Kim Carr (Victoria, Australian Labor Party) Share this | Hansard source

The Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019 is a bill that gives us an opportunity to actually canvass some of the issues that are facing the country—the state of the economy and the extraordinary con job that was done throughout the last election. In the election period we saw arguments put, particularly by the Liberal Party and the conservative press, the right-wing press, in this country, that suggested that if the government were re-elected the economy would remain strong, the jobs would flow, and milk and honey would be on the table for every voter in every marginal seat in the land. Not for the first time the reality has mugged this fantasy, as we notice that the national accounts, which were released last week, demonstrate the weakness in the Australian economy.

The Treasurer sought to celebrate a very different world, a world in which the Governor of the Reserve Bank, Dr Philip Lowe, has tried to draw our attention, on numerous occasions now, to the real and dire situation—that the Reserve Bank simply cannot carry the load that's being asked of it and act almost on its own to try to reflate the economy. We've had a growth rate of something like 1.4 per cent over the last 12 months. We have wages stagnating, 1.8 million Australians looking for work and wanting more work but unable to find it, living standards going backwards and productivity going backwards. We've got Dr Lowe telling us that more needs to be done to avoid a very serious financial and economic situation in this country.

Instead we had the Treasurer last week telling us that we need to adopt Labor's policies in regard to business investment, but of course not until May next year. The Treasurer talked about how important it was for the business community to lift their game in terms of investing in the future of the nation. He said that it had to be done with the government doing very little, other than a rhetorical flourish, suggesting that after May next year there may be some assistance with some accelerated depreciation programs, which he pinched from the Labor Party. But other than that he wasn't going to do anything that might in any way endanger the blessed surplus.

This is a situation where the government is faced with circumstances where the Prime Minister himself has sought to lower expectations. He's told ministers they're not to comment or raise matters; they're not to take forward any new agenda items. They should only deal with matters discussed in the election campaign, which of course gives them very, very little to say—very little indeed—because the government has no substantive agenda to speak of and said very little during the election campaign.

I'm particularly interested in the Treasurer assailing the business community in what was a rather clumsy effort. The last iteration of this bill, the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill—which is an ironic title for a bill—had significant measures to deal with what the government saw as its R&D policy. That has now been removed from this bill. The Treasurer last week told his audience that business had to invest more in innovation to boost the economy. This is coming from a government which has taken $1.1 billion, in real terms, from science and research and innovation programs over the last five years. That's a reduction of 10 per cent in government outlays, in real terms, for support for innovation. In the last three financial years, on the government's own targets for business expenditure on research and development, we've seen a reduction in private sector investment of $5.3 billion—a cut of 30 per cent.

The Treasurer may well berate business. But, when it's the government that has so little to say about the future directions of the country in regard to its investment policy and so little to say in terms of the future of science and research and innovation, other than to reduce the government's budget in real terms, it is beyond galling to suggest that it's business that has failed. Despite the Prime Minister's urging that nothing should be said, the Treasurer has gone out with this half-baked, half-arsed measure to suggest that the business community is somehow or other going to fix the problems that the government itself has created with its do-nothing policy. In fact, it reflects the chaos that really characterises the way in which this government has operated.

The 2018 bill, which of course is the predecessor of the bill that we're now looking at, set up a Research and Development Tax Incentive Roundtable with industry associations. The roundtable was supposed to fix the problems that had occurred as a result of previous budgets in terms of reductions in spending on research and development. The government made it clear by their attitude that what they had in mind was not to make the incentive programs more effective but the effect of the reductions. They were, remember, reducing the incentive by $2.4 billion. The Parliamentary Budget Office showed that the real effect of the reduction in business activity, as a consequence of the government's policy position, was that it was down to $1.7 billion, and the government can't achieve those savings because to do so would further antagonise the business community. Yet the government, through the Treasurer, now wishes to berate the business community for not spending more on research and development.

I think it's only fitting that we give consideration to why the business community, particularly the tech sector, was so upset with the government's policy fiasco in this area—the ill-considered changes that it had proposed some time ago. There was a $4 million cap on annual refunds for firms with a turnover of $20 million or less. There was a proposal for the reduction of the refundable tax offset to a company's tax rates for the year plus 13.5 per cent. There was an intensity measure, which had really sharp effects on manufacturers in this country. Now, all of these changes, especially the intensity measure, were heavily contested from the time they were announced in the 2018 budget. The firms that invested or wanted to invest in research and development saw immediately what the consequences of this action would be. The most likely effects of the changes would have been that large firms would shift their research and development offshore and that small firms would cease their research and development.

The public debate on these earlier measures highlighted poor compliance and program management issues. The government thought the way to deal with this question was to clamp down on what they saw as the rorting of the system. Of course they overstepped the mark there as well. Firms found themselves being audited and being asked to repay funds which had previously been approved. Some of these audits went back years. No-one in the Labor Party, certainly not in my time or in my direct experience, is prepared to defend people who are illegitimately claiming moneys. We have to defend the integrity of the taxation scheme. There is no excuse for the rorting of the program. But we shouldn't try to find budget savings by cracking down on what were previously regarded as bona fide claims under the research and development scheme. And we shouldn't ignore the fact that the government's own review, the so-called three Fs review, suggested that there needed to be a fundamental reassessment of the way in which the research and development program in this country operated, and that the incentives that were offered to encourage a high level of collaboration between firms and our research agencies and universities needed to be addressed directly. This was the issue the government needed to pay attention to—not the side issue of claims on software development, as if that was the fundamental issue the nation needed to have addressed in terms of research and development. What is actually required is a major cultural change in the way in which this country deals with issues of research and development.

