Simon Crean (Hotham, Australian Labor Party, Shadow Minister for Trade and Regional Development) Share this | Hansard source

The Primary Industries and Energy Research and Development Amendment Bill 2007 is a bill for the better governance of the research and development corporations within the primary industries sector. Labor are happy to support the bill in that direction of improved governance procedures. However, it does open up the debate and provides an opportunity for this House to address the failure of this government in respect of the nation’s research and development effort as a whole. This is particularly pertinent with the release of the Productivity Commission’s report, on Tuesday this week, into the government’s research and development effort, which we say demonstrates that the government’s innovation system is in tatters.

Innovation is a key driver of a nation’s economic growth. Innovation, skills development and investment in infrastructure are the drivers that determine whether we can sustain higher levels of economic growth rather than just relying on the resources boom. The policy approach of this government has been to rely on the resources boom. It does not believe in government playing an activist role to drive better opportunities and to secure our future. If a nation invests in innovation and skills, it becomes smarter, innovative and creative. We enhance not only our growth prospects but also the opportunities of individuals. It provides them with more rewarding career paths because we are prepared to invest not just in physical infrastructure but in human capital as well. It is therefore a necessary investment to be made not just for our economy but for our people. It builds pride and respect, it draws the admiration of other countries and it creates much more interesting job opportunities.

Through creativity, knowledge and value-adding, we enhance the nation’s comparative advantage. Instead of just relying on commodities as the basis for our wealth, we value-add. We do not retreat from reliance on them; rather, it is about doing something more with them. You cannot do that unless you are prepared to make investments in innovation. Labor has always understood the importance of encouraging research and development and innovation, both at the macroeconomic level for the nation as a whole and at the micro level for industries we are encouraging to become more export focused and innovative.

Labor’s investment in research and development, including encouraging business investment in research and development so that it is not just a call on the budget but is a recognition of a partnership with business to drive the innovative direction forward, was always part and parcel of a massive policy approach that Labor introduced when it won office back in the 1980s. Its investment through incentives to R&D, through the establishment of the cooperative research centres programs, paid huge dividends for this nation.

Let us have a look at the suite of policies that Labor put in place from 1983 onwards. It was Labor that introduced the 150 per cent tax concession for investment in research and development. Why a tax concession? Because for research and development there is what is referred to as market failure—that is, without the incentive, business will not make the investment because the return on that investment does not happen until well down the track. The tax concession is offered to address that failure. We promised and we delivered the 150 per cent tax concession. The government, going to the election that was held in 1996, also promised to keep it but, when they came to office, in their very first budget they cut it back to 125 per cent.

Labor in those days also understood the fact that it is all very well to offer a tax concession of 150 per cent to encourage research and development, but what about small start-up companies that do not pay tax that are relying on innovation? What can we do for them? That is what led to us taking the view that we should allow what was referred to as syndicated research and development proposals. This also plugged a market failure. It recognised that those companies could carry forward losses and could draw on them down the track when they subsequently made profits.

As a Labor government we also heavily invested in public research and development—a massive increase in public research and development. Australia’s research and development effort is the envy of most nations. In fact, the Australian research and development effort when it comes to public investment and public research and development punches well above its weight. That is widely recognised. Where this country has always fallen down is the business expenditure on research and development—the complement to the public investment; that which takes it to the commercial stage and turns the good research and the good ideas into good products and good services. That is what was lacking. That is why we needed the 150 per cent tax concession. That is why we developed the syndicated research and development.

To bring these two segments of the economy together—public research and the commercialisation of it by the private sector—we also established the Cooperative Research Centres Program. It is a program dear to my heart, because I was the minister who implemented it back in 1990 when I first came into this place. It is pleasing to note that the Cooperative Research Centres Program has been retained by this government, because it was recognised as an important piece of public policy—one that does need to be supported. But, as I said before, whilst the government has supported the CRC Program, it slashed the incentives that drove expenditure on research and development.

I thought it would be pretty instructive to see what the consequences are of that disinvestment in our research and development effort, so I asked the library to do some research based on statistics from the Australian Bureau of Statistics. I seek leave to have the table incorporated in Hansard.

Leave granted.

The document read as follows—

This is a very instructive graph because it shows what government policy and government initiatives to encourage research and development actually end up achieving. Government investment as a proportion of GDP has fallen from approximately 0.24 per cent of GDP in 1995-96—the year that we left office—to 0.18 per cent of GDP in the latest year that these statistics are available, 2004-05. That is a massive reduction. That is a reduction by one-third in GDP proportionate terms, not in terms of expenditure. There will be circumstances in which it will be claimed that expenditure on research and development has gone up. Everything has gone up. As the economy grows, you would expect it to go up. But the real measure that we have to have regard to—and this is the way in which it is compared internationally—is the proportion of expenditure in relation to GDP.

Let us have a look at what the graph shows. It shows that, when Labor was in office, in every one of the years from 1984 through to 1996—those 12 years—there was really strong growth in business expenditure on research and development. Why? Because Labor had the policies in place that drove that incentive. In fact, over that period, in real terms, average annual growth of business investment in R&D was 11.4 per cent. That was the average in each one of those years for the whole 12 years. What is the record under this government from 1996 onwards until 2004-05? It is less than half that. It is only 5.1 per cent. That is the cost of not continuing as a government to make the investment in and not prioritising the significance of research and development in the suite of policies.

