Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Indi has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.

Luke Simpkins (Cowan, Liberal Party) Share this | Link to this | Hansard source

I welcome the opportunity to make a contribution to the debate on the Tax Laws Amendment (Research and Development) Bill 2010, as late as it is in the process. I have found it very interesting listening to previous speakers on matters concerning the bill, including the discussion about which side of politics has been best for research and development and what the future holds. Within the electorate of Cowan, there has been a great history of local businesses taking up the advantages that research and development assistance can provide. I would like to mention a couple of the businesses that have done particularly good research. Tieline Technology, a small but greatly effective business within the electorate of Cowan, have taken advantage of research and development grants under the previous government—before 2007. Tieline have a very high-tech business in which they produce circuit boards. They do not have many employees but they do great work in producing many fine electronic items.

I heard a previous speaker talk about who was the originator of the R&D grants, but certainly the Howard government had a great history in supporting research and development, and Tieline has been a beneficiary of that. There are also other great businesses, such as PalmTEQ, which produce Palm Pilots for restaurants. For instance, a waiter can come up to you at a restaurant to take your order and, just by tapping away on their palm tech device, they can send that order straight to the kitchen. PalmTEQ is another organisation that is very involved in research and development. It is located within Wangara, which is part of the Cowan electorate. There has certainly been great interest in research and development in Cowan in the past, and these organisations have taken part in those government incentives.

From the coalition’s perspective, we are happy to support sensible changes to research and development tax incentives which are an improvement to the existing system and where the benefits are clearly apparent. There is no doubt that there is bipartisan support on both sides of the House for research and development. But what is being proposed today is, I think, an alteration to a system that has existed for 25 years. The question that we must ask is: will the government’s proposal add any great value? The changes may be sweeping but they certainly pose a threat that could significantly erode support for research and development in Australia.

Key changes involved in the legislation go to significant redefinitions of the type of R&D activities that will be eligible for support. Again, this is cause for some concern. I note that Labor have introduced new categories of what they call ‘core’ and ‘supporting R&D’ and a ‘dominant purpose test’. Our view is that they could combine to significantly increase the threshold for firms to qualify for assistance—and that is a worry to us. In essence, companies must demonstrate that their activities are novel or have high-technical risk. Under the proposed system, Labor would fund firms only in cases where they can show that they have introduced a whole new technique, process or solution. It is at times like this that you begin to worry about whether this legislation is actually going to achieve great improvement. Added technicalities or added hurdles for firms to jump over can be a bit of a problem, and we wonder whether that will add great value in the future.

As I said, organisations within the electorate of Cowan have been strongly involved in research and development. Organisations such as Tieline and PalmTEQ and others of the same ilk pride themselves on finding where the demand is and trying to reach higher technological processes to seek market share. These are the sorts of companies that we should be looking to support in the future. These companies are not made of money. They do not have many employees to assist in fathoming changes such as those before us. What is really required is that the opportunity to access R&D development support be held out to firms, without it being too onerous on them. Again, we must be very careful in making changes to a system that has been fundamentally sound and has not had great problems associated with it in the past.

I notice as well that a previous speaker suggested the amount of money that could be assessed under these grant schemes would be the same. I would have thought that, to push forward research and development, the Minister for Innovation, Industry, Science and Research, Senator Carr, would be looking to make significantly more money available, particularly with all these other criteria that have been thrown together.

We are in support of the eight separate amendments that the shadow minister has put forward. The purpose of the amendments is to overturn the worst of the Labor changes such as the regressive nature of the definitions that have been put forward as part of this bill—that dominant purpose test and the adjustments to the feedstock provisions. These are things that need to be amended. In looking at the research and development changes or legislation, the coalition will always support any sensible and logical improvements to the existing regime and things that would not compromise the integrity of the existing system. That is obviously what we are trying to achieve here with the amendments that have been put forward by the member for Indi, the shadow minister.

Labor has tried to pretend that it is interested in improvements to the existing system but this is really nothing more than window dressing—lip service, if you will. If the government were interested in significant and realistic improvements to the R&D process and system, they would not have any problems with accepting the amendments that have been put forward today. This is a critical test for the government. There has been discussion in the past about how the new paradigm—this new 43rd parliament—would lift the lid off the building and sunlight would shine in, but this is just another example of where the government has decided on a particular course of action. They are not particularly interested in scrutiny and not particularly interested in looking at amendments that have not been put forward by the Greens, who increasingly seem to be running the agenda these days in this place.

