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SYNDICATED RESEARCH AND DEVELOPMENT
The Academy's contribution to the Department of Industry, Science and Technology's consultation on options to replace syndication
29 July 1996

It is important in the Academy's view to remember the purposes for which the syndication scheme was originally introduced.

Syndicated R&D arrangements were introduced in 1987 to encourage institutional investors such as financial institutions, which have no direct means of using R&D results, to invest in R&D projects. Most syndicated R&D projects were 'not at risk' arrangements whereby the investors were not bearing the financial risk associated with investment in R&D.

Tax exempt bodies, whether public or private, were progressively excluded from participating in 'not at risk' structures. This has excluded universities, CSIRO and other government R&D agencies from competing for syndication funds. The majority of Australia's research institutions, and certainly the best of them, were thus excluded.

The scheme was judged after a study conducted by the BIE to have produced economic benefits for Australia in excess of its costs. This was a remarkable result considering the long periods before most R&D produces revenues. The findings have not, to our knowledge, been reversed by further study. However, there is concern at the possibility of increased costs to revenue, and apparently a loss of faith in the ability of the official controls that are in place to prevent unproductive uses of the scheme.

In the Academy's view the need for a scheme to encourage spending on the development of Australian inventions in Australia remains acute. The disruption occasioned by the decision to abandon the existing scheme before an alternative had been put in place is regrettable. In the short time provided for these comments we are able only to propose guidelines for the replacement scheme.

A new scheme for encouraging substantial investment in the high-risk development of new Australian technologies should

• so reduce the risk that substantial funds are enlisted for the purpose. We support capping the total amount of the tax shelter available, if that is thought necessary considering the other conditions applying to the scheme.

• require the industry partner having a commercial interest in the project to match some fraction of the research expenditure with an 'at risk' contribution.

• impose a minimum ratio between the tax shelter available to the financial investors and the actual expenditure on R&D, e.g. by relating the valuation of core technology to the expenditure on R&D.

• ensure that all researchers are able to participate in the arrangement, including researchers in public and private tax-exempt organisations.

We oppose the proposals that applicants should pay an up-front fee for administration and sign over part of any subsequent royalties to the government. The object of the scheme is to generate new enterprises, and the benefits will flow to the community from the achievement of this goal. To reduce the cash-flow available to the enterprise by such up-front charges can only reduce the likelihood of a successful new enterprise emerging.

The product of the scheme should be assessed at intervals of about five years.

G J V Nossal
President