Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Industry) Share this | Hansard source

I do not think these people know how to open their mouths without initiating yet another review or establishing another government body. I would like to take the issue of the schedules in order. I will start with schedule 11, which implements the changes to the 175 per cent premium tax concession to give access to international firms that hold their intellectual property offshore. I have argued for some time that there is merit in opening up the R&D tax concession to international firms, on the basis that most of the spillover benefits from the R&D conducted in Australia still flow if the IP is held by a multinational’s head office overseas. That is why Labor welcomed the Howard government’s decision, in its May industry statement, to expand eligibility for the premium concession and to remove the beneficial ownership test. We had campaigned on this issue for some time.

It should be noted, however, that that measure alone accounted for some $500 million of the government’s so-called $1.4 billion industry statement—except that this figure of $500 million is made up of a remarkable calculation, which is that a figure of $50 million was flatlined across 10 years. We have a measure here which has had an arbitrary figure of $50 million put in, flatlined for 10 years. So I will be very interested to see just how the actual costings come out over time, given the Howard government’s absolutely appalling record when it comes to the question of costing changes to the tax concession. I do not think there has been a year in which the costings have been accurate—not one year.

I give the officials due notice here that I would like to ask some questions during the committee stage of this bill about how this figure was settled upon. How was it that a figure of $50 million was calculated? And how was it that it was calculated on the basis that it would be the same figure for 10 years—irrespective of the behavioural changes that might occur in the take-up rates for this particular measure? So, given the absolutely appalling answers that I received on these issues in the budget estimates, I think it is appropriate, given that we have officers here today, that they enlighten us. I think they should be able to enlighten us as to how it was that Treasury came up with these particular costings.

I repeat that Labor welcomed the belated initiative by the Howard government as an attempt, albeit in a limited way, to internationalise Australia’s innovation system. However, this bill makes it clear that the government is simply introducing an even higher level of complexity into the R&D concession scheme. At the time of the announcement, Labor pointed out that the 175 scheme is a bureaucratic nightmare. Yet this bill actually introduces further complexities and red tape.

For a start, the definition of research and development for the purposes of the new regime is different from the rules that apply to companies holding their IP offshore. This was not announced. While it may be done for the benefit of administrative practice, nonetheless it results in companies that are eligible for both types of tax concession having to categorise their R&D spending in two different ways. The bottom line is that this legislation has been described by stakeholders as complex, confusing and bureaucratic.

This creates a second problem, and that is the risk that the policy intent will be undermined by a perception that the new scheme is difficult to access. Not only will international firms have to look at the rate of support they will receive for the R? they will also have to take into account the complexity of the system. And it would be hard to imagine a system more complex than that which has been created by this government.

Labor will continue to seek feedback from business about the effectiveness of the premium concession and of this measure in particular. But the fact is that this policy, like the whole industry statement, reflects a half-hearted approach from this government. The last time I had occasion to speak on a bill relating to the R&D tax concession, I made the point that even the Productivity Commission realises that the eligibility criteria for the R&D tax offset provides perverse incentives for small, high-tech businesses to actually limit their R&D spending. But the government has made no attempt to amend the threshold arrangements. One can only assume that, since they have not done it in the industry statement, they had no intention of fixing this particular problem. Beyond that, of course, there is serious potential to improve the R&D concession arrangements overall. However, broadly speaking, there is a serious need to improve Australia’s business R&D performance, and this was yet another missed opportunity to do just that.

With regard to our performance, some disturbing facts about Australia’s R&D have increasingly come to light. The ABS noted in its release of its 2005-06 figures that, at 1.04 per cent of GDP, Australia’s rate of business R&D expenditure ‘remains below the OECD average of 1.53 per cent’. The fact is that Australia’s businesses are still recovering from the savaging of the R&D concession by the Howard government in 1996. In 1996, Mr Howard said that his government would ‘improve Australia’s international ranking in terms of expenditure on business R&D, as a share of GDP’. Instead, he slashed the tax concession in half and sat on his hands while business R&D growth stayed in negative territory for four years—yet another example of a broken promise under this government.

One of the most obvious characteristics of this government is its capacity to fail to implement promises. Of course, this was not a position that we were ever exposed to in the election through which this government came to office. They now have the opportunity to come before the Australian people again, and I look forward to this government coming clean on these issues in this forthcoming election. I look forward to this government changing its course, going out to Yarralumla and declaring that it is time for the election. Given that this is the longest parliamentary term we have had for some years in the Commonwealth, it is appropriate that the Prime Minister acknowledges that this government is way out of time and that this is the sort of issue that ought to be discussed in the forthcoming election. This is an issue on which the government ought to acknowledge that it has failed.

Four years after that initial savaging of the system in 2000, the government commissioned a report confirming there had been both an absolute and a relative decline in Australia’s business research and development performance since the mid-1990s. Over that same period, 20 of the 28 other OECD countries for which there is data experienced a notable increase in their business R&D to GDP ratio. Over the full 11 years of the Howard government, the overall result is that the real average annual growth rate in business research and development has been a woeful 5.7 per cent, compared to 14.5 per cent for the period when Labor was in office. It is not a bad achievement to cut it by a third, is it? If Australia had maintained the same growth rate in business R&D under the Howard government that it achieved under Labor, investment would now be double today’s figures. Instead of seeing strong growth over the last couple of years, we are only now starting to catch up to the record of achievement in business R&D back in the nineties.

I contrast this with our competitors. You can see quite clearly what is happening. China, for instance, is committed to lifting its overall research and development spending as a percentage of GDP to 2.5 per cent by 2050, up from 0.6 per cent in 1995 and 1.2 per cent in 2002. China is doubling its R&D effort every seven years. The Chinese have in fact overtaken Japan as the second biggest spender on research and development behind the United States, with spending growth of over 20 per cent during the previous year. The Howard government ministers who would like to tell us about selling minerals to China and buying back cheap, low-tech goods do not seem to understand just how far and how fast the Chinese are transforming their economy. They do not seem to get the fundamental principle: China is moving up the value chain at a rapid rate. The only way we can stay ahead of the game is to play much smarter than we are now.

The last schedule of this bill, schedule 12, moves to combine the Industry Research and Development Board with the Venture Capital Registration Board to form a new entity known as Innovation Australia. Labor supports this amalgamation. It makes sense. It is a very small step towards streamlining a national innovation scheme that is now characterised by massive gaps, duplication and red tape. This proposal, though, sends two clear messages about what this government is seeking to do when it comes to innovation. The first message is very clear: the government is half-hearted. When the system needs a fundamental overhaul, we get Minister Macfarlane combining two administrative boards. Where better coordination is needed between the government and the states, the Howard government actually refuses to participate. While we are sorely in need of measures to bridge the cultural divide between the research sector and business, the Howard government has nothing to offer. The second message is that in Innovation Australia we have a clear case of mutton dressed up as lamb. Anyone hearing that name would expect a genuinely new body to drive the revitalisation of a national innovation system. If they think that, they will be sorely disappointed by this government’s inaction. While it is easy to support the amalgamation of two bodies, we need a much more fundamental policy response if we are to convince anyone that we are actually serious about innovation in this country.

This bill gives us an opportunity to reflect upon the importance of innovation to the future of the Australian economy. It gives us an opportunity to reflect upon the pretty ordinary performance of this government when it comes to innovation. It also gives us an opportunity to look again at what the world’s experts are saying: innovation will drive productivity and prosperity in the 21st century. It makes it crystal clear yet again that the current government is ill prepared to secure Australia’s prosperity for the future because it simply does not understand the fundamental importance of innovation in meeting the challenges ahead.