For the manufacturing sector the position is even worse. We all know how lip-service is paid by the government to support for the manufacturing sector, but it is the manufacturing sector that has seen the most dramatic decline in expenditure on research and development. Before that, under Labor, the average annual growth for the whole economy was 11.4 per cent. Under Labor, each year, it was 10.6 per cent for the manufacturing sector. Under this government, that has plummeted to less than two per cent. In other words, it was cut by more than four-fifths. Yet this is a government that says that it supports the manufacturing sector.

The simple message from this graph is that when Labor were in power we saw strong growth in research and development. We saw business investment in research and development increase from 0.25 per cent of GDP up to 0.85 per cent of GDP. We had 12 years of really strong growth. They came in, having promised to retain the 150 per cent and retain the syndicated research and development, and proceeded in their first budget to abolish syndicated R&D after demonising it by saying that it was open to tax rorting. I might say that we acknowledged that there were circumstances in which financial managers were taking advantage of these schemes, but we had put in place the system by which that loophole would have been closed. The government, rather than face up to the debate on the significance of R&D, sought to demonise the program as their justification for cutting the program. We question the justifiability of cutting syndicated R&D completely; we were in favour of closing the loopholes but did not support cutting it completely. But they had no defence or justification whatsoever for the cut of the 150 per cent back to 125 per cent. They said that they had to cut government expenditure, but this was an investment in the nation, not just a cost to government. The nation reaps huge benefits from it.

But, when they came in, what did we see? This graph tells the story. We saw negative growth in business investments in R&D. Growth in R&D investment by the private sector fell in 1997, 1998, 1999 and 2000. Only from 2001 did the rot stop. There was then growth in business expenditure in research and development, because the government realised that they had acted badly in this regard and introduced new programs to try and stem the tide and to get business expenditure in research and development up again. As the graph shows, in each of the years from 2001, the rate of growth increased. But the truth is that in 2005—the last year available—we were only back to where we were when Labor left office in 1996. It is a pretty instructive comparison: 12 years of strong growth because we as a government were prepared to make the investment, compared to their 11 years of negative growth followed by a pick-up—11 years of wasted opportunity.

Just imagine if we as a nation had continued to make the investment that Labor saw the need to make. Just imagine how much better off we would be in terms of our balance of payments and in terms of products and services getting into overseas markets—the value-adding dimension and the creative side of it, not just the resources boom which is what has driven this economy and carried it along over recent years. That is the story that is contained in this. That is the message that we need to keep sheeting home every time we have the opportunity in this parliament.

We hear the Treasurer from time to time in this parliament copy another phrase from the previous Prime Minister, Paul Keating, in using the argument about getting behind the authors of the particular policy and backing them. I make the point that, when people make judgements about where we go as a nation in the future, that is exactly our argument when it comes to issues such as innovation, research and development, skills formation and investment in infrastructure. We made an announcement last week in relation to broadband and connecting the nation. That will be a great enabling piece of infrastructure for this nation. It will ensure that this nation goes forward as a whole and that opportunity is afforded to the whole of the country, not just the capital cities. We have the ability to fund that and invest in the future. That is the Labor way, and it is the way forward for this nation. This is a government that has not got the wit or will to think of initiatives such as that. It is the government that decimated the research and development effort in this country. As a nation, we have paid the price for that. This is a government that is not prepared to invest in the nation’s future. Only Labor will.

This is about Australia’s farm exports as well, which are facing a particularly difficult time at the moment because of the drought. But the Labor Party has always understood the importance of ensuring that the rural sector makes that investment in research and development. There needs to be an extra effort to encourage them to be innovative, to be creative and to value-add to their product line, so that they can get not just commodities but products into overseas markets. Dairy is a classic example of this. Instead of just bulk cheese, we are exporting Australian name-branded products which are recognised as clean, green, nutritious, quality produce. There is a huge demand for food product, particularly in the region nearest to us. Clearly, living standards are increasing in those countries. As living standards increase, the demand is for quality, nutritious food products. We need to invest in innovative products and in packaging so we can get horticultural and dairy products fresh to market. In a whole range of crops—grains, for example—there are huge opportunities. Australia can be the food bowl for Asia, but it has to have a value-adding strategy that markets, packages and ensures the quality of our products. That is why there has to be investment in research and development.

But which party actually saw the need to do this? It was not the National Party, which claims to represent farmers. It was not the Liberal Party, which always reckons it has got the farm sector at heart. It was the Labor Party in the Hawke-Keating years, with John Kerin as the primary industries minister, that established the very research and development board structure which today we are debating the need to improve the governance of.

Back in 1989 the rural industry research and development corporations—a whole raft of them—were created. The principle was pretty simple. The government would put half the amount—match dollar for dollar—into research and development if industry was prepared to levy itself and make its own contribution to improve the innovation within the particular sectors.

