in Australia.
Beyond our shores, Europe is at war for the first time since the Balkan conflicts of the 1990s. And it’s no proxy campaign. The gloves are off. Russian soldiers are waging a hot war with neighbouring Ukraine. And most of the world, Australia included, is locked in an economic battle, strafing the superpower’s oligarchs and industries with swingeing sanctions.
Although the conflict is almost 13,000 kilometres away, its shockwaves are being felt in Australia for two reasons. Russia is the world’s third-largest producer of crude oil and the second-largest producer of natural gas. [1] Combined, Russia and Ukraine produce around 27% of the world’s grain. [2]
The double threat of global fuel and food insecurity is driving inflation and interest rates up worldwide. What could these recent events and the growing threat of climate change mean for innovation in the new financial year? Let’s unpack it to find out.
Federal Government support for innovation
Federal Budget 2022
The final Federal Budget before the election contained some good news for Australian R&D. It pledged $2.2 billion for an accelerator program for high-risk early stage innovation to create thriving businesses. And a grand total of $988.2 million over five years for research to increase collaboration between universities and industry.
The space industry was the biggest winner, picking up $1.2 billion on a National Space Mission for Earth Observation. The funding is for research focused on improving Australia’s sovereign capability on designing, building and launching sophisticated satellites.
In a nod to the climate crisis and the food insecurity it foreshadows, the budget extended the planned Patent Box scheme to include low-emissions technology and the agricultural sector from 1 July 2023. It also earmarked $2 billion to grow Australia’s regional communities under a Regional Accelerator Program.
Labor’s election promises
In a pledge to Science and Technology Australia, Labor made a pre-election commitment to elevate the percentage of GDP Australia spends on R&D to around 3%.
Before it swept to power with a majority Government, Labor revealed a $1 billion funding allocation for innovative technologies. Technologies it considers critical for Australia’s future and economic security. These include artificial intelligence, quantum computing, robotics and software development. It forms part of the government’s $15 billion National Reconstruction Fund. The initiative is based on the Clean Energy Finance Corporation model with contributions from government, superannuation funds and industry.
The fund is tasked with investing in cutting-edge manufacturing and technology to facilitate post-pandemic recovery and growth. It has a strong regional focus and is agnostic in terms of the age and size of companies it supports. So it’s not just for start-ups. Its guiding principle is to assist businesses considered essential for building a secure and prosperous future for Australia while addressing gaps in the nation’s sovereign capability and supply chains.
R&D Tax Incentive
No news is good news when it comes to the R&D Tax Incentive (R&DTI). The R&DTI largely flew under the radar during the last Federal Budget and the election campaign. The reason is that at the start of FY22, a suite of changes and additional funding for the program were rolled out by the previous administration as part of the 2020 Federal Budget. The R&DTI was an initiative brought in during Labor’s Rudd/Gillard era. So many commentators expect the current scheme and R&DTI’s recent certainty and stability to continue.
Indeed, certainty and clarity would appear to be the new focus when it comes to administering the R&DTI. The Department of Industry, Science, Energy & Resources made history by issuing the first-ever determination under the R&DTI for certain types of clinical trials. Now, Phase 0, I, II, III, pre-market pilot stage, and pre-market pivotal stage clinical trials are automatically deemed core R&D activities. So health and medical innovators have certainty and clarity about how the R&DTI can support their clinical trials.
The Board of Taxation recommended against a separately administered R&DTI scheme for software innovations in April. But Australia’s new Industry and Science Minister, Ed Husic MP, has expressed a desire to make the R&DTI program more amenable to software innovations. So watch this space.
Skills and human capital
Fintech Australia’s newly appointed General Manager, Rehan D’Almeida and David Burt Director of Entrepreneurship at UNSW are just two of many business leaders sounding the alarm on skills shortages. Lack of talent could be a handbrake on Australia’s burgeoning innovation and emerging technologies. While additional training and support flagged by the incoming administration are welcome, many innovation experts are calling for a root and branch review of the visa and migration scheme. They want to see incentives so people with the right tech skills can work or launch their own start-ups on Australian soil.
Investor capital
Although Techboard’s latest report into Venture Capital and private investment funding in Australia for the March quarter showed the biggest March quarter ever ($3 billion), there are warnings that the trend can’t last. With rising inflation driving up interest rates globally, the era of plentiful investor funding is likely coming to an end. According to a recent report from Crunchbase, global Venture Capital funding has fallen by 14% since April, and by 20% year-on-year. So the beginning of the end may already be underway.
Capital and cash flow for FY23
The R&DTI is on a stable footing. So it will continue to be a reliable source of funding for Australian businesses with R&D, despite the economic headwinds forecast for the capital markets. And if you’re eligible for the R&DTI, you’re eligible to apply to access it early with a Radium Advance.
Get a Radium Advance so you have the bridging capital you need right now. Then talk to our R&D finance experts about using regular Radium Advances to increase your R&D refund and grow your R&D budget. That way, you can have the additional funds you need to finance your innovation program strategically and keep your R&D capital and cash flow consistent, despite the tougher market conditions. Reach out to your local Radium Capital R&D expert for a no-obligation chat and to learn more about how Radium Capital can help you and your R&D.
[1] IEA. (21 March, 2022). Energy Fact Sheet: Why does Russian oil and gas matter?
[2] Saul, D. (19 May, 2022). Ukraine Says May Grain Exports Down More Than 60% Compared To 2021 In Latest Alarming Sign Of International Food Crisis.