Trish Crossin (NT, Australian Labor Party) Share this | Link to this | Hansard source

The Committee is considering government amendments (1) and (8) on sheet CJ260.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise to comment briefly on the government amendment relating to quarterly payments. This came up in the roundtable and the Greens were able to negotiate with the government on finding a way to overcome a lot of the difficulties with this legislation. As I indicated in my speech on the second reading, I think the roundtable was extremely effective and successful because it enabled a number of stakeholders who had been arguing over this for many years to come together around the table with represen­tatives from the minister's office and repre­sen­­tatives from a number of different gov­ernment departments. They could sit down and try and work through the outstanding issues and how we could move them forward.

In the course of that, one of the representatives at the roundtable, Anna Lavelle from AusBiotech, mentioned that the main impediment or difficulty for small business and one thing which they would really appreciate being addressed is cash flow. If they could get quarterly payments, that would make an enormous difference to the operation of those particular companies. Of course, AusBiotech has something like 3,000 small- to medium-sized enterprises as members. After many follow-on discussions with the government we were able to reach a point where this could be implemented. I am very pleased to see this government amendment, which we are supporting. I am sure it will be extremely welcome to small businesses throughout the country. As I have indicated in this debate, if we are to be a country in which imagination is the resource of the century—where productivity and innovation drive the productivity gains we must have—it is going to be the result of some of those incredibly innovative small businesses that at this point are quite strapped for cash. In a lot of cases they just manage to get by. We need those enterprises to be able to access R&D funding.

So I thank the government for the cooperation it has shown in working through this particular measure. I am sure it is going to be a critical component of the legislation for small business. I look forward to the review in a couple of years time to see whether it has delivered in the way we hope it will over that time frame. Again, I think this amendment will be critical to the success of the bill in making sure we get the R&D funding going where it is needed—to those small enterprises—in a way that assists them in doing business. I think they will really welcome the quarterly cash payments.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

It is interesting to hear Senator Milne talking about how cash strapped some of these small enterprises might be and how important this amendment is, but it is also interesting to note that the amendment does not take effect until 2014. If these small enterprises are so cash strapped and if it is so important to make funding available to them, why is this measure not taking effect until after the next election?

The opposition is quite sceptical about how this will work in practice. In particular, given the complexity of tax law, it is probably more likely to increase the adminis­trative burden and the administrative risks and problems for small business and will more than likely increase compliance costs. So while Senator Milne extols the virtue of this measure, I think there are some traps on the other side. The fact that it does not come into effect until 2014 is quite pertinent. If these businesses are so cash strapped then this measure should be introduced immediately rather than in 2014, after the next election. Effectively, this is a process of the Greens and the government trying to make themselves look good, particularly to certain sectors of industry. The reality is that there is nothing immediate about this. It does not happen straightaway; it does not happen until after the next election.

Senator Milne talks about these small enterprises and the importance of their innovation. During the winter break she made a comment that 100 of the largest companies take 60 per cent of the total funding of the current R&D tax concession scheme. This portrays a complete lack of understanding. I made the comment during the second reading debate that this is not about a capped fund or a capped scheme that people can or cannot access. This is a tax rebate scheme, so it is uncapped. If people qualify, they qualify; if they don't, they don't. Making assertions around who gets what and why just shows a complete lack of under­standing of the mechanisms at play here and portrays in the public arena a perspective that does not actually exist.

We have seen a lot of discussion in the R&D community about this, particularly in the manufacturing sector in relation to what the impact might be for manufacturing. Deloitte said, on 1 February last year, that average claims would fall by between 50 and 80 per cent. As we have maintained all along, this is about constraining access to this R&D tax process with the introduction of the new definitions and the purpose test. So we continue to have concerns about the way that this mechanism has been designed, the way that the government has gone about this process and, as I said at the outset, the completely disjointed way that the government has managed this piece of legislation right from the day that it delivered its first and second exposure drafts. Nixon Apple from the Australian Manufacturing Workers Union, a long-time trade unionist, said back in February 2010 when this process was partway through that, 'These laws will decimate support for R&D in manufacturing.'

When we are in circumstances such as these, where we have seen the devastating announcements over the last week from the manufacturing sector and concerns about what might be happening, and the govern­ment is going through with these measures, including the introduction of a carbon tax which is just going to make the burden on the manufacturing sector even worse, we really wonder about the govern­ment's overall policy perspectives. As I said yesterday, the government says it wants to do one thing but its actions belie that and seem to take it in another direction. We do not support these amendments as they are structured basically because, if the government and the Greens genuinely think that small enterprises are as cash strapped as Senator Milne said they are, these measures should not be introduced after the next election in 2014; they should be introduced much sooner.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I thank senators for their contri­butions. As Senator Milne has indicated, this has arisen as a result of discussions. The government are not frightened of acknow­ledging that we are in the business of actually discussing issues of this complexity and importance when we want to develop new initiatives. This is a scheme that in the 1990s was attracting less than $300 million per annum in terms of support. It has now gone to a position where we estimate in the next financial year it will require support from the budget effectively of $1.8 billion per annum. This is a scheme that has attracted some 8½ thousand registrations for the overall operations of the R&D system in this country. Some might say that is a high number. I take the view that, given the number of firms we have in this country, which is well in excess of two million, 8½ thousand firms is a very small number.

The aim of this project is to get more firms to invest in themselves. We have seen that it is all too often the case that small firms, who are understandably preoccupied with the day to day, do not necessarily think about the implications of not investing in themselves. What we have tried to do with this program is double the level of support for small- and medium-sized enterprises to actually give financial incentives for businesses to invest in themselves. We have also increased support for large firms by an additional one-third.

