Chris Ketter (Queensland, Australian Labor Party) Share this | Hansard source

I rise this evening to speak against the Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015. I make the observation in commencing my contribution that today is a historic occasion in that Mr Turnbull, in the other place, has decided to announce a challenge to the Prime Minister. I noted in watching Mr Turnbull's statements that one of the grounds which he is relying on to support his candidacy for that position is the fact that this is a government which is not displaying economic leadership and it is not able to demonstrate that it has anything in the way of economic credentials. That is quite relevant to the bill before us because there is no other example of a government which has a very short-term approach, a myopic approach, to economic management. This is a classic example of putting short-term savings against the prospect of longer term growth. We know how important long-term growth is for the jobs of the future and our economy. We know that the real purpose behind this particular bill, as Senator Collins indicated in her contribution: to scrounge savings in the area of the R&D tax offset of something like $810 million over the forward estimates. We know from various stakeholders in this area that this move is going to impede growth, and that is one thing that we cannot afford to do with the economy of this nation.

Tonight I begin my contribution with respect to the research and development tax incentive. I feel very strongly about this and I call on the government, whoever is in charge as of tomorrow, to review its position in relation to this important matter. As other contributors have indicated, these are identical measures before us today which have already been defeated in the Senate once before, on 2 March this year. In our view nothing has changed to warrant a different conclusion coming out of consideration of this bill. I urge the government to listen to the business community and other stakeholders in this area. The government seems to operate on the mythology that it has superior economic credentials. It really does have a tin ear when it comes to this particular matter. If it does not review its position in relation to the R&D tax incentive in particular, I believe that this government will be condemned by history for these acts of economic vandalism.

I will make general observations about the R&D tax incentive and the importance of it. It goes to the fact that, in advanced industrial economies, innovation is the principal driver of increases in productivity. Firms that innovate are more competitive and can sustain more highly skilled and highly paid jobs. Tax incentives are one of the most effective tools available to government for stimulating an attractive investment in innovation. This is something that we heard from witnesses to the Senate Economics References Committee inquiry over and over again: the significance of the R&D tax incentive. This investment in turn is critical to developing dynamic and highly productive industries able to compete at the top of the global value chain. Of course, the R&D tax concession is something that Labor introduced in the 1980s, making Australia one of the first countries in the world to foster innovation through the taxation system. We updated the scheme in 2011 and the positive effect of the new measure was almost immediate. The R&D tax incentive was a landmark reform building on Labor's record of investment in innovation and R&D.

The most pressing concern for stakeholders is the increasing uncertainty that the measure before us today will create for the business community by actively discouraging investment in R&D. This is precisely the situation that the Labor government was trying to avoid when it introduced the R&D tax incentive, making it independent of the company tax rate. The uncertainty and policy inconsistency created by the proposed change cannot be overstated and concerns about the impact of this change on R&D investment in Australia are repeated in almost all of the submissions to the Senate Economics References Committee. Ernst and Young, for one, noted:

This type of inconsistency can discourage R&D investment by both small and large companies within Australia.

KPMG noted:

The rate reduction limits companies’ ability to plan their long term R&D investments.

KPMG went on to say:

Through its conduct, the Government is actively dissuading companies from doing R&D in Australia.

It is absolutely mind-boggling that we have a government which wants to go down this path.

Labor understands the importance of innovation to our economy. In Mr Shorten's budget reply speech, the following points were made:

Innovation offers opportunities everywhere: smarter farming and safer food, more livable cities and better transport.

New ways of learning from each other, working and communicating with each other and caring for each other.

It is the key to the jobs of the future, the jobs that a Labor Government will deliver.

Mr Shorten said that Labor sees the future as 'one defined by science, technology, education and innovation'.

There are a number of reasons in particular why I oppose the changes to the R&D incentive. Firstly, there is the point that I made briefly about the ongoing uncertainty and inconsistency which discourages firms from investing in R&D. This is in addition to the recent tinkering that has happened to the incentive under this Prime Minister, the changes which included the $100 million cap, which was passed, the reduction in the rate, which has not been passed, and reviews through the tax white paper and flagged in the government's response to the Boosting the commercial returns from research discussion paper. All of these announcements add to the uncertainty in this area.

Secondly, we are talking about a government which is proposing to punish business, particularly small to medium enterprises, that rely on a permanent and stable R&D tax incentive in order to invest in R&D. Recently AusIndustry data shows that over 70 per cent of firms accessing the incentive are SMEs and over 30 per cent of companies accessing the incentive are manufacturing firms. Thirdly, another reason for opposing goes to the fact that the changes discourage investment in innovation at a time when we need it most by reducing the benefit for R&D and the development of new technologies.

Fourthly, the measure ignores the importance of government leadership in investment and in innovation and R&D, and I place on record here Labor's latest commitment to devote three per cent of GDP to R&D by the end of the next decade. Fifthly, a further reason is that supporting the measure would significantly undermined Australian R&D and investment in innovation, science and research, damaging our reputation, especially in the business community. Finally, I would also argue that the measure is highly retrospective and would apply in the income year commencing 1 July 2014.

