Bruce Scott (Maranoa, National Party) Share this | Hansard source

I rise on this Tax Laws Amendment (Research and Development) Bill 2010 and will be joining my colleagues in opposing it. It is a clear demonstration of this government’s inability to consult with key stakeholders, including small- and medium-sized businesses, and there are a couple of areas in my electorate that I want to discuss. I listened to the parliamentary secretary, and she seemed to be focusing on the very big end of town—international companies with their head offices located in other parts of the world rather than Australian companies, small- and medium-sized businesses. It is these businesses that I will focus on in my contribution.

There is a lot of confusion and uncertainty with this legislation, and that has been a typical feature that we have observed of this government. There has always been little consultation with affected stakeholders. The exposure drafts were ushered through in the weeks before Christmas and Easter, but with this legislation going through the House this week, firms, companies and businesses will have just two weeks to read and understand the legislation and how it pertains to their process and industry before the new rules come into place on 1 July. There simply has not been enough consultation, information or education about what the new rules are and how they will be applied. That is why we are asking that the implementation date be delayed until at least July 2011 so that there is an adequate time for consultation with community, particularly with small businesses and of course the key stakeholders. Industry needs that time to deal with the impracticalities and the realities of how this legislation would apply, and the legislation does need to be amended.

Perhaps the most blatant and adverse implication of this legislation is how it will erode incentives for R&D. Concerns have been raised by stakeholders that these legislative changes will be a disincentive to undertake R&D here in Australia; instead, it could well encourage a shift of R&D offshore. The dairy industry is just one stakeholder group which has voiced its concern. In my own electorate of Maranoa there is a significant dairy industry. This legislation is more about research than development and it will have a punitive impact on those companies which, through innovation, can refine and improve an existing product and make a better product. The bill limits R&D eligibility to the creation of new knowledge, which was acknowledged by the Parliamentary Secretary for Infrastructure, Transport, Regional Development and Local Government, rather than applied research and development.

Let me touch on some issues that were raised by the Australian Dairy Products Federation, a very reputable body. As you would know, Madam Deputy Speaker Moylan, the dairy industry has been through massive deregulation, but it has always been at the forefront, moving forward, and R&D has been a key factor in bringing new products to the market. I will read into the Hansard some of the federation’s concerns, as outlined in its submission to the exposure draft of the legislation:

Many different R&D outcomes are sought, for example new dairy products, new pharmaceutical applications of extracted milk factors and compounds, new processes and techniques to extract and process milk, milk by-products and fractions, environmental and sustainability driven developments, herd, pasture and on-farm development …

This occurs across a range of products including … milk powder and cheese products, products such as infant formulas and specialised products including functional food products … and cosmeceutical products. These factors will complicate the application of new concepts, particularly where uncertainty exists.

The submission goes on to say:

The use of the term ‘directly related’ is ambiguous, and potentially creates an extensive nexus. Much of the (successful) R&D undertaken in the dairy industry will eventually lead to a viable commercial outcome, most likely in the form of a new or improved dairy product, or production process/technique that leads to improved dairy products, at some stage. Often this will not be readily discernable at the time of early stage R&D activities, (i.e. the results and/or likely success is not yet known). How direct the connection with the ultimate production needs to be is unclear and requires more clarity.

That is an example of the uncertainty. An industry such as the dairy industry cannot decipher how this would apply. They understand the existing rules and they have worked with the existing rules. I put their concerns on the record. The Minerals Council of Australia wrote in its submission to Treasury on the exposure draft:

Some innovations are revolutionary; others are marked shifts in what has gone before …

Yet the government is dismissing that reality. The legislation significantly alters the definitions of ‘core’ and ‘supporting’ R&D. With its narrow definition of what constitutes genuine R&D, this bill will disqualify from assistance many forms of R&D undertaken by Australian businesses.

I would like to give an example of a small business based in Dalby, in my electorate of Maranoa, which has voiced concerns about how the change to the legislation will affect its R&D projects. Dingo Australia is a privately owned manufacturer that has designed a very impressive mini-digger, the Dingo, that is sold not only in Australia but in many markets around the world, from the Middle East to North America. It is a product that has been developed through R&D in the town of Dalby. In its submission to Treasury on the first exposure draft of the legislation, Dingo used an example of a specific R&D project for putting tracks on the Dingo machine that would have qualified for the tax concession under the current legislation. The project involves innovative design amendments and testing to ensure that the product can perform in different conditions. It is important to be able to test a product before it is put onto the market—but even before you get to the test stage you have to do the R&D to see whether the innovation will work on the product in a practical sense. However, because it is not really considered ‘novel’ or ‘new’, it may be excluded from the assistance. The Dingo company has been in operation for 20 years and has produced over 7½ thousand machines in various forms. The machine has progressed over the years. Dingo has refined and developed it using R&D to create a safer and more efficient product that is very widely sought.

But they have not stopped at that. It is just like the modern motor car. Manufacturers have not stopped developing the piston driven engine. Look at Toyota. It received R&D money from this federal government to produce a hybrid Camry here in Australia. I think the technology was developed in Japan, so the money went to Japan. The car may be manufactured here, but the R&D work was done offshore in another country. Dingo Australia, in Dalby, employ 90 people. When you consider the multiplier effect of 90 people, you have another 500 or 600 people who are employed because of those initial 90 jobs. Dingo have relied on investment in R&D. They spend something like 2½ per cent of their annual turnover on R&D.

The other point they raised with me was that, with a turnover of $28 million, they regard themselves as an SME—a small and medium enterprise. The limit of $20 million on a small- and medium-sized enterprise they say is a joke and should be increased to at least $40 million. As I said, they are a small company that employs 90 people. There should be a distinction between a publicly listed company and privately owned companies with a turnover of less than $40 million. That is a classic example in a rural community of people with an idea putting it into a product and employing local people. They have been successful for 20 years. They are genuine in their concern about this legislation. It does require more time for consultation with key stakeholders.

That is just one example, quite apart from the dairy industry’s concerns—and we all know just how the dairy industry has been under a lot of pressure from imports, particularly from New Zealand. Let’s make sure we keep our dairy industry at the forefront of new R&D and make sure that we in Australia, through our dairy farmers, are at the cutting edge of research and leading that research to make sure we stay in front of the game.

So I put it to the minister: this legislation does not need to be rammed through before 1 July this year. Many of us on this side of the House see it as nothing more than a revenue grab. We should be making sure that industry has time to consult and put their points to the government. It is, after all, the businesses that take the risks. Let us make sure we encourage innovation and let us make sure we encourage Australian companies to be the innovators. Let us ensure that the benefits of this tax concession go to these Australian companies that are going to do that research right here in Australia so that we own the research and those companies are able to make sure that the products they make are not only competitive and more innovative and meeting a market need in Australia but also have the potential to be exported and be at the cutting edge always against our competitors who would want some of the markets that our exporters have been so successful over many years in getting a foothold into.

In conclusion, I will be supporting my colleagues on this side of the House calling for more time and more consultation with the industry and key stakeholders. As it is drafted, I cannot support this legislation and I will be voting against it when it comes up for a vote today.

See this speech in context