The Federal Government has increased its funding to encourage small to medium companies to invest in research and development, according to its recent economic update.

The boost to R&D funding is by no means insignificant, with payments expected to be $304 million higher than forecast in 2013-14, and $1.2 billion higher over the years to 2016-17. It also comes with adjustments to cut access to the scheme for companies that turn over more than $20 billion annually, enhancing the focus on small businesses and start-ups.

The Government said the bigger allocation to pay-outs reflects a solid uptake of claims for the tax offset to companies making less than $20 million.

National ICT Australia will also be the beneficiary of increased finances, with confirmation of additional research funding including $12.8 million set aside for the 2015-16 financial year from the Department of Industry and Innovation and $21 million from the Department of Broadband, Communications and the Digital Economy.

The Business Council of Australia has weighed in on the significant research and development spending, saying the Government should consider a shift away from grants and subsidies to foster profitable innovation.