One person in particular in this place seems to be so powerful. It is very disappointing. Whenever we look at the bills that the government is putting forward in this place, often it seems they are not really moving things forward in the right direction. It seems to be a constant matter of if the Greens have ticked off on this and if the Independent members in the House will support it. That seems to be the only consideration these days. The government still has an opportunity to bring forward into this place bills that are going to add some value and are going to constitute some form of positive outcome for this country. Increasingly, all we see is a government that is beholden to very narrow interests and without real commitment to what is in the best interests of, in this case, business in this country—the employers of this country, people that are going to add some real value—instead of what is becoming more and more obvious, a government that is just beholden to narrow interests that will ask the views of four or five people in this place and respond to those as opposed to what might be in the best interests of the people out there.

What greatly concerns me about these sorts of changes is they are going past what is in the best interests of organisations that are achieving great things for employment within the electorate of Cowan, in light industrial suburbs such as Wangara or Malaga, and just working out the opinions of those who sit on the crossbenches. It is disappointing. I think people and businesses in Australia that are interested in research and development will get to the point where they recall what was said by us in the last election campaign—that we would make no changes to the existing R&D concession system until at least 1 July 2011. Then they will look at this system that the government is proposing—complicated business, dominant purpose feedstock rules, increased compliance requirements—and they will see very easily the significant differences between the simplicity and achievements of the past—what we were offering at the last federal election and what the government brings before us today.

Causes for concern are many. Amendments, therefore, are many. I take this opportunity to state my overwhelming support for the amendments that have been put forward by the member for Indi. I urge the government, if it believes in what it said about visibility and lifting the lid, to give very careful consideration to them to make sure that they do not send R&D backwards in this country and instead take the opportunity to represent businesses in the electorate of Cowan and across the country interested in research and development. The government should listen to us and support these amendments to make sure of the best interests of the broad variety of businesses interested in research and development, as opposed to what the crossbenchers—who increasingly are calling the shots for the government—are interested in.

In summary, I am taking this opportunity today to speak on this bill and the great value that these amendments that have been put forward will achieve. We should be very careful before we change the arrangements for research and development in this country. I support the amendments and the need for this bill to change in that manner.

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

At the outset I would like to express my indebtedness to you, Mr Deputy Speaker Sidebottom, for taking the chair so that I am able to make a contribution to this cognate debate on the Tax Laws Amendment (Research and Development) Bill 2010 and the Income Tax Rates Amendment (Research and Development) Bill 2010. Australia will never be able to compete with low labour cost countries in so many areas of industry and endeavour. Therefore, if we are going to be successful in the world, we have to encourage innovation and channel that innovation into productive industrial enterprise. That is why for quite some time in Australia we have had support for research and development. If we are able to support innovative industries and if we are able to bring those innovative ideas into reality in Australia, it will mean we are at the cutting edge of innovative technology and, if developed, that technology can create industries, exports, jobs and opportunities.

We are a very innovative nation. We are one of the most innovative nations anywhere in the world. But what industry needs is support to encourage that innovation and, equally importantly, to develop that innovation in this country so that we do have productivity from innovative ideas in Australia. That is why there has broadly been a sense of bipartisan support for the concept of research and development. But in relation to the particular details of that support, from time to time different sides of the House, including the crossbench, may have differing points of view.

I support the amendment moved by the honourable member for Indi. While I think there is bipartisan support for the principle of research and development, my view is that the legislation currently before the chamber does not achieve an outcome that is good for Australia. The government has failed to adequately recognise the value of research and development support for business in Australia. This is indicated by the bills before the chamber.

At the 2007 election, the now government accused the former Howard Liberal-National government of having largely ignored the contribution of research and development to economic growth and competitiveness. As part of the review of the national innovation system that it initiated shortly after being elected, the new Rudd government sought to evaluate the effectiveness of four existing tax incentives for business R&D—the 125 per cent R&D tax concession, the 175 per cent incremental premium concession, the 175 per cent international premium concession and the R&D tax offset.

