The "patent box" scheme announced in the recent federal budget is a step in the right direction, but ultimately it may not be enough to make Australia truly competitive on the world stage.
Further incentives will be needed to encourage investment in innovation.
The federal government has pledged $206.4 million to implement a "patent box" tax incentive scheme to boost commercialisation and retain medical and biotech intellectual property in Australia.
Under the patent box scheme, income derived directly from Australian medical and biotech patents that are Australian-owned and have been developed locally will be taxed at a concessional rate of 17 per cent, instead of the current corporate tax rate of 30 per cent or 25 per cent for small and medium-sized companies.
It applies to patents applied for after the budget, but the scheme will not come into effect until July 1, 2022.
At first glance, it seems like a big step forward and it's certainly a move that companies such as ResMed and Cochlear have being calling on the government to implement for many, many years following the introduction of similar schemes in several European countries and in the UK.
Unfortunately, Australia is playing catch up, and I fear this might be too little too late as we have already lost so many jobs and expertise in the medical devices industry to overseas countries as a result of exceptionally short-sighted tax planning and the caps that we have on how much of an R&D offset companies can have, along with a host of other obstacles.
Successive Australian governments have been notorious for creating incentives on the one hand and then knocking them down by ignoring some of the fundamental issues that you need to make these programs workable.
Australia's Global Innovation Index results over the past five years reveal a steady decline in knowledge, technology, and creative output, despite consistently high input factors. Compared internationally, Australia has a competitive advantage in the ease with which a business can be started and credit secured.
Our education and quality of university is also high. Unfortunately, we have a persistently poor record when it comes to university-industry collaborations, government support for innovation and commercialisation clusters.
The concern for Australia is that while the patent box scheme is a further positive contributor to the "input" side of the equation, it does little to address the underlying causes of relatively low innovation output.
Australia lags behind other developed economies in the number of patents registered and in the commercialisation of IP. We rank alarmingly low against other countries in terms of leveraging IP to improve productivity.
There is little research to suggest a patent box scheme will encourage substantial change in the willingness of firms to retain and commercialise IP.
However, there may be some benefits from having an Australian patent box scheme.
It may provide a necessary and significant catalyst in the establishment of more sophisticated industry and consequently growing impetus for inter-organisational collaboration, improved managerial capability, and the steady development of a more robust entrepreneurial culture.
The closure of international borders over the past year has served as a wake-up call to Australia.
We're starting to realise - with the trade restrictions we have had to deal with through the pandemic - that it's actually not all hunky-dory in Australia and we are losing out to overseas competitors.
Dr Carl Runde is chief financial officer of bone healing company Osteopore.