Ed Husic (Chifley, Australian Labor Party) Share this | Hansard source

I rise to speak on the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019. If you take a long-term view of the way economies are evolving and our role as people within economies, we have rapidly moved away from the muscle towards the mind. We are relying less on human labour in physical effort and replacing that, in times past, with machinery. Now robotics, you would anticipate, will take up more and more of the load. Some of the difficult and dangerous, and dull and repetitive, tasks that people carry out will be done by machine. Where the difference will be is where people can bring imagination, creativity and problem-solving to make a difference in workplaces. This is where things have headed.

Big movements happened through the fifties and sixties. If you look at agriculture and manufacturing—obviously, everyone goes back to the start of the industrial revolution—we've had truly big shifts occur from the way in which we employed people in earlier generations, and we can see it continuing now. A lot of people think that there are a lot of jobs that will always be done by people. Some will, yes, but a lot won't, no. As we advance through the application of artificial intelligence and robotics, we are potentially going to see some changes that people thought wouldn't happen in our lifetime happen quicker than we imagined in our lifetime.

The pressure is on countries to invest in human capital and to think about how they can evolve their communities and their economies. The belief seems to prevail that we can just play catch-up. This will increasingly become more difficult as those who invest in R&D, those who do longer-term planning around what their economies will look like, steal a march on us. It will be increasingly difficult for us to play catch-up, to bring ourselves on par with where they are.

This whole notion of first-mover advantage becomes clearer and clearer. If you look at what China, in particular, are doing in our region, they're putting a serious, committed investment in artificial intelligence. They see a $150 trillion industry potentially emerging out of their investments in AI. It's not just an economic investment for their nation; it's a strategic investment as well. We see other countries devoting significant amounts of money to the development of artificial intelligence and a national game plan. This is serious stuff, and we as a country cannot afford to see where AI will—some of the biggest companies on the face of the planet, like Amazon, Google, Facebook, Tencent, Alibaba and Baidu, that are using AI in this way will just propel themselves further. With the mountains of data they're collecting they will become even more efficient and advanced, and they will leave us even further behind.

As parliamentarians, particularly in this country, we have to take this more seriously. While we will have our debates in this place, I actually believe that most parliamentarians get that Australians are incredibly smart and innovative people. Given our continent and our isolation here, we have had to in times past have very bright people. We know that. This is not just simple rhetorical flourish by me; we can look at it. Most other places pinch our people—our best and brightest get taken overseas—because they know of the talent that exists here. I hear stories, as many people in this place do, of people who have dedicated themselves to the area of scientific endeavour and then left it. The brother of a colleague of mine had worked in the area of scientific endeavour, but he now works for a major financial institution. He is not doing what he wanted to do; he is now working for a financial institution. He said of science, 'There was no opportunity for me there.' This is the type of story that should make our collective blood boil, because we are wasting talent. We are not applying skill or know-how in a way that will make an enduring impact on our nation. As a country, we should be ensuring that every element of government investment twinned with business focus, that effort, puts Australia in a position where we are doing smarter and better than we've previously done. If we don't, we will be left behind. We will be absolutely left behind. People will reflect on the impact of traditional industries, like mining and agriculture, on our economic fortune and think that that's going to basically deliver us income and wealth for years to come.

I note that in the Financial Review last year someone had pointed out that researchers from Harvard had examined the concentration of effort that was dedicated purely in resources and agriculture in this country and then contrasted the complexity of other economies. The Financial Review of all places said, 'If we are doing so badly why are we so rich?' Yes, we are rich. The question is: how long for? Some of the most advanced thinking and automation has occurred in our mining sector, because if you look at the number of people employed in the sector versus what the belief is it's completely different. There is the challenge for us to think ahead and to invest and to back it up.

When you look at research and development, and all the things that we would use to measure how smart we are as a nation and what that will do longer term for us, all the major metrics are going the wrong way and this should be ringing alarm bells in this place. For example, gross expenditure in R&D as a proportion of GDP has dropped from 1.88 per cent to 1.79 per cent, according to the ABS. If you look at business research and development it's hit 0.9 per cent of GDP, falling below one per cent of GDP in the previous data from 2015 to 2016. The total human resources devoted to business R&D is still below what was devoted when the government took office. In 2013-14, total, as it's known, person years of effort was 78,839, but the most recent data shows up as 74,991, so a contraction of five per cent.