It is not just Labor talking about the damage which these measures will cause. A number of witnesses in the Senate Economics Committee inquiry provided significant submissions, and I know that Cochlear has already been referred to. Cochlear Ltd is a significant company, a top 100 ASX listed company focusing on research, development, manufacturing and distribution of implantable hearing devices. This is a company which says that it is very concerned about the reduction in the rate of the R&D tax incentive for companies that actively seek to improve Australia's economic competitiveness. They say the proposed reduction is the equivalent of a 10 per cent cut for small companies and a 15 per cent cut for large companies, and Cochlear has skin in the game here. They typically spend in excess of $100 million on R&D annually, but they do ominously make the point that this will need to be reviewed in light of recent measures to cap eligible expenditure at $100 million. The proposed changes to the R&D tax offset rate will be a contributing factor and an important consideration in Cochlear's decision to continue to grow its R&D investment in Australia, and they make the point that a reduction in the level of R&D undertaken in Australia will result in reduced employment and reduced corporate and individual income taxes.

The business uncertainty here is very bad news for Australia. I also note the contribution made by KPMG who have stated: 'We are concerned that the proposed reduction counters the global trend to increase R&D investment as a way to boost economic growth and jobs. For example, Hong Kong, Singapore, Italy and France have all increased R&D incentives in recent years.' They went on to state: 'Faced with a reduction in support by Australia and increased support in other countries, many companies will rethink doing R&D in Australia. Ultimately, a reduction in the level of R&D undertaken in Australia will result in reduced employment and reduced corporate and individual income taxes.'

Another company which made a submission was AusBiotech. They expressed bitter disappointment at the government's move to reintroduce legislation to cut the R&D tax incentive. They have urged the Senate to reject the legislation. I believe that perhaps Dr Anna Lavelle has already been referred to in previous contributions by senators this evening. She has stated:

While this cut and its flow-on impact may appear small or inconsequential, it will specifically disadvantage small pre-revenue and start-up companies, which runs completely counter to Government rhetoric and indeed the policy intention of the R&D Tax Incentive.

She goes on to make the point that:

… the constant threats and tweaks to the R&D Tax Incentive are unsettling for biotechnology developers and undermine business confidence at a time Australia can least afford to falter.

These very important companies in this area of research and development are all coming out and opposing what the committee is proposing to do. CSIRO, unsurprisingly, has also made some comments in relation to this matter. It has made the point that only 30 per cent of Australia's R&D workforce is employed in industry, which is very low by OECD standards and compares particularly poorly with innovation powerhouses the US and Japan who have almost 80 per cent of their R&D workforce in industry. It made the point that this low percentage not only limits the ability of Australian industry to undertake its own R&D activities but also limits business-to-business collaboration and business-to-research-organisation collaboration. These changes can only further exacerbate the problems that the CSIRO has already identified.

I want to leave consideration of the R&D tax incentive at that point and focus the remainder of my remarks on the other aspect of this bill, which is the proposed abolition of the seafarer tax offset. It is important to note—and Senator Ludwig has made these points—that, when in office, Labor understood that the Australian shipping industry had been in a state of decline. We noted that under the Howard government the number of Australian-flagged vessels working domestic trade routes had plunged from 55 in 1996 to 21 in 2007. So we introduced these changes to revitalise the Australian shipping industry. This followed the unanimous recommendation of a 2008 parliamentary inquiry and an extensive consultation program with all stakeholders between 2010 and 2012. Our aim was simply to support the ability of the Australian shipping industry to compete within its own borders.

This measure has been operating for a relatively short period of time, but it is very important for our national and security interests to revitalise the Australian shipping industry. We are an island nation. We have one of the longest coastlines in the world. One tenth of the world's trade goes to or from Australia, and we have the fifth largest shipping task in the world. The object of the seafarer tax offset was to stimulate opportunities for Australian seafarers to be employed or engaged on overseas voyages and acquire maritime skills benefiting employers of Australian seafarers. The measure was a direct benefit to employers, providing an offset for tax paid by the employer when employing Australian seafarers engaged in international trade. It assisted in equalising the relative costs of Australian seafarers with the costs of foreign seafarers, providing an incentive to employ more Australians than otherwise would occur.

It is significant to note that the Senate inquiry into the abolition of the seafarer tax offset received no submissions supporting its abolition. There were a number of stakeholders involved, including Maritime Industry Australia Ltd, formerly known as the Australian Shipowners Association, Shipping Australia and the Maritime Union of Australia. The Australian Shipowners Association made the point that:

The Seafarers Tax Offset was a key element of the 2012 reforms which helped to reduce the operating costs of Australian vessels, increased the competitiveness of Australian shipping and provided significant opportunity for employment of Australians in international trades … the impact [of abolition] is severe with regard to future opportunity.

This government is attempting to abolish the seafarer tax offset barely two years after it was introduced, without giving it the opportunity to effectively develop and expand Australia's maritime skills base. We note that the MUA has also made submissions in relation to support for the seafarer tax offset. They have drawn on research which demonstrates that other countries around the world have for some decades adopted fiscal and other measures to address the adverse effects of foreign competition on their national shipping fleets.

This bill deserves to be defeated yet again. It is a terrible waste of the Senate's time to be considering a measure which is so short-sighted in its approach, one approaching the category of economic vandalism. I urge the Senate to reject it.