Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Hansard source

Projections are certainly projections, and now the minister is saying to us that he has relied upon these experts, who have never once got it right in 20 years, to now tell us that you have done this modelling which will produce a particular result. He cannot even tell us the number of firms that are directly affected, and he says, in the broadest of terms, it might have the same impact as our original intention. He further goes on to say that it is exactly the same as what the Labor Party wanted to do. Of course that is not true and the minister knows that is not true. The Labor Party was developing a jobs package—over $1 billion worth of expenditure, investing in jobs in this country, which those opposite have scrapped. That is a point that the minister chooses to ignore.

I come back to the central proposition: Minister, will you table the modelling. While you are there, there is this other subsidiary argument that Treasury have been running for some years. As the minister says, I have some interest in this matter. When I was minister they did run this same modelling. It is not the argument you will find, of course, in other parts of the government—when you talk to the Department of Industry you will get an entirely different perspective. People who actually have to deal with enterprises and understand the importance of incentives in developing our industrial capabilities in Australia will take an entirely different view. The government maintains that large firms will invest in R&D regardless of whether or not they can access R&D incentives, but this is a well-furrowed field. The argument is flawed. There is evidence that smaller firms are more responsive to R&D tax incentives, but that does not equate with the alternative proposition that large firms are unresponsive. There is also evidence to suggest that large firms are able to make more effective use of incentives. This is historic evidence that, Minister, if you had more understanding of this issue you might appreciate. The evidence demonstrates that large firms are influenced by R&D incentives and the removal of those incentives risks having them offshore their R&D activities. That is what this government is really good at. One of their great achievements is exporting jobs, and this is another example of it. This is about how you export jobs. This is a government that takes the view that it does not matter what investment attractions you offer because the firms by divine right will come here. We know that is not the case.

International studies have demonstrated that firm size and R&D incentives are directly linked. R&D credits are effective in increasing R&D investments especially in large firms. Kroger in 2003, for instance, says that R&D tax credits are a great stimulus for R&D investment in large firms as compared to medium-sized firms. That is the point that has been made throughout the OECD literature. The Australian ABS highlights this—it demonstrates a clear link between changes in R&D incentives and regimes and large business investment in R&D. The historic evidence here is very clear, because the same sort of Treasury dogma was accepted in 1996 when there was a previous Liberal government. The concession was reduced from 150 per cent to 125 per cent. As a consequence, R&D investment fell by 9.6 per cent—for large firms much more dramatically than for small firms. It was particularly important in the finance and insurance sectors. In 2001 the premium tax concession was introduced, encouraging increases in R&D investment. That was under a conservative government. Inevitably what will happen is that there will be a swing within the coalition at some point towards understanding that you have to correct the error of your ways on this issue.

That is the historic pattern. Between 2000 and 2002, large firms increased R&D investment by 43 per cent—much more dramatically than small firms increased their investment. R&D investment by large firms is particularly important in the finance services sector. Studies undertaken in other countries argue the same point. The Australian Innovation System Reports have highlighted this. They say that this is an initiative we took to ensure that this sort of data was collected. That is not something you will see from the Treasury, but it was material that we did see through the department of innovation. That showed that:

SMEs are lean innovators, accounting for a very small share of total investment in innovation, and are much less likely to generate new-to-the-world innovations. By contrast, large Australian businesses make up the majority of total investment in innovation, are much more likely to collaborate with the research sector and generate new-to-the-world innovations.

That is in the Department of Industry's Australian innovation system report 2013 that I have here.

A survey conducted by the Australian government in 2005 found that large firms have the strongest focus on radical R&D, which involves costs with an order of magnitude higher than adapted off-the-shelf technologies when carrying out incremental R&D as typically undertaken by smaller enterprises. That information was found under your government, Minister. That was in The R&D Tax Concession—impact on the firm: report on a survey of 116 firmsdone in Canberra in October 2005.

The OECD 2011 International experience with tax incentives report looked at the effect of R&D incentives on the choice of location for R&D by multinational firms. Analysis of the data and R&D activities of multinational enterprises suggests that the growth rate of R&D by affiliates of multinational enterprises is higher in countries providing an R&D tax incentive than in those countries that do not offer such schemes. That again suggests that the decisions of multinational enterprises in conducting R&D in a particular country are correlated with the availability of tax incentives in that country and other potential destination countries. It is clear that when having two or more similar location alternatives, especially when such competition occurs within the region, government incentives tilt the investment decisions. The OECD 2011 report says that a study on US investments by US firms outside the US demonstrated that the R&D incentives were a driver to encourage investment outside the US.

Another report asks:

Are US tax incentives for corporate R&D likely to motivate American firms to perform research abroad?

The report results provided evidence that countries with tax based incentives for R&D and higher annual increases in R&D investments had more foreign affiliates of US firms than countries without such an investment.

When the changes to the R&D tax proposals were announced by this government, the French minister for innovation stated they had a competitive advantage and encouraged companies to invest in her country instead of Australia. She was directly pinching French firms and encouraging them to get their investment out of Australia and move it into France.

I am making the point to you, Minister, that you have misjudged this completely. This ideological obsession you have with reducing expenditure actually costs this country jobs. It costs opportunities. It undermines capabilities. You are expert at exporting jobs. You are exporting Australian jobs because of your obsessions and your dilettante behaviour in adopting the Treasury advice when all the evidence points to how wrong this approach is internationally and how the approach taken in this country where you are now seeking to repeat these mistakes will have to be changed again. I come back to the question: where is this modelling? When are you going to produce it?