As Australia seeks to boost its innovation capacity, SMEs face mounting challenges in navigating the complex landscape of research and development (R&D).
Despite growing investments, SMEs often struggle with unclear tax incentives, limited collaboration opportunities, and high operational costs, making it difficult for them to tap into the full potential of R&D. To address these hurdles, experts at KPMG argue that a streamlined, national R&D framework could be the key to unlocking innovation across the country.
Overcoming Barriers to R&D for SMEs
A national R&D funding framework aligned with Australia’s National Science and Research Priorities is essential for supporting small and medium-sized enterprises (SMEs). According to KPMG’s proposal in response to the government’s discussion paper on R&D, setting clear targets for R&D investment across all sectors is crucial to address the current gaps. The paper suggests that Australia currently lags behind in key innovation and R&D indexes, with significant room for improvement.
Georgia King-Siem, KPMG National Lead Partner – Innovation Policy, acknowledges that while investment in R&D has been growing, with $26.5bn invested last year alone, the current system leaves SMEs at a disadvantage. The R&D Tax Incentive, a major government program, is often hindered by a time lag and complex eligibility assessments, which can deter smaller companies from accessing the benefits they need.
King-Siem emphasized the need for tax reforms that offer clearer and more accessible support for high-risk innovation. She said, “It should be acknowledged that there is considerable investment going into R&D – it has grown over the past 5 years at a higher rate than other asset classes, and totalled $26.5bn last year alone – but there is significant variation across industries and types of investment. We are below the OECD average with comparable countries, so there is much to do, to achieve a cohesive R&D ecosystem.”
Streamlining Support
A lack of collaboration opportunities between universities, research institutes, and SMEs further compounds the challenges of R&D in Australia. Many smaller businesses struggle with government procurement processes and lack access to modern infrastructure. To address these issues, KPMG suggests creating innovation hubs—collaborative ecosystems where researchers, entrepreneurs, and investors can come together. These hubs would provide access to facilities, funding, and mentorship, helping to ease the R&D burden for SMEs and boost collaboration across sectors.
KPMG’s paper also highlights the need for streamlined government support programs that offer more stability for businesses looking to invest in R&D. With many programs often created and then discontinued, SMEs face uncertainty when navigating the landscape of government grants and incentives. Additionally, the high compliance and labour costs associated with running a business in Australia further reduce SMEs’ capacity to invest in innovation. King-Siem also noted, “Given the often-high-risk nature of innovation, every effort should be made to provide clarity around the eligibility of tax offsets. Existing tax incentives could be streamlined to reduce administrative burdens and increase accessibility. They should also be geared to better support experimental development undertaken in a commercial setting, not just basic and applied research.”
In summary, to empower SMEs to thrive in the competitive global market, Australia must address the barriers to R&D investment, from clearer tax incentives to fostering collaboration and creating accessible innovation hubs. This will help cultivate a more dynamic and supportive ecosystem for innovation across the country.
Learn more in Strategic review of Australia’s R&D system: KPMG Submission.
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