Repeal of the R&D tax credit
The third component of the preferred option is the repeal of the R&D tax credit from the 2009/10 income year.
Rationale for the preferred option
Given the concerns with the effectiveness of the tax credit outlined above, as well as the significant fiscal and compliance costs, repealing the tax credit is the preferred option. Other options considered, such as modification to the rate or eligibility criteria, do not sufficiently address these concerns and still involve a fiscal cost. Therefore repeal of the tax credit and commitment of the majority of the savings to fund personal tax reductions is preferred.
For the reasons given above, and as the R&D tax credit represents a notable exception to the BBLR approach to taxation, using the savings from repeal of the tax credit to fund the personal tax reductions is considered to have greater growth-enhancing potential than its retention.
Government support for R&D continues through various existing grant mechanisms. In order to further R&D investment, the government has decided to commit part of the savings from the repeal of the tax credit to alternative R&D development.