I had the responsibility, when I became Minister for Primary Industries and Energy subsequent to John Kerin, to build on that legacy; not just to establish the rural industries research and development corporations but to restructure the industries themselves to make them more market oriented. I built on the first Kerin plan in dairy with the second dairy plan. This is an industry that now exports in excess, I think, of $2 billion a year. That is an industry strategy. That is opening up markets and creating something with innovation, product design and opportunity.

The wine industry is another classic case in point, where a whole range of initiatives were undertaken including access into Europe. We have seen huge growth in wine exports from this country.

We had to restructure the wool industry to get it more market oriented and back into the game. I inherited a wool stockpile. Not only did we have to get it down; we also had to get the industry more focused on promoting regional quality. I can remember the days when we would not market regional varieties of wool. The member for Corangamite is in the House; he knows the quality of wool that comes from his district, just as the fine wools come from up in the New England area and the particularly fine wools—the superfine wools—come from Tasmania. It was not until we started getting more market orientation of the system by restructuring the boards, getting them focused on the end use, that we started to market from a regional perspective and go for quality.

That is what working with industry is all about. That is what a role of government is: not to tell industry what to do but to facilitate it, to help it and to be in partnership with it. This is the Labor way. Labor was the author of this particular initiative. I say again how much better off we could have been had we stuck with our structure for the Wheat Board instead of the one that was adopted by this government. Just have a look at the structure and cooperation that I put in place when I dealt with the Grains Council. I did not hand it back to the National Party to rort the system and not have it oversighted by an export authority. That got us into this shameful exercise where $300 million went to Saddam Hussein’s pocket to fight our soldiers. That was allowed because this government, in this House, took its eye of the ball in terms of the very industry structures it claims to represent. It is a shame on that side of the House that this in turn has brought shame on what was once a great institution.

This is more than just a bill to improve the governance of research and development. This is an opportunity to reflect upon the different approaches to innovation, creativity, and research and development in this country, and I hope that opportunities such as this present yet again the means by which we can demonstrate our bona fides, not just mouthing the words of support but translating them into action—into real, concrete policies that work for this nation.

The main points of the bill go to the governance arrangements that were essentially for the eight research and development corporations that are affected by it. These recommendations come from what was otherwise known as the Uhrig review, a review of the corporate governance of statutory authorities and office holders. We have had a number of legislative amendments to give effect to the Uhrig review, but the inquiry looked at examining structures for good governance of statutory authorities such as the R&D corporations, including relationships between statutory authorities and the responsible minister, the parliament and the public. Its key task was to develop templates to ensure governance principles which would assist the development of effective governance arrangements for statutory authorities, achieving clarity in roles and responsibilities and providing guidance for new authorities.

The key component of the amendment before us will remove the appointment of an Australian government director—they will no longer be appointed to each board—and reform the main point of contact between the boards and the ministers. We support the changes. They are not controversial in themselves. I think it is important to continue to assess and update the governance procedures by which bodies administer important appropriations of public money. We believe that the potential for conflicts of interest for serving public servants will be avoided, and it will give industry a greater voice and ensure that the boards are managed more at an arm’s length from government.

So our problem is not with the bill; our problem is with the failed policy settings that underpin the bill. We believe that as a nation, if we are to go forward, we need to make the necessary investment in our innovative, creative culture. That will only happen with stronger investment in research and development. This is a government that has let the nation down by disinvesting in research and development. The results are there to demonstrate what happens when that occurs. It is the reason we do not have a strong performance in trade despite the resources boom. It is one of the reasons why export growth under this government is only half the rate of growth that Labor was able to achieve when it was in office. We had an integrated policy approach—the policy approach that understood the importance of opening markets by pursuing primarily multilateral trade outcomes and reinforcing them with bilateral trade approaches. This government has reversed that role. It has put its eggs fundamentally in the basket of bilaterals and it has debased and undermined our ability to secure an outcome in the multilateral round.

It is one thing to open up the market opportunities, and we can debate the means by which we achieve that; it is another to give our industries the opportunities to get into those markets. They will not be able to get into them unless you have got governments prepared to invest in the drivers that help them get there—in innovation, in skills, in infrastructure and in having an integrated approach between trade and industry policies, moving away from the concept of protecting industries in domestic markets to helping industries get into export markets. If you have to change their culture away from a protected economy to a more open, more opportunistic set of market opportunities then you have to help them get in there. That is why the investments have to be made in research and development, in export facilitation programs and in support programs to help them get into markets that they were not otherwise in. If we get that integrated approach right, we can have a sustainable economic future for this country—not one that simply relies on the next resource boom or China not burning out.

For the foreseeable future, all the indications are that China will continue to be strong. That is a good thing for our nation. It will see the wealth continue to be generated. But we can be so much better. Why is it that we simply rely on the export of our resource base? As important as they are, why shouldn’t we be doing more to seize the opportunities in terms of new markets and new opportunities, particularly in services and particularly in manufacturing—where there is a requirement to try and compete not at the low end of the manufacturing scale but in smart manufacturing using our skills, using our innovation and using our creativity? That is what Labor believe in, and Labor’s record stands. When we implemented such a program, this nation was far better off in sustaining its future. That is what we have to get back to. (Time expired)

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