Innovation, R&D and Opportunities in the Australian Space Industry

Space is now open for business, and Australia has the opportunity to become a genuine global player in this multi-billion-dollar industry. While existing assistance measures available to the sector – such as the R&D Tax Incentive and the imminent National Reconstruction Fund - are important, securing Australia’s position in the growing global space industry will require a greater level of targeted support.

The size of the global space sector – and therefore the opportunity for Australia - is enormous. The World Economic Forum estimates the industry’s value at more than US$469 billion, of which more than US$224 billion was generated by the private sector in 2021. As it continues to grow, Morgan Stanley estimates the sector’s global revenue will reach US$1 trillion by 2040.

So, how well placed is the Australian industry to capitalise on this pivotal strategic opportunity? What support measures are currently in place and what else does the sector need in order to compete globally?

In this article, we explore:

• The current state of play in Australia’s space ecosystem
• Opportunities, risks and challenges for the Australian space industry
• Support for innovation and Research and Development (R&D) in the Australian space industry.

Australia’s space ecosystem – the current state of play

Australia is home to an innovative and growing space ecosystem, which can proudly boast expertise in small satellites, robotics, hypersonics, and an emerging launch capability. As a result, our space industry is already worth AUD$4 billion to the Australian economy and provides 10,000 jobs – a strong contribution for a relatively young industry.

However, Australia can and should be targeting greater than a one per cent share of the industry’s global market value. A strong space sector generates economic benefits in other sectors – for example, medicine, agriculture and renewables – through technology development and improved Earth observation.

The previous Federal Government recognised this with a range of support, including:

• The establishment of the Australian Space Agency in 2018
• The Modern Manufacturing Initiative grants program, which awarded:
  • $52 million to the Australian Space Manufacturing Network to develop a manufacturing and test hub for launch vehicles
  • $20 million to the Australian Space Manufacturing Hub in Adelaide
  • $23.6 million to the Australian Satellite Manufacturing Hub.
• The Trailblazer grant program, which invested $50 million to support the establishment of the University of Southern Queensland-led iLAuNCH Hub.

Most recently, the Arose consortium and EPE & Lunar Outpost Oceania consortium each received $4 million of Stage One Trailblazer funding for the Moon to Mars initiative in partnership with NASA – which is working towards a sustainable, manned presence on the moon and supporting future missions to Mars.

It is important that the current Federal Government not only continue, but further boost these types of investments in space technology development and manufacturing, so the Australian industry can continue to lead innovation in the sector and retain sovereign capabilities.

Opportunities and challenges for the Australian space industry

The space sector is somewhat unique in that it bridges both civil and defence industries at scale, providing significant opportunities for business.

From a civil perspective, current strategic opportunities in space are diverse and include:

• Developing a sovereign launch capability, allowing Australia to join only eleven other countries with the ability to launch to space using their own hardware, from their own soil
• Developing novel, lower-cost hardware for small satellites to leverage the growth in Internet of Things (IoT) technology and assist in Earth observation
• Advanced communications, robotics, and remote technologies development (similar to Australia’s expertise in these areas for the mining sector)
• Detection and removal of space junk caused by the crowding of near-Earth orbits, which has been identified as a priority by international space agencies.

In terms of national defence, space has been identified as a new domain of warfare. Nations without a sovereign space industry are considered vulnerable to threats from both space and land domains, which is already being demonstrated through the rise of ransomware attacks on communications satellites. It doesn’t take much to imagine the chaos that would ensue (for example, in telecommunications) should such an attack target Australian satellites.

Geopolitically, it is of paramount importance that Australia develops the domestic capability to maintain and protect its space infrastructure. The Government recognised this by establishing the Defence Space Command in 2022 and there are extensive opportunities emerging in this area, such as designing space systems that are more resilient to attack. For example, local space company Fleet Space Technologies has since entered a new $6.4 million satellite contract with Defence Space Command to deliver new tactical communications systems.

Another example of a space start-up that has rocketed to success can be seen in one of our closest neighbours. Founded in New Zealand in 2006, Rocket Lab is now a premier provider of launch services for small satellites from its two launch complexes in New Zealand and the US, achieving over US$200 million revenue in 2022.

What challenges does the industry face?

Despite the wealth of opportunities it presents, there is no denying that space is risky and difficult. Those risks are demonstrated by Virgin Orbit’s recent launch failure and subsequent collapse, which has also impacted customers of their launch services. Another example can be seen in SpaceX’s StarLink satellites, the most recent miniaturised iteration of which has been falling from orbit since its launch in February.