Following the review, the government announced in the budget for 2009-10 that these four forms of support would be replaced with a new R&D tax credit. That is the policy of the government. The new package will give expression to substantial restrictions to the range of activities that qualify for support, including by introducing new definitions of ‘core R&D’ and ‘supporting R&D’, changes to the eligibility criteria so that supporting R&D will only be funded if it is undertaken for what it calls the ‘dominant purpose’ of supporting core R&D, the introduction of a confusing and subjective dominant purpose test, significant increases to thresholds for assistance under new feedstock provisions, and reductions in support for spillover and additionality benefits. The government’s publicly stated intent has been to offer enhanced incentives for companies to invest in R&D, especially small and medium enterprises. The government claims that the new R&D tax credit will be revenue neutral and will offer more predictable, less complex and more generous support.

The opposition, though, has the view that what the government seeks to achieve will not in fact be achieved by the legislation before the House. We are of the view that it will have the reverse effect and that what is proposed is principally a matter of revenue raising and that what it could do is deny to many businesses the incentive which is currently there and which is necessary to assist the development of ideas. We as a country need to give encouragement to companies to be innovative and then to develop that innovation for the benefit of the Australian economy as well as for the economic benefit of those companies. If our companies are successful then they will create jobs and exports, they will boost our economy and there will be a win-win situation all around.

The money the government provides is often really only seed funding. It provides some support to encourage the development of technology, and that is certainly an important step, but unfortunately the legislation currently before the House is counterproductive and does not seek to achieve what the government purports that it will achieve. In line with the amendment moved by the member for Indi today, I ask that the government release its full financial modelling on the impact of this bill. It is vital that we all know by what figure the dollar support will fall for those Australian businesses that are active in their research and development, progressive in their operations and determined to create new products and services that will have a long and lasting impact on their own success and, as a result, be economically beneficial to the wider community.

The government sometimes seems to forget that research and development support at a reasonably high level is important, and it will become more and more vital as years go on as we seek to further diversify and widen our economic support base and as we try as a country to not be as dependent on traditional sectors such as mining and resources. However, even those areas of our economy have also been involved in research and development. What we want is to diversify—obviously encourage the mining and resources industries, but make sure that we do not become dependent on any particular sector in our community. It obviously makes a lot of sense to encourage entrepreneurs and industry to conduct research and development that is sensible and has genuine commercial possibilities, and for which the economic benefit to this country is clearly obvious—from job creation and employment through to the development of new technology and expertise.

I am privileged to represent, arguably, what is the most wonderful part of our country, the most attractive part of the state of Queensland and also of the Commonwealth of Australia, and that is the area of the Sunshine Coast in Queensland. We have many innovative companies in our area. A lot of people say that the Sunshine Coast is an area where people go to retire, and that is true. They like to move from what I sometimes refer to as the ‘rust belt’ areas of southern Australia to come to the Sunshine Coast and the wonderful climate and quality of life that we have. However, increasingly, the Sunshine Coast is also the residence of choice for many young Australian families. One of the problems that we have on the Sunshine Coast is a lack of industry and a lack of employment, particularly industry that is clean and green. We have a lot of innovative companies; regrettably, time will not permit me to list them all but I would like to focus on one particular company called Snapsil. This has been a magnificent success story and Snapsil says that a significant boost to its success today came as a result of a development grant received, at an opportune time, from the former Liberal-National government several years ago.

Brad Teys, the Chief Executive Officer at Snapsil, told my office that there is a gap in Australia between when a company or individual comes up with an idea for a new product or service and the moment when that product becomes commercially viable, and that gap needs to be bridged to enable more new companies to realise their full potential. The government needs to recognise, as the previous Liberal-National government did, that it has an important and key role to play in stepping in to fill that gap. I think that is an appreciation that the government needs to once again become reacquainted with. Mr Teys says that, without the Howard government’s R&D assistance, Snapsil would not be the innovative, successful and growing business that it is today. In fact, it is a leading business light on the Sunshine Coast and Mr Teys has found himself, through his experiences, able to give advice on such matters to other individuals and businesses.

This bill does not recognise adequately the need for R&D support. It purports to increase the tax concessions available to business for spending on research and development, yet the conditions that must be met before a business qualifies for the assistance are so strict that the government support for this vital sector of industry will actually fall overall. Along with my colleagues, I urge the government to reconsider its attitude to research and development support for business and industry—it is support that generates positive returns that are worth many times the value of the initial government outlay. It is interesting that the bottom line to the budget of this program, from the point of view of the government, is that it is budget neutral. However, it could be suggested that, contrary to this, it is actually economy negative if it restricts the development of new goods and services here that would have a positive multiplier effect on Australia into the future.

