Dennis Jensen (Tangney, Liberal Party) Share this | Hansard source

Well, it is true. Celebrity over substance has been one of the hallmarks of our egocentric Prime Minister. The general feeling is that the main aim of this legislation is to bring about cost savings in the R&D area. One of the main criteria is that core R&D be both innovative and risky when in the past it could be one or the other. This incompetent and fiscally destructive government knows nothing about being innovative but a lot about being risky. As if the mining industry has not already been bludgeoned with a proposed resources rent supertax, this R&D legislation will, according to Roberts, ‘reduce the claims of mining companies for pilot plant expenditure and manufacturers for the cost of prototypes.’

So, what sorts of investment levels have we enjoyed in the past? According to reports on a Booz & Company innovation study, Australia was the sixth largest importer of global spending on research and development in 2007, attracting $4.3 billion in global R&D investment. Booz’s strategy practice principal, Bernadette Howlett, was reported as saying that Australia is ‘clearly benefiting from the globalised outsourcing of R&D spending’. She continued:

The long-term outlook is encouraging because of the capability of our local skill base, and the increased reputation our R&D teams have for innovation and for being able to respond to consumer demand …

Now that the full impact of this legislation is starting to be appreciated, that long-term outlook will not look anywhere near as rosy. Furthermore, the government cannot resort to its tried and true ‘plan A’ when things start going rapidly round the U-bend: pretending they were not aware of problems.

The Senate inquiry into the scheme was told by grants experts only last month that the scheme is too restrictive and complex. Let me repeat that: this legislation, which the government claims will simplify and improve funding for R&D, is too restrictive and complex. Accounting firm BDO told the inquiry that modelling it had conducted involving its clients in the mining and manufacturing sectors showed that those sectors would be particularly hard hit. One must ask again: why is this government doing its level best, or actually worst, to destroy the mining and associated industries? This is economic treason. BDO’s R&D partner Tracey Murray said:

In the mining industry, 90% of our current claimants would have their R&D claim reduced under the R&D tax credit program by at least 80%, with 10% of claimants not being able to access the incentive at all.

And what of manufacturing, where I am sure at least a few of the Prime Minister’s favourite ‘working families’ are employed? BDO’s assessment was:

When we modelled the manufacturing industry, the very industry that Australia is striving to increase productivity in, our modelling indicated a significant number of clients would have their access to the R&D program reduced by at least 65% in terms of value, with a number of well-known, world-leading companies unable to access the provisions at all because of the operation of the dominant purpose and the feedstock provisions.

The compliance burdens of this proposal are also going to increase, another blow to businesses which are keeping this company afloat despite the Prime Minister’s cynical and pathetic attempts to portray himself as the great saviour of our economy.

Sandra Mason, a partner at PricewaterhouseCoopers, says it appears that the government is trying to target some sectors or groups who it feels are getting more than their fair share of R&D tax incentives. However, she says that the legislation is too broad and will capture or rope in many other companies. Using a sledgehammer to crack a nut is another familiar and abiding failing of this grossly incompetent administration, so those critical comments sadly have a ring of truth as loud as Big Ben. Ms Mason was also reported as expressing concern at the introduction of a dominant purpose test, which requires that companies hoping to claim for supporting R&D will need to prove that the work complies with the dominant purpose test of supporting core R&D. According to critics, this goes too far as many traditional supporting activities, such as market research, market development and feasibility studies, have the dual purpose of supporting core R&D and furthering a firm’s commercial strategy. But then, what would this government know about how business operates? Thanks to the calamitous handling of the BER and insulation programs, we can clearly see the answer—absolutely nothing. The Prime Minister has been saying he wants Australia to become more productive. How does this alleged desire marry with the R&D tax legislation?

A major issue with R&D is trying to quantify much of it. Dean Parham, until recently an Assistant Commissioner of the Productivity Commission, wrote a paper on the empirical analysis of the effects of R&D on productivity. According to that paper, while growth in the OECD area was slower in parts of the eighties and nineties, that was a period of major growth in R&D in Australia. He wrote:

Local tax incentives are thought to have contributed substantially to the growth and timing of change in Australian R&D activity.

The problem really comes when you attempt to measure the value of R&D. As Dean Parham wrote:

… R&D activity is an investment in knowledge accumulation and in the development of technologies. The corresponding assets—the stocks of knowledge and technologies—are intangible assets whose values are largely unobservable.

              …              …              …

This measurement difficulty looms as a fundamental problem in establishing a link empirically between R&D and productivity.

Therefore, if these changes are being driven by Treasury and taxation officers who are seeing an opportunity to claw back some of the money this government has wasted, this paper illustrates the difficulty of measuring R&D outputs, and the inherent dangers in trying to quantify intangibles.

I should remind the government that this is not an esoteric philosophical debate; it is about real companies, real employees and the real future of our country. I have received representations from companies in my electorate who are reiterating many of the concerns that major players have voiced. I hope that the government will listen to these concerns now and act accordingly, instead of barging ahead with deeply flawed legislation and then wanting to consult with industry. Where have we heard that one before? One of my constituents said that R&D tax incentives have been critical to the recent growth of his company and to increasing the level of intellectual property and the resulting design and manufacture undertaken in Australia. He posed questions about keeping promises, which are very relevant to this government. I must say I admire his optimism.

He wants to be assured that the stated aims are fulfilled by this legislation—remaining revenue neutral at $1.4 billion funding; shifting the benefit to SMEs; removing compromising claims for whole-of-mine style projects and supporting activities which form a large part of the expenditure; increasing the number of claimants; increasing business expenditure on R? and targeting R&D with concepts of additionality and spillovers. He explained that there are major economic pressures on companies to relocate their design and manufacturing activities to low-cost centres offshore. However, while the current R&D tax incentive scheme is in operation, the development of intellectual property can be economically pursued in Australia.

The only real question about the intent of this legislation is: is it yet another desperate attempt by an ideologically driven and intellectually destitute government to reclaim money to fill in the gaping black hole of debt it created, or is it yet another mean spirited and vindictive attempt to destroy another success story of the Howard government? Or is it a bit of both? My constituent warns that:

Any move to constrain or reduce the support of R&D to companies would only hasten and increase the tendencies to move offshore.

I do hope that this statement of fact, which is blindingly obvious to anyone outside the Labor Party, will prompt the more intelligent and economically literate members of the Labor Party to for once abjure the party line and stand for what is good for the country by not supporting this bill. We shall soon see which is more important to them—their own continued existence as Labor Party ciphers or people genuinely concerned for the greater good of Australia.

See this speech in context