Many space companies are start-ups with little cash to spare, so if they become a major creditor to a bankrupt organisation their own cashflow can be severely jeopardised, which risks triggering a flow-on effect of further bankruptcies.

Finally, given the risks and vulnerabilities of space technologies, greater investment in space also necessitates heavier investment in other industries - such as cyber security - as a safeguard. This is expensive for space businesses and for the industry on a macro-scale, but provides the safest long-term path for building a sustainable industry.

Despite these and other challenges, existing and projected growth in the space industry is proof enough that Australia should not shy away from space simply because it is hard – other nations clearly aren’t deterred.

Support for the Australian space industry’s research and development

Historically, Australian governments have been reluctant to grasp opportunities in the space sector and less than forthcoming with industry support. As recently as 2008, Australia was the only OECD country - other than Iceland - without a space agency and Government White Papers would hide any reference to space under defence, out of fear of the ‘giggle factor’ associated with the industry. Clearly, things have changed – and quickly.

It is now economically, politically, and socially palatable to take the space industry seriously. However, there is more work to do to realise the industry’s potential and leverage our opportunities to become a serious provider of launch services as well as space hardware, robotics, and other industry technology.

Support for innovation and R&D in the Australian space industry is primarily available via the following grants and incentives.

1. National Reconstruction Fund

The Federal Government has confirmed that space will be considered eligible for its forthcoming $15 billion National Reconstruction Fund (NRF), through the ‘Enabling Capabilities’ priority funding area.

This co-investment scheme, modelled on the Clean Energy Finance Corporation, will see eligible projects offered a range of finance options such as loans, equity investment and guarantees. $5 billion will be available across the fund from commencement, with the remaining $10 billion to be made available in instalments by 2029.

In the 2023 Federal Budget, the Government announced a modest commencement of funding for the NRF, as well as funding to appoint a board and CEO to establish the fund. Further updates are expected during the remainder of 2023. The budget also included the establishment of a new Industry Growth Program offering grants to help businesses scale to become ‘NRF-ready’, and separate funding programs for quantum computing and artificial intelligence. 

While the NRF is an admirable initiative for Australian manufacturing, it would do well to recognise space as a key priority - as recommended by the Senate Economics Legislation Committee in its review of the NRF Bill, and noted in this article - particularly as the previous iteration of this funding (the Modern Manufacturing Strategy) recognised the space industry as a standalone priority. Nevertheless, the industry can be confident of some support via the NRF while it awaits more targeted and specific initiatives.

2. R&D Tax Incentive

Where space businesses seek to address gaps in the market and develop new or improved technologies, they are likely eligible to access the Research and Development Tax Incentive (RDTI).

The RDTI is Australia’s bipartisan and longstanding flagship innovation and R&D support program, designed to incentivise companies to undertake technically risky activities in Australia that they might otherwise avoid. Notably, the RDTI is non-competitive. Provided a company meets the legislative requirements, it qualifies to receive a benefit. This benefit is delivered as a tax offset, based on a company’s eligible expenditure on R&D activities.

The calculation of this offset is tiered as below:

• Where a company’s aggregated turnover is below $20 million, it can receive a refundable R&D tax offset of 18.5 per cent above its corporate tax rate (either 25 per cent or 30 per cent)
• Where a company’s aggregated turnover is above $20 million, it can receive a non-refundable R&D tax offset determined by its R&D expenditure as a proportion of total business expenditure, specifically:
  • Where the company’s R&D intensity (R&D expenditure over total company expenditure) is up to 2 per cent, the R&D tax offset is 8.5 per cent above the company’s corporate tax rate
  • For R&D expenditure above 2 per cent R&D intensity, the R&D tax offset is 16.5 per cent above the company’s corporate tax rate.

To be eligible for the RDTI, a business must be incorporated as a company (not a trust, individual or corporate limited partnership), and must apply for registration with AusIndustry within ten months of the end of each financial year. Applicants are also expected to document their qualifying R&D activities and expenditure during each year for which they apply. As an eligibility-based and non-competitive program, the RDTI can offer dependable support to the Australian space industry during its exciting growth phase.

The global space industry is paying attention to Australia’s capability, as demonstrated by NASA Administrator Bill Nelson’s spruiking of the industry while on a recent visit to Australia. The opportunity to capitalise on that recognition is right in front of us. We have the expertise and motivation required to succeed, but like any highly technologically risky industry, the Australian space sector needs a strong launchpad of support alongside public and private investment to get off the ground.

BDO’s Research & Development team is made up of specialists in a broad range of industries. Contact our R&D experts for specialist advice or more information on grants and incentives for the space and manufacturing sectors.