Snapsil produces and distributes some quirky and innovative packaging solutions. The various products are one-use containers, dispensables, squeezables and cutlery that have built-in storage reservoirs. These are extremely practical ideas that are gaining interest world wide. For example, there are stirrers that include in the handle a serve of sugar, cutlery that includes an inbuilt serving of sauce, small candy dispensers, one-off dispensers for handyman jobs around the home, and the like. There are many interesting products and I encourage members to check out the Snapsil website at www.snapsil.com. It is an interesting and innovative firm and I am proud of the effort they have made to be such a success. But Mr Teys is adamant that his company would not be where it is today without research and development support.

This bill works to decrease the number of activities that qualify for research and development support; it introduces confusing changes to definitions for eligibility; and it makes it more difficult for firms to apply for and to qualify for that support. The difficulties in actually making such applications will in the longer term reduce the number of firms that apply and also reduce the amount of the funding that this government actually outlays, which highlights a sneaky revenue-raising aspect of this disappointing Labor government bill. This bill is not an improvement to the current system and actually represents a slide backwards in support for those individuals and firms that are seeking to be innovative and to create new products and services. As a nation we need to better fund research and development, not cut back on support. We have been fortunate in recent years that expenditure on research and development has steadily increased, from some $108 million in 1985-86 to over $17 billion in 2008-09, and it is important that the developments represented by those investments and by that growth over those 25 years are able to be encouraged and continued.

The opposition is very happy to support research and development. We do not make any apology for that but we would ask the government to very seriously consider the amendments so ably moved by my colleague at the table, the honourable member for Indi. If these amendments were accepted then obviously the bills would be vastly improved and the original purpose of research and development would be enhanced and made much more effective. In fact, our economy would be enormously strengthened if the government took note of the approach taken by the honourable member for Indi.

Bill Shorten (Maribyrnong, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I thank members who have contributed to the debate on the Tax Laws Amendment (Research and Development) Bill 2010 and the Income Tax Rates Amendment (Research and Development) Bill 2010. These bills deliver one of the biggest improvements to public support for business innovation in over a decade. Small companies are the big winners from the R&D tax incentive with greater access to cash refunds and higher base rates of assistance being provided through the new 45 per cent refundable tax offset. Larger companies can invest knowing that they can claim a non-refundable tax offset of 40 per cent of their expenditure on eligible R&D activities. The new R&D tax incentive better focuses public support towards activities likely to produced economy-wide benefits. This will ensure that the new R&D tax incentive rewards a company’s genuine R&D, not business as usual activities. The new R&D incentive is an important part of the government’s plan to encourage industry to boost productivity and activity in all sectors of our economy.

There have been assertions from the opposition that the level of consultation around the R&D tax legislation has been inadequate. I believe that assertion to be unfounded. The changes to the existing R&D tax concession were first canvassed in the independent Review of the National Innovation System back in 2008. There has been an extensive program of consultation over the last 12 months. Industry has had numerous opportunities, including three rounds of public consultation and, when the bills were being considered in the previous parliament, a Senate committee process in which to participate. The government has received over 380 submissions during the three rounds of consultation and held public hearings attended by over 550 people. The government has made some significant changes where stakeholders made constructive suggestions for improvement, as well as clarifying changes in response to recommendations by the Senate Economics Legislation Committee.

There have been assertions made by the other side that, in tightening the definition, this new scheme will not adequately cover development as opposed to research activities. This simply is not true. The objects clause clarifies that both research and development activities are supported. This is achieved by referring to activities undertaken for the purpose of generating new knowledge in either a general or applied form. The development aspect of R&D is captured by the term ‘applied’, which is consistent with the approach taken in the Frascati manual. To clarify this point further, the objects clause now explicitly states the knowledge in applied form:

… including about the creation of new or improved materials, products devices, processes or services.

This clearly acknowledges that factory floor R&D often takes the form of experimental development, drawing on existing knowledge gained from research and/or practical experience, which is directed to producing new and improved products, materials, devices, processes or services. This point is further reinforced in the explanatory memorandum. The definition of core R&D activities includes:

… experimental activities … conducted for the purpose of acquiring new knowledge (including knowledge or information concerning the creation of new or improved materials, products, devices, processes or services).

I would like to address the specific points raised by the opposition amendments. Opposition amendment 2(a): the proposed start date of 1 July 2010. I would say that in introducing the bills following the election the government retained the 1 July 2010 start date to avoid delay in accessing the very substantive benefits that the new scheme offers to firms conducting genuine R&D. However, the government is also aware of calls for the start date to be altered and is willing to reconsider this question should it be raised in the Senate.

