House debates

Monday, 22 November 2010

Tax Laws Amendment (Research and Development) Bill 2010; Income Tax Rates Amendment (Research and Development) Bill 2010

Second Reading

1:11 pm

Photo of Nola MarinoNola Marino (Forrest, Liberal Party) Share this | Hansard source

Research and development investment in Australia is a major driver of value and is vital for increasing our productivity and competitive capacity. Australia is recognised as a global leader in many industries because of its historic investment in R&D and 25 years of a successful system that has encouraged and supported this investment.

There is an economic and social benefit in R&D programs, and I am supportive of sensible changes to R&D tax incentives but not those that erode support and investment. The ABS noted business spending on R&D totalling $10.1 billion in 2005-06, and the major contributors were manufacturing, property and business services and the mining industries, with over 119,000 Australians employed full-time in R&D. Priority areas include ICT, biotechnology, manufacturing, mining and the food industry.

However, this Labor government legislation threatens to erode support for R&D investment in Australia through major changes redefining the type of R&D activities that will be eligible for support. Fewer firms may now qualify for assistance. Effectively this government is cutting tax concessions for R&D on the back of slashing spending on the Export Market Development Grants Scheme by $50 million last year. Unfortunately, in helping to cover the cost of Labor’s wasted billions of taxpayers’ funds, the government’s revenue cutback may well compromise investment in innovation. I can only imagine the frustration and commercial uncertainty in many businesses with the retrospective provisions in this tax laws amendment research and development legislation and how it affects their current and future planning.

The proposed introduction of new categories of ‘core’ and ‘supporting’ R&D and a ‘dominant purpose’ test will disadvantage many businesses and limit their R&D efforts. As we know, approximately 95 per cent of R&D activity in Australia is ‘applied’ research—it involves making refinements, improvements and innovations around existing practices rather than undertaking wholly new R&D work. This is very important, and you can see this particularly in the mining and resource sector. I am very supportive of R&D to support small business but, at the same time, we cannot afford to put at risk investment in our mining and resource sector because this sector is one of the ones that will help drive this economy. I am concerned that this may be just another Labor attack on that mining and resource sector, through the mining tax, the carbon tax and the reduction in R&D tax concessions. Conversely, the government is expecting the mining and resource sector to drive the Australian economy. Many companies will be affected. Sixty per cent of the world’s mining software has been developed by Australian companies, and we are leaders in processing technologies, mining equipment and scientific analysis technologies.

As I said, I believe that research, innovation and the pace of innovation and development are vital, whether in health, mining, petroleum, natural resource management, environmental management, agriculture or any other sector. Companies involved in R&D require clear, concise, simple and unambiguous policy settings and directions. The issues of clarity, simplicity and concise—but not retrospective—rules are extremely relevant, but unfortunately it seems that the Labor government is determined to undermine R&D by reducing the tax concessions so as to raise revenue.

Irrespective of how the government frames this, the judgment can only be that this government is not really serious about R&D. Evidence in regional areas actually proves this. Labor’s first budget stripped $1 billion out of regional programs such as the Growing Regions program and replaced them with programs of less than $200 million. The government also abolished Land and Water Australia in November 2009 and cut $63 million from CSIRO’s agricultural research, costing 100 jobs and the closure of two major research laboratories, to meet the first round of budget cuts in 2008-09. The CSIRO Staff Association warned that as many as 300 jobs in both science and research support services would be lost.

Agriculture also bore the brunt of the first $15 million round of research cuts, including the closure of Australia’s biggest livestock research laboratory at Rockhampton in North Queensland. The Rendel laboratory provided vital support for Australia’s beef industry but was closed in March 2010, less than four years after it received a $3 million upgrade to boost its research capacity. The CSIRO will also close its Merbein grape and citrus research laboratory at Mildura in northern Victoria in 2011-12. This laboratory was established in 1919 and it developed light mechanical pruning and nematode-tolerant grape rootstocks that are worth an estimated $150 million a year to the wine industry.

The CSIRO was hit in 2008 with a $23.6 million cut because of the increased efficiency dividend. Former CSIRO divisional chief Dr Max Whitten said the budget cuts showed ‘an airhead mentality’ towards science. A total of $12 million was lost to the Rural Industries Research and Development Corporation in the 2009-10 budget through cuts of $3 million over four years. There was also a funding cut of $3 million per year over four years to the Department of Agriculture, Fisheries and Forestry and its agencies.

The R&D sector, business and industry need constructive support, not Labor government funding cuts and legislative changes forced on them with very little consultation but with very direct retrospective effects. I recently raised doubts about the Productivity Commission’s draft report on the Rural Research and Development Corporations, RDCs, released in September this year, which suggested that the government should reduce its investment in rural research and reduce the input producers have in the decision-making process.

The Productivity Commission has said that producers should make up the shortfall themselves as the government pulls back on its spending and, at the same time, have less say on what the research money is being spent on. The Productivity Commission clearly did not understand the difficulties faced by the agricultural sector, with the report suggesting that $50 million each year should be removed from the Rural Research and Development Corporations in which the producers currently have a voice. The money would be directed into a new government bureaucratic organisation called Rural Research Australia—a non-industry RDC in which producers would have no say at all. The draft report also recommended slashing the remaining RDC funding by $60 million a year over the next 10 years.

I wonder how on earth this can be justified when Australian farmers are being expected to produce more food and fibre on less land with less water, less fertiliser, less energy and increased costs but fewer commercial returns—whilst at the same time the government has already cut R&D funding and clearly plans to make even more drastic cuts. I encourage all farmers to make submissions on this draft report to send a very clear message to the Labor government that this tough period of drought, poor prices, high bank interest rates and charges—with the difficulties in accessing finance and competing in a global market where subsidies of 39 per cent are common—is the worst possible time to walk away from agricultural research.

Australia simply cannot afford to restrict R&D business activities across the board. Consider the food-processing sector and the consumer demands for healthy, convenient products that are diverse, high quality and value for money. These require the development of new food-processing, separation and packaging technologies and innovations; however, under the changes to the definitions under this legislation much of the assistance for the type of research needed to deliver these outcomes will be eroded in an industry that has to compete globally.

Research and development are key success and sustainability factors. As I said earlier, Australia is recognised as a dynamic driver of biotechnology and pharmaceutical innovation, with over 470 companies focusing on therapeutics, agricultural biotechnology and diagnostics. I do not want to see any of that eroded or undermined by poor R&D legislation. The Labor government must not undermine the R&D sector with this legislation or cause a reduction in the R&D efforts of individual companies. As we know, research and development, by its very nature, is often a high-risk, high-cost field.

We are proposing amendments to this legislation which will deliver a constructive outcome. We cannot afford to compromise the integrity of Australia’s R&D system. We will support sensible and rational improvements to the existing regime. If the government is seriously interested in changes to drive better R&D outcomes in Australia, it will accept constructive amendments.


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