Chris Hayes (Werriwa, Australian Labor Party) Share this | Hansard source

I know we are coming back from a break, Mr Deputy Speaker, and we are all refreshed, but this week seems to be a week of amendments. In addition to the Tax Laws Amendment (2007 Measures No. 2) Bill 2007 that we have in front of us—not an uncommon form of legislative amendment, when it comes to this government—amendments are to come before the House in the form of the Building and Construction Industry Improvement Amendment (OHS) Bill 2007. That is set down for debate tomorrow, I think. We also have the mother of all amendments—which the Prime Minister has told us for the last year would not happen, out of fear that it would destroy the economy as we now know it—the amendments proposed to Work Choices. An effort is certainly being made by the government to draw to a conclusion a number of things that have been hanging around for over 12 months.

I will keep my comments brief and relevant to this tax bill. I will limit my comments to the issues of research and development. Research and development expenditure is critical for the performance and advancement of the economy. Certainly it is critical to improving the competitiveness of industry. Business investment in research and development, however, is at 0.95 per cent of GDP. That is well below the average OECD contribution to R&D, which is 1.53 per cent. As a consequence, that has this country sitting behind 14 other OECD nations. That is despite the fact that considerable advancements were made throughout the mid-1980s and the 1990s in industry contributions to research and development.

There must be many reasons for that performance, but the fact remains that business spending on research and development under the Howard government has grown at less than half the rate that it grew at under the former Labor government. When the Prime Minister announced in 1996 his commitment to industry, he put it in these words:

... to improve Australia’s international ranking in terms of expenditure on business R&D, as a share of GDP.

I have just cited the current figures, and the position could not be more different from that envisaged by the Prime Minister in 1996. It certainly has not lived up to the standard set by the former Labor government with regard to encouraging industries to invest in research and development in their sectors.

The Howard government’s main policy of cutting the research and development tax concession has produced a less than stellar performance. Policies that promote further investment in research and development are being actively pursued by many countries but this government only pays lip service to them. Let me take a moment to examine the targets set by other countries when it comes to R&D. China is committed to increasing research and development expenditure to 2.5 per cent of GDP by the year 2020. The European Union as a whole is targeting expenditure on R&D at three per cent of GDP by the year 2010.

All around us, our Asian neighbours are increasing their research and development spending at an incredibly rapid pace. As a local member representing the seat of Werriwa, in the south-west of Sydney—an area I am very proud of—I point to the employment statistics for the area to demonstrate the effect research and development will have on the development of our main industries. In the south-west of Sydney, we have nearly 50,000 people employed in manufacturing. It is welcome news that the manufacturing sector is taking seriously its responsibility for R&D in the development of home products, particularly in Werriwa, my area. Currently, manufacturing accounts for 41 per cent of Australia’s research and development. Manufacturing businesses are also the most likely to commit to innovation and further development and to invest in their futures.

The manufacturing industry recognises the need to be the one that is setting the pace in the world, and not having it foisted upon it, simply being reactive to the position of other countries. We need to stimulate growth in the manufacturing sector. We need the sector to invest in its future. We are certainly seeing some encouraging signs. In my backyard, in the south-west of Sydney, various companies that I visit on a regular basis are now taking steps to invest in their future through research and development expenditure.

The amendments contained in this bill will, I believe, help contribute to the improvement of Australia’s research and development performance. They are vital and necessary. We do need to stimulate and encourage expenditure in that area. To that extent I support the provisions of the bill. Labor supports the proposals in the bill, particularly the proposals relating to R&D. In saying that, however, it would be remiss of me not to note the time it has taken for this amendment bill to come before the House. The amendment bill was announced at the time of the last budget. I am talking about the budget handed down in May 2006, not last night’s budget. It has taken more than a year for the legislation to come before the House. Of course, this is not the longest delay that we have seen in amendments coming before the House.

Research and development tax concessions were introduced by the Labor government in May 1986. Quite frankly, they have had a chequered history, particularly under the current government. In the 1992-93 budget speech of the then Labor government it was announced that the R&D concession would continue indefinitely. There was a commitment by a Labor government to invest in the development of this country, particularly in manufacturing, by continuing that concession indefinitely.

In 1996, upon the election of the Howard government, there was a slash and burn approach to budgetary measures and that characterised the government’s first few budgets. I am sure members will remember the cuts that were made and the ones we are still paying for. There are fewer doctors, certainly on the Central Coast, and dentists. The Howard government took it upon itself, among other things, to reduce the R&D maximum concession to 125 per cent. The government led the charge in discouraging people from investing in their futures. That is the legacy of this government. That is why it is scrambling now to redress those things. That is why we are falling behind other nations which have taken the positive approach of setting targets for R&D into the future. That is why we need to look forward and invest in ourselves. That is something we have advocated through successive Labor governments. It is good to see that the Howard government is now starting to take a leaf out of our book and at least return it to its former position prior to 1996.

In 2001, the government backflipped on its position when it produced a package called Backing Australia’s Ability. In that package it introduced a premium rate of 175 per cent for additional research and development activity and the research and development tax concession for small companies. While I say it has taken a long while for this amendment bill to come before the House, and I refer to last year’s budget, the reality is that—and make no mistake about this—we have been waiting effectively since 2001 for this legislation to come before the House and to be implemented in a way that will stimulate the growth of R&D within the business sector.

I know that the government is now scrambling to establish its credentials. I accept that it is an election year and the government has to do something about showing its sincerity in this regard. Last night when I went back to my rooms—as no doubt most members did—I started to go through the budget statements. Statement 1: Fiscal strategy and budget priorities, under the heading ‘Creating opportunities for industry’, states:

This commitment is outlined in the industry statement, Global Integration: Changing Markets, New Opportunities, which includes—

among other things—

$200 million over four years to expand access to the 175 per cent research and development (R&D) tax concession, to encourage multinational enterprises to increase the amount of R&D they perform in Australia ...

That is welcomed, but I make the point that this highlights how the government is now scrambling to catch up and stimulate industry to perform R&D, with a view to generating not only productivity but also employment in this country. One of the spin-offs of R&D is not simply the research and development that takes place but the all likelihood of the employment that it generates as a consequence of undertaking R&D in this country.

There is no doubt that the provisions contained in schedule 3 of this bill will improve the research and development tax offset, particularly by allowing companies more time to claim the offset. The amendment that allows all companies in a group to be covered by the research and development tax offset provisions will be welcomed not only by those businesses currently undertaking R&D in Australia but also, more importantly, by those companies which are contemplating it. Given the importance of research and development to the longevity of a number of Australian businesses and industries and the importance of R&D in terms of building our productive capacity, while these changes are technical in nature, I agree they are welcome.

The reality of our global economy is that, if we do not innovate, if we do not invest in our future, our businesses and our industries, we are not likely to survive in that competitive market. That is why it is more important than ever for government to come to the table with industry, to ensure that the arrangements in place are sufficient to maintain Australia’s competitive position in the world economy. While the amendments in this bill are welcome, when it comes to R&D, one can only wonder whether they are enough.

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