Opposition amendment 2(b): there has also been some comment on the dominant purpose test. The dominant purpose test is a well-defined concept commonly used in tax law. The explanatory memorandum states:

Dominant purpose means the prevailing or most influential purpose.

It is consistent with the terms used commonly in tax law. Following passage of these bills, AusIndustry will produce comprehensive guidance material to assist firms to prepare their registration, including guidance on how the application of the dominant purpose test applies.

Opposition amendment 2(c): there has been some comment that the feedstock rule in the bills is broader than the existing law. The feedstock provisions in the bills have the same scope as the feedstock rule in the existing legislation. The bill continues to apply feedstock adjustment only for the cost of goods or materials transformed or processed in R&D activities, along with the energy used.

Opposition amendment 2(d): there has also been some comment on the treatment of R&D in relation to building and construction. The bills retain the longstanding exclusion from concessional treatment if expenditure is incurred in the acquisition or construction of a building, or part of a building, or an extension, alteration or improvement to a building. It has been claimed that this exclusion would stop all property R&D by those constructing a building on their own account or under a contract, or developing products to be incorporated into a building. This is not so, as the exclusion is only intended to apply to expenditure on the specific activity of the building. For example, companies experimenting with innovative construction techniques in the course of actual construction will continue to be eligible for non-building R&D activities such as research, consulting, conceptual design, computer testing and other testing not physically incorporated into the final building. Those merely developing components that are then included by others in a building would not be incurring expenditure to construct a building and so would not be captured by the exclusion. The government has not changed either the longstanding policy or the law in relation to these building industry issues and therefore has maintained the exclusion of building expenditure as it has existed under previous governments.

Opposition amendment 2(e): there was some comment that the bills will disqualify many small and medium-sized businesses from support. The bills use the concepts of turnover and aggregate turnover that apply throughout the Income Tax Assessment Act 1997.

Opposition amendment 2(f): there has been some comment that the bills impose unreasonable compliance costs. However, the requirement to identify both core and supporting activities on registration is not new. The only difference is that the bills expressly require these two types of activity to be clearly separated in the registration form. Removing this requirement would undermine the efficient administration of the new R&D tax incentive.

Opposition amendment 2(g): Comments have been made that the bills now impose new restrictions on third-party investment in R&D. The expenditure not at risk rule in the bills is substantially narrower than that implied by the wording of the corresponding provision in the current law and reflects the manner in which the Commissioner of Taxation has administered the existing rule.

Opposition amendment 2(h): Concerns have been raised that the bills apply new rules relating to the disposal of R&D results to actions prior to the commencement of this legislation. Where receipts arise after 1 July 2010 in relation to deductions obtained prior to 1 July 2010, or obtained both prior to and after 1 July 2010, the old law will apply. This means that the tax treatment on disposal of intellectual property will be the treatment that would have been expected under the law at the time the project commenced.

The opposition, in section 3 of their amendment, are urging the government to release full modelling demonstrating the impact of proposed changes and to reconsider our approach in order to ensure encouragement of business R&D activity. It has been said by the opposition that in effect what is going on here is a revenue-raising measure. This is wrong. The Treasury’s costing of the changes to the R&D tax law made clear that this is a proposal which is broadly revenue neutral. Indeed, that was confirmed in the Senate Economics Legislation Committee’s report in the previous parliament. That report took into account each of the key aspects of these bills—that is, the increase in the base rates, additional cash payments, the estimated change in the take-up of R&D assistance, as well as the abolition of the 175 per cent incremental tax concession and the tightening of the eligibility criteria.

The R&D tax incentive must keep abreast of industry developments if it is truly to encourage the right kind of R&D, the kind that strengthens our nation’s economic performance. The government is therefore committed to reviewing the tax incentive after two years of its operation. In the interim, the government will establish a broad based working group to provide advice on the implementation of the new tax incentive. This group will seek to optimise the incentive by canvassing widely to seek a broad range of views from interested parties on its operation.

In summary, a vibrant national innovation system is essential for Australia’s future development. We see the role of innovation as utterly critical to improving productivity in Australia, and these bills are a key component of supporting Australia’s productivity growth. I commend the bills to the House.

Question put:

That the words proposed to be omitted (Ms Mirabella’s amendment) stand part of the question.