Small businesses that were counting on government funding this year to undertake research and development and commercialisation of their projects were surprised by Canberra's announcement that funding for the R&D Start scheme will be suspended owing to a $40 million blow-out in spending this financial year.
"It's come as quite a shock to a lot of companies that have been through the actual process," said Alan Milwidsky, a director of Business Strategies International, which helps companies accessing government grants and funding.
While existing grant recipients and successful applicants already offered R&D Start contracts will not be affected, AusIndustry will not be assessing applications until further notice. According to a statement on AusIndustry's website, the decision was due to unprecedented demand for grant funds.
"They should be able to assess at what rate companies are going to use the money. They get planned expenditure [from applicants] and they should be able to measure their own expenditure through that," Mr Milwidsky said.
In his view, the cutback could not have happened at a worse time. The recent dot com explosion sucked up a lot of seed and angel funding. "So a lot of R&D that would otherwise be funded by seed and angel investors and private equity investors has slowed down for a lot of projects. And a lot of people are relying on government money.
"A lot of R&D happens through co-operative research centres, or through universities or institutes or foundations that are fairly well-funded. This [R&D Start] is assisting projects from individuals who've got good ideas or very small companies that are launching into very large R&D projects," Mr Milwidsky said.
Ian Macfarlane, the Minister for Industry, Tourism and Resources, said the Government would spend more than $200 million on 600 projects this year. Next financial year, $151 million had been allocated, increasing to $163 million in 2003-04 and $174 million in 2004-05.
"A new round of Start grants will be offered in the coming financial year, not mid-2003 as claimed," Mr Macfarlane said in a statement.
Business groups expect that the when funds are available in six to eight months, the grants will support only those projects that rank highly against all criteria. The focus will be on nanotechnology, biotechnology and interactive systems.