Small FinTechs are missing out on the government’s biggest and bluntest innovation incentive, exacerbating a funding crunch, the sector’s peak body has warned in its call for Budget moves.
FinTech Australia says its smaller members are missing out on the Research and Development Tax Incentive (RDTI) because it is too complex to navigate, and claims takes too long to process.
The group said small FinTechs need to enlist third parties to try and claim the generous cost offsets for eligible R&D activities, and have shorter financial runways, putting them at a disadvantage against larger competitors amid a worsening funding environment.
FinTech deals were down around 14 per cent in the second half of last year, according to a sector survey, as the government waits on an “evidence base” for potential sweeping reforms to the national research and development system.
“While it’s taking more time, more established FinTechs are still securing funding. Meanwhile, early-stage FinTechs — many of whom are flying under the radar — are struggling to find investment,” FinTech Australia CEO Rehan D’Almeida said.
“This is where government intervention can have the greatest impact.”
The RDTI is by far the government’s biggest business innovation lever, forecast to cost more than $5 billion this year. It is being examined along with other parts of the national R&D system in a root and branch review, expected to report by the end of the year.
Industry minister Ed Husic has all but ruled out tinkering with the RDTI until a completed review delivers an “evidence base” for change, and that research and development can leads to long term gains.
“I don’t need a tax incentive to brush my teeth,” he said earlier this year.
Around half of Australian FinTechs are using the scheme, with most seeing clear benefits and the RDTI being a key factor in staying in Australia.
But for many, the current administration of the scheme is “complex and challenging to navigate”, FinTech Australia’s pre-budget submission says.
The submission also repeats calls for an “urgent review” of the Enhanced Regulatory Sandbox and a carve out for FinTechs in the $15 billion National Reconstruction Fund (NRF), which is yet to back one of the sector’s startups.
The group also wants the Early Stage Venture Capital Limited Partnership (ESVCLP) program expanded so more sectors can qualify more easily and for the benefits to be increased in line with other nations like the UK.
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