Research and development expenditure

IBISWorld forecasts research and development expenditure to increase by 1.2% in 2025-26, to $6.74 billion. This growth is primarily linked to a broader economic recovery following recent inflationary pressures. Ongoing government support through the 15% R&D tax incentive, introduced in 2019, remains a key driver, even though the earlier target to reach 2% of GDP for R&D by 2028 is no longer in place. Lower interest rates anticipated in 2026 are expected to further strengthen business confidence and stimulate private sector R&D investment. Significant policy reforms in 2025, including the establishment of new Public Research Organisations as part of the 2025 budget and progress on the Gene Technology Bill (which passed its first reading in late 2024), are set to improve commercialisation pathways in key sectors like agriculture, health and biotechnology. Together, these factors are expected to underpin higher R&D spending in 2025-26.

In 2023-24 (latest available data), the business sector accounted for $4.0 billion of R&D expenditure. The business sector's share of R&D expenditure has grown steadily over the past five years, while the government and higher education's share of R&D expenditure has declined. While R&D expenditure by the government and higher education sectors has grown over the past five years in total value, it has not kept pace with strong growth in the business sector R&D. Within the business sector, computer-related services have accounted for the bulk of R&D expenditure and have ramped up rapidly over the past five years. Meanwhile, manufacturing industries have increased R&D spend only modestly over the same period.

In 2019-20, a new R&D tax incentive scheme came into effect. This scheme involves a higher tax credit of 15%, enabling businesses to receive a tax credit of up to $18 million on eligible expenditure. The definition of R&D has also been expanded, enabling easier access to credit across all industries. The new tax incentive has also been made available to state-owned enterprises, industry research cooperatives and minority-owned subsidiaries of select Crown entities. To qualify for the scheme, businesses have to carry out more than $50,000 worth of R&D expenditure per year. As of June 2024, the scheme has supported over $4.5 billion in R&D activity since its inception (latest data available). Overall, IBISWorld forecasts research and development expenditure to increase at a compound annual rate of 7.1% over the five years through 2025-26.