This is not about reducing the level of investment in R&D. On the contrary, it is about expanding it. Senator Colbeck is quite right: this is an uncapped scheme. It is actually about building support and changing the culture of business in this country so as to ensure that there are higher levels of investment in R&D. The difference is that we cannot allow to go unchallenged the pattern of development that has occurred in recent years. The reason is that inappropriate claims and rorting of the taxation system have a serious detrimental effect on our capacity to administer sound government programs. We have occasions where large financial institutions have claimed their entire computer system as R&D. It is just not appropriate that that type of activity continue, because it will bring into question the authority and credibility of the whole scheme. In parts of the resources sector people are claiming the entire project—billion dollar claims—for R&D through the system, including roads and the walls of mines and projects that involve R&D on mining shafts. They claim materials removed from mine shafts and sold as R&D. That is just not on.

Senator, you made reference to 100 firms securing 60 per cent of what is the equivalent of $1.8 billion per annum. It is not the fact that there are only 100 firms; it is the fact that the 100 firms get 60 per cent of the benefit. They understand that. By the way, the claims of those 100 firms are controlled by four accountancy companies; hence, there has been this concern raised in some accountancy firms that they will now have to change their business model. They are anxious about that.

We say, 'Go out and change the way you do business; get new clients because we want to see more and more people invest in their own future and invest in R&D.' The accountancy companies will have to actually do their job properly. They might have to change their approach. This is one measure that came about as a result of the conversa­tions in three rounds of the consultation process involving over 700 companies. We were very concerned that there was proper discussion and proper consultation with real-world practitioners with a change of this importance and this was one scheme that came forward.

You raised a legitimate question: why have we waited till 1 January to introduce the quarterly payment aspect? That is on the advice of Treasury. That is how long it will take them to get their administrative systems in place. That is not to say that firms will not get the additional benefits; they will. It is just that they will not get the cash quarterly payments arrangements, but they will get the additional benefits provided by this legislation. Businesses will be able to choose whether from 1 January 2014 they continue to claim the research and development tax incentive at the end of the income year in which the research and development is undertaken or they apply for the quarterly payments that would deliver the benefits in the income year that the company undertakes the activities.

The quarterly credits will allow small and medium sized enterprises to choose an option which is best suited to their business conditions. This effectively means that providing quarterly credits will be deter­mined in the light of the experience with the operation of the new R&D tax incentive. Consequently, these amendments provide for the regime to be implemented through regulations. The amendments demonstrate that the government has in fact a clear commitment that a quarterly credits regime is to be part of the new incentive arrange­ments based on the real-life experience of firms participating in it.

I also put to you once again the assurance that we have built into this legislative framework of the review process through the R&D tax board. I have genuinely put that forward because I am concerned that, if people have issues about the way in which the administrative practices are undertaken, there is a process already built in to allow voices to be heard, ensuring that the policy intent is reflected in the administrative practice. With that, I trust the chamber is able to agree to these amendments.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

I was not going to speak again, but I just have to make reference to the examples that Senator Carr gave in respect of claims made under the existing mechanisms for R&D. He talked about the mine and he talked about computer systems. We went through all this at estimates. At estimates we discovered that something like 24 or 28 significant claims had been made. They were all being investigated. It was acknowledged by everybody involved that they should not have been. It is the difference between a claim and a successful claim. We understand how this process works. There have been shots at industry about rorting the system. These claims were not eligible. It has been recognised and acknowledged across the board that these things should not have been claimed. The government is actually dealing with that through its processes. They are being investigated. There is this slinging off at industry. We accept that those claims should not have been made. If you are out there genuinely trying to help people and work on things, that is fine. But let us not have this slagging off at industry. Okay, they have done the wrong thing in this particular case, but it is being dealt with. It should not have qualified under the existing rules, but it was being investigated and managed.

Rather than slinging off at people, let us get on with the process. I would not have been provoked to make a further contribution but we did sit down—and people can go back and review the Hansardduring the estimates process and have a pretty good go at this. We spent a fair bit of time talking about these issues. We had a few moments of agreement even, which was amusing at times. We have looked at this in a pretty genuine way and I do not think it is helpful to go back over things that were well and truly addressed. I am not prepared, given that you have decided that you want to raise it again now, to go over that again. I think we fairly and fully dealt with it at that time. We both understand the circumstances around that, so let us put that aside rather than having a slanging match against industry. We all know how difficult it is out there for them. We do not need to be applying broad-brush imputations to their motives. We know that things that should not have been claimed under the existing regulations and they are being dealt with through a process within the existing scheme.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

The problem with that approach is that it did not recognise that they were being claimed and they were viable under the existing arrangements. Because of the changes in administrative interpretation, they were quite clearly outside the policy intent of all players in this game at the political level. The problem is that under the old regime they were able to be made and there was an incredibly complex process of appeal. Nonetheless, those claims could be made. That is why this legislation is so important.

Question agreed to.

Bill, as amended, agreed to.

Bill—by leave—taken as a whole.

The Senate considers this bill to be a bill which imposes taxation within the meaning of section 53 of the Constitution. Accordingly, the government moves this amendment as a request:

(1) Schedule 1, item 4, page 3 (line 21), omit “1 July 2010”, substitute “1 July 2011”.

This amendment goes to the issue of the start date. The effect of this amendment is to make a minor change to schedule 1, item 4 of the bill to defer assessment for incomes commencing on or after 1 July 2011. The start date will be amended to 1 July 2011.

Question agreed to.

Bill agreed to, subject to request.

Bills reported; report adopted.