Lisa Singh (Tasmania, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Attorney General) Share this | Hansard source

I move opposition amendment (4) on sheet 7647:

(4) Schedule 3, page 5 (lines 1 to 17), to be opposed.

I do so as it relates specifically to a research and development tax incentive which will be reduced by 1.5 per cent, as it was from July last year. This will reduce the offset from 45 per cent to 43.5 per cent for companies with an annual turnover of less than $20 million, and from 40 per cent to 38.5 per cent for all other companies. As that is, it will preserve the relative value of the R&D tax incentive to the company tax rate, which will be cut by 1.5 per cent in July 2015—that is, July this year.

The level of R&D tax incentive is determined by the R&D rate and the company tax rate. As company tax is being reduced by 28.5 per cent, maintaining the current R&D rate would effectively increase the subsidy. Companies will already receive a benefit from the reduction in company tax and so this reduction should not reduce overall R&D expenditure, as the size of the subsidy is maintained. There is a potential timing issue, as well, with the R&D tax incentive reduction occurring one year earlier than the cut in company tax. This means that the difference between the company tax rate appears to be lower in the 2014-15 year than in previous and future years.

This potentially undermines the ostensible policy rationale for the save, which is to maintain a stable R&D reduction rate. However, companies are able to carry the R&D tax incentive forward into future tax years, which may reduce the impact of this timing effect. This may explain why the first year of this measure has a smaller impact on the budget bottom line compared to the outer years.

More fundamentally, though, when the Labor government changed the R&D tax incentive arrangement from a tax credit to a tax offset, one of the reasons it did so was to increase certainty by uncoupling the level of R&D support from the corporate tax rate. The proposed change undermines that uncoupling and raises an expectation that every time there is a change in the corporate tax rate we could see the incentive adjusted accordingly. Given that multinational companies, in particular, often need to make those periodic large investments in R&D capability to undertake ongoing R&D in Australia, certainty, transparency and international comparability of the investment environment are critical for Australia to attract such investments. It is with that in mind that Labor moves this amendment, item (4) on sheet 7647.