That's why in the last election—and for many years now—the Labor Party committed to a target of lifting spending, in terms of our research and development, to three per cent of GDP. The current rate is around 1.8 per cent. I understand—we'll see some figures from the ABS coming out within a month or so—it's likely that figure will show a further drop in the level of performance for our research and development capacity in this country and this will put us at the bottom end of our competitors internationally when it comes to the issue of developing research and development opportunities in this country.

The issue here then is not just what it costs in terms of the budgetary measures in regard to the incentive program under the research and development programs in this country—and I made this point on previous occasions—but that it is now the single largest policy instrument we have available within the innovation toolbox in this country. So it is appropriate that adequate consideration be given within parliamentary debate to the directions in regard to research and development in this country. This particular policy measure, the taxation concession, is the most important of all the instruments we have available, whether it be funding through the CSIRO, funding through the Australian Research Council, funding through the NHMRC or even funding through our block grants in universities. This is becoming an increasingly important area for us to be considering.

This is a government that gloats over having legislation to cut taxes but won't look at these issues that are of much greater substance in terms of the future direction of the country. It's a government that gloats about its economic performance where wages are stagnating. We have a situation where the Reserve Bank has made it very, very clear just how dire the situation is. It is a situation where the CSIRO and NAB in their Australian national outlook report, the academic and financial institutions and the Productivity Commission—of all organisations—have all made it incredibly clear how important it is for the government to actually invest in the research and development capabilities of this country. Lately the commissioners have sounded the alarm bells about the future of the economy when it comes to our scientific capabilities.

We have a situation where this government has fundamentally failed the future. The question of how we adapt to technology and how we're able to transform the way we live, particularly in an industrialised country such as ours, is really quite basic to the future prosperity of this nation. And, of course, this goes to the heart of why we should be investing in research and development. The decline in our global competitiveness has a direct correlation with the decline in our research and development capabilities and our research and development spending.

In June the IMD ratings of global competitiveness rating were released. These ratings are Swiss based but have global significance. IMD ratings are based on a comprehensive notion of competitiveness and they measure the extent to which a country fosters an environment in which enterprises can achieve sustainable growth, generate jobs and increase the welfare of citizens. Now, in 2010, Australia ranked fifth out of 63 economies. It now ranks 18 on overall economic performance. The IMD ranking was not the only measure that should disturb us. The Harvard University produces an economic complexity index which assesses the capacities of countries to produce unique products and services, based on trade data. Economic complexity is important because it has been shown to be an effective predictor of future economic growth. The Harvard index shows that Australia is losing its relative capacity for producing unique products and services. In 1995 Australia was ranked 50th. In 2017 it had fallen to 93rd. In the Harvard index ranking, the countries with the most complex economies are, in order: Japan, Switzerland, South Korea, Germany and Singapore. Other notable countries are the United States at 12, Italy at 13, the UK at 14, France at 16 and China at 19. Australia is not in the company of any of these countries.

The index places us in a group of countries that includes Madagascar, Zimbabwe, Cuba and Zambia. These countries record the fastest decline in economic complexity. There's a clear message here, and that's about decline in our manufacturing capacity and, with it, the extraordinary number of jobs we are shedding. Without new investment in manufacturing, particularly advanced manufacturing, we will not be able to diversify our economic base.

This is a very grim outlook. The Australian Outlook 2019 report released by the CSIRO and the NAB highlights a similar pattern in regard to the innovation challenges for Australia. The report declares:

Solving Australia's greatest challenges with the help of science and technology has never been more important—for our quality of life, for the economic health of our nation, and for our contribution and position in a globally competitive world.

The report warns that if we are not thinking strategically about Australia's future we face continuing wage stagnation, rising energy costs, environmental degradation, declining urban amenity, fewer government services and no action on climate change. Thinking strategically means, among other things, reversing the decline in investment in research and development. The outlook report says that Australia is very much at the crossroads. We can choose between continuing the slow decline and having a positive and more innovative future.

The dangers have been apparent since the Abbott government began the dismantling of Australia's innovation system in the 2014 budget. That's why Labor's election goals stated very clearly, when Bill Shorten outlined our position in response to the 2014 budget, the lifting of Australia's spending on R&D to three per cent of GDP by 2030. That's why we would have instituted a root-and-branch review of the entire Australian research system. That's the kind of strategic thinking that economies with a diverse economy and with superior growth prospects know they have to have. It's the kind of thinking that is simply not happening under this government.

In the previous version of this bill the government bungled its biggest opportunity to turn around the level of investment in research and development. Every country with which we are likely to compare ourselves understands why the government should create incentives for business to engage in research and development, and that's why the Treasurer's intervention last week was so inept—so extraordinarily half-baked. If the Australian economy is to thrive, the government should adopt measures that will increase investment in research and development. The government should start to fix its mess by looking again at the collaboration premium that it chose not to include in this version of this bill. It must build a stronger cultural collaboration and make that a priority for the future of this nation.

We need to be able to transform attitudes to innovation in official policymaking, let alone on the shop floor. We have to choose a better path and we must do it with a sense of urgency. The lives, the livelihoods and the real economic opportunities for Australians depend on getting that choice right. This Treasurer is so busy fighting with the Prime Minister that he's missed that very basic point.