Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Financial Services) Share this | Hansard source

Of course Labor will support the passage of the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 through the House, but we will refer it to a Senate committee because there are further issues that need to be dealt with by looking at the details. Yesterday, we heard the Reserve Bank Governor give an insightful speech into his view of the outlook for the Australian economy, particularly over the year ahead. Something that stuck with me in terms of the RBA Governor's speech yesterday was his view that government and business investment needs to grow in Australia if we're going to tackle the problem of the productivity malaise that's developed in our economy. In his words, 'Business investment has been weak for a long period of time.' That's the view of the Reserve Bank Governor of business investment under a Liberal government that claims to be all about representing the business community and boosting investment in Australia. It also proves that the government's claim that reducing company taxes would spur a business investment boom simply hasn't occurred, and that the notion of trickle-down economics is complete rubbish.

Reflecting this is the fact that business expenditure on research and development has fallen by about 30 per cent under this Liberal government. We see that in the national accounts, where expenditure on government tax concessions associated with research and development in Australia is also falling under this government. Australia now has a woeful record when it comes to supporting private sector research and development. Business R&D expenditure in Australia is now at a level below one per cent of GDP, sitting at 0.9 per cent—a level it hasn't been at for many, many decades. We are ranked 21st in the OECD when it comes to investment in research and development by private corporations. The global trend in research and development throughout the world is to increase investment in important innovation and research and development. In Australia, the opposite is occurring under this government: investment in research and development by corporations is falling. In the coming years Australia's wealth will increasingly be tied to our ability to innovate, to develop and create new industries in what is becoming an increasingly competitive global economy. Australian businesses that invest in research and development need to be the engine of growth, innovation and productivity in Australia in years to come. If they are not making the investments now, we will suffer the consequences in the future.

Leveraging the talents of our educated workforce, Australia has the ability to build on some of the wonderful innovations that have been developed in this country—like wi-fi or the bionic ear. These, along with other innovations in new and established industries, create the jobs of the future in Australia and ensure our nation's future economic prosperity. But innovation and research and development as a focus, as an agenda, from this government has been sadly lacking. In 2011, when Labor Party in government, we implemented the current framework for research and development tax concessions to spur on and boost private research and development in this country and drive innovation and investment—because we know R&D is integral to a modern information driven and innovative economy.

The incentive is currently one of our principal mechanisms to stimulate investment in research and development and to encourage R&D activities that might not otherwise be invested in and taken up by the business community. Currently, around 13,000 companies take advantage of the two levels of the scheme—the refundable tax credit and the non-refundable tax credit. The vast majority of those companies are in the lower turnover bracket. Labor took a pro-industry and pro-innovation policy to last year's election, including the collaboration premium that industry and research bodies have been crying out for. Labor committed to establishing an electric vehicle manufacturing and innovation strategy to support the Australian Centre for Innovative Manufacturing and to invest in the expansion of the Mackay Renewable Biocommodities Pilot Plant. We had a plan to establish a hydrogen industry in Queensland. Unfortunately, Labor was not elected at the last election. These commitments were put in place with the stated aim of boosting research and development and getting to a target of three per cent of GDP by 2030. Labor was the only party in the election that had that stated aim, that looked at boosting R&D expenditure to three per cent of GDP by 2030 and bringing it back on track with what is going on in other nations. That is a stark contrast to what the Liberals have been doing, with R&D investment falling.

This bill proposes some new recommendations. It comes on the back of the 2015 review conducted by Bill Ferris, Alan Finkel and John Fraser, which has become known as 'the three Fs review', and the Treasury consultation that went with that. The government's bill claims to improve the operation of the incentive through increasing the incentive's expenditure threshold, capping the refundability of the tax offset and increasing the specificity with which the tax incentive levels are applied as a reward to organisations that have a higher proportion of research and development investment.

This bill will implement a $150 million expenditure cap, allowing an increase in the cap from $100 million but well below the $200 million that was recommended by the review. In that vein, it may not provide the business confidence required to bring R&D expenditure to those GDP target levels. This aspect of the bill, we believe, should be examined by the Senate committee if the Senate Economics Legislation Committee gets the opportunity to look at the details of this bill.

The government intends to cap the value of the refunded tax offset credits at $4 million per annum. This aims to contain the costs of the incentive whilst continuing to provide financial support for companies engaging in R&D expenditure. The bill seeks to increase the specificity of the application of the tax incentive levels through the use of an intensity premium, a mechanism to ensure the proportional R&D investment of an organisation. Through these reforms, companies that spend proportionally more on R&D compared to their overall turnover will receive an increased tax offset. This mechanism rewards companies that spend more of their overall turnover on R? however, it does also complicate the policy. The aim of the policy is to benefit smaller organisations than the Liberal government has in the past, but it may in some respects be a disservice to those smaller organisations because you're actually increasing the complexity of the system with those three different levels of specificity when it comes to that offset.

We're saying that that is, again, another issue that should be dealt with by the Senate economics committee. It should look at whether or not that's simply complicating the system too much to encourage people to actually invest and take up those opportunities for the R&D tax offset. If a private corporation has made a decision to invest money into research and development then they should be rewarded and supported for that endeavour and given incentives by the government.

But it's important that the government is also serious about considering the non-legislative recommendations put forward by the FFF review. They include plain-language guidance for businesses and a simplified application and administration process to assist smaller business in accessing the incentives. The government must also consider the introduction of a collaboration premium in order to stimulate cooperation between different organisations in pursuit of bold new research.

So this is a bill that has potential to provide an encouragement to R&D in Australia and to boost the uptake of the R&D tax offset in Australia, but we are sceptical about that given that they haven't taken up the recommendation for the $200 million. There's now a cap on the level of R&D research expenditure that can be tax offset, and you've got those specificity levels in terms of intensity which are very, very complicated. There's nothing that's been said by the government to make the system easier to understand or to provide plain-language guidance for businesses so that, hopefully, more of them take this up.

We can't afford to get this wrong. We need to make sure, given the flailing levels of investment in research and development by private industry in Australia, that we don't get this wrong. That's why Labor's suggesting that this bill be referred to a Senate inquiry so that the Senate economics committee can look into these issues and can recommend to the parliament whether or not this particular bill meets the stated aims of boosting research and development in Australia. We all know that Australia is falling globally and we're falling domestically in terms of the amount of money that's being devoted to research and development. That will only mean that in the future our economy will be less competitive and less efficient. We'll have difficulties boosting productivity, and overall Australian living standards will fall if we don't get this incentive right.

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