The recent Australian Institute of Company Directors report has let us know that for Australia's total gross domestic spending on R&D we are currently ranked 21st within the OECD. And that while the rest of the planet is getting the whole notion that we've got to increase national business expenditure Australia has fallen. All the metrics are going to wrong way for us as a country, and we need to do better on this because there is a long-term imperative to do so to ensure that we've got the type of economic prosperity and opportunity, and employment growth that people will expect longer term.

So, if we see ourselves as a smart people, and we think this is a smart nation—when you look at some of the stats, you look at the international rankings on the inputs, human capital, we do quite well but the outputs are nothing to be proud about. I said earlier that we should be making sure that we twin everything that is happening in government with everything that's happening in business to ensure that R&D in this country. The thinking about where we want to be as a country advances. This is the problem with this bill: people have been concerned that what this bill is largely about is a budgetary saving but not an investment in the productive capacity of the economy longer term.

We have had one Senate review of those proposed changes come out and say that the government should not go ahead with what it was thinking in this regard. We've got now, as we've rightly moved as an opposition, a focus on doing another review on these laws to ensure that the economy is not short-changed longer term.

The other thing that has happened as well, not just in terms of this structural reform, that a lot of people are concerned about—and they are concerned for instance about what this will do on smaller firms. I do note, for instance, that some people—for example, the R&D tax incentive specialist Daniel Ronai believes that these reforms will have a disproportionate impact on smaller businesses. He says that:

Around 1,030 (almost two thirds) of the non-refundable companies claiming the R&D tax offset have intensities of 4 per cent or lower.

And he believes:

This would result in their benefit dropping from the current 8.5 per cent to 4.5 per cent – in real terms a drop of almost 50 per cent.

An applicant in the four per cent or lower R&D intensity would have been spending $1 million previously and received $85,000. But now, that same applicant, with the same expenses, would receive $45,000. So there are people saying that the change to the type of thinking that's being applied by the government will shortchange small and medium enterprises, the same ones which were championed a few moments ago in another bill, where we want to set up the Business Growth Fund to help businesses expand. We're putting money in there, but in this bill we'll take money away from small and medium enterprises that are doing the thinking around research and development.

Other firms—tech start-ups—have been caught up by the change of treatment of the research and development tax incentive as it applies to software development. Start-ups have been screaming that the types of assumptions they had made on what would be acceptable in terms of receipt back as part of that incentive are then having to second-guess what the tax department and AusIndustry would do in deeming invalid the applications that had been made for the use of the RDTI. And that had been dragging on for ages. It was attempted once in the 2013-16 term of government, it was supposed to be fixed up and then it reared its head again in the 2016-19 term. Huge amounts of effort were expended to try to get the ATO to reconsider what it was doing to a number of Australian start-ups that would be impacted by this. Investors were particularly concerned that assumptions were being made about how the R&D tax incentive could be drawn upon. Those investors were concerned that those assumptions may be founded on very shaky ground and would inhibit their ability to make a return in the longer term. And so there was a concern about the chilling effect on investment as well.

I totally get, and a number of speakers from the opposition also totally get—and I've said on the public record a number of times—that if people are abusing the R&D tax incentive then we should all, collectively, with one voice, be going after those people: absolutely. Any reforms to improve that operation, for sure! And we should absolutely crack down on bigger businesses that are using the incentive and masking business-as-usual activity behind the incentive, because that's not advancing the national interest. But can we do it in a way that ensures the nation progresses because we have smart people thinking about problems confronting the nation, coming up with new opportunities to grow as firms and then advancing economic prosperity because of the application of those smarts. That's absolutely what we should be encouraging.

My most heartfelt wish is that we, as parliamentarians, start to say: 'Do you know what? We do the reform element and we make the changes to stop the shonks from taking advantage of these types of incentives. But we actually don't just look at this is an opportunity for a budgetary saving; we look at it as an investment in the productive capacity of the economy.' We want Australia to grow; we don't want us to become, effectively, a vassal state dependent on trade with other countries where the inputs are at a lower quality level and we shortchange ourselves economically because we didn't do the longer term thinking of investing in this activity: government and business working together to ensure that the nation does well in the longer term.

We should be having an argument in this place, outbidding each other on what we'll do on R&D. There should be an active competition between both sides of politics that will put more money into R&D, that will put more money into science and that will invest more in human capital, all with a longer term vision which says that as the economy evolves we will, with other nations, be at the front. Dare I say it—if I can make this final point—that we aim to be the best and not be embarrassed about pushing for that. Other nations do it, why can't we?

See this speech in context