Ed Husic (Chifley, Australian Labor Party) Share this | Hansard source

I would like to add my congratulations to the member for Moncrieff, who I've had initial dealings with. I have a lot of time for someone who appears already to be a very thoughtful contributor. I wish her and her family and friends who were here for her speech all the very best as they celebrate her first speech. Congratulations to her.

This bill, the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019, which is designed principally to ensure that multinationals pay their fair share of tax, reflects something that we on the Labor side have been focused on for quite some time, having recognised the challenges that are being posed by a number of companies, some of which are in the tech space, that have operations across a number of shores. The concern is that they are not paying their fair share because of the way they have set up their taxation arrangements and the organisational structures that they employ. It means that some countries are not getting what they would have anticipated to be a fair share of corporate tax revenue.

There are big differences between the two sides. Our side believes that a much more rigorous approach should be employed in the way we structure our tax law. Doing so would ensure that the taxpayer gets a much better deal. But importantly so would the tech firms that are often saying they want to be able to see, in particular, a greater stream of talent available, with people skilled up with the much more modern skillsets that are required to help those companies thrive. But where governments do invest in human capital there is a cost to that. If those firms expect to have greater access to talent, there will need to be an investment underpinned by a much better form of taxation arrangements to ensure that happens. So this is important.

What will also drive the growth of those firms is an investment by government in R&D. This bill has been before us in different forms. In fact, when it was first introduced, this bill contained some particularly hard measures that the tech sector believed would hurt them badly through the potential regearing of the elements of the R&D tax incentive. Those were removed.

But this isn't the only thing that's causing concern in Australia's tech sector. As has been observed since December last year, a number of start-ups have been very concerned about the way in which they have been required to pay back millions of dollars in research and development incentives as a result of a particularly strong interpretation of what is considered permissible.

A number of founders, investors and industry leaders have been saying that the qualification measures for this crucial industry support measure, particularly in relation to software development, financially rewards companies for investing in developing new ideas. But now the measures have been applied in such a strict way by the Department of Industry, Innovation and Science, that some consider it almost impossible—in their words—for software companies to be able to achieve or qualify for the R&D tax incentive. Through the discussions I have with Australian start-ups, this R&D tax incentive is regularly cited as one of the principal or primary areas of support and something they highly value. They say that it keeps them on Australian shores instead of leaving for investment support offshore. From their perspective, they want to stay on Australian soil, they want to be able to create commercial value and wealth here in Australia and they do want to create jobs.

We often see a lot of the start-ups that are here on Australian soil go from a small number—maybe one or two people; the founders of that start-up—to hiring a dozen in a short space of time. I note the presence of the member for North Sydney, who is well aware of the employment generating capacity of start-ups on our soil. While he and I might have disagreements in terms of certain policies from time to time, I think we both, along with a number of people in this chamber, recognise that we have to have much more favourable policy settings and need to speak up for the value of start-ups in this country. I think he knows that, with full sincerity, I don't mean to put him in a difficult position, but I would not be surprised if he has had start-ups from his neck of the woods approach him raising concerns about the particularly strict way in which the Department of Industry, Innovation and Science has decided to interpret the rules around the application of the research and development tax incentive as it applies to software development.

This is something that is of genuine concern. It is not something that has just cropped up. It is not something that has disappeared. Based on my discussions with people in the sector, it is still a live issue. In fact, one person indicated to me that this has created huge uncertainty and it is undercutting the viability of a whole host of promising Australian tech companies. It is a big issue. It is considered, as I said earlier, the backbone of government support for tech, and it has now turned into one of the sector's biggest risks. This is from people in the know. The way in which the R&D tax incentive rules have been interpreted has now become a big risk. In fact, for any start-up that receives this incentive or has this on their books, this incentive is now, I'm told, being treated as a liability by investors. This is an extraordinary development. The R&D tax incentive has been there and has been welcomed by our tech sector for quite some time—it has promoted software development for quite some time—and now there are people in the sector, investors, treating this incentive as a liability. This has gone off the rails and something has to be done.

I had previously raised concerns when this first crept in back in 2017. I had very productive discussions with the then Minister for Revenue, the former member for Higgins, Kelly O'Dwyer, who, to her great credit, took this on board and encouraged the ATO and AusIndustry to involve start-up representatives in the industry consultation group around this. A number of us operated under the belief that this had been sorted out, but we now have a new minister—and I'm just going to call it as I see it—who has done absolutely nothing on this issue.

I for one do not condone any abuse of this incentive. If anyone has abused this incentive, we should use the full force of the law against those people—no doubt. But now what is happening is the audits are going back years previous, and big companies that have grown from small ones in Australia, like Airtasker, for example, are now genuinely worried about the tax bill that might be brought up because of a much more strict interpretation. They operated under an interpretation they believed would be acceptable at one point in time and are now having to second-guess what has gone on. A perception has been conveyed to me that AusIndustry must have in its mind an operational belief that these software companies can just pay back the money at any time. This is not reflective of the reality that a lot of these firms operate within. They operate close to the bone for quite some time, hoping that at some point they'll do well. I am not saying Airtasker is necessarily operating on the smell of an oily rag—in fact it's a great success story for this country—but there would be a lot of other firms that would be feeling it.

Despite the fact that this issue has been rolling on for months, this minister has not been able to do anything to give people in the sector a sense of relief that (1) their concerns have been registered and (2) something is being done about it. During the election campaign the Labor Party said we would step in and we were prepared to test some of the decisions that were being made to determine whether or not a heavy-handed approach had been used, and we were criticised by the minister. The minister at the time thought this was outrageous. I was staggered to see that type of response, because some of those opposite put themselves forward as champions, particularly for entrepreneurialism and start-up activity in this country, and I genuinely regard that some believe this absolutely to their core, but the people in positions where they can make a difference on front bench aren't doing that at all.

Why is it that, since this matter was raised fairly prominently in December last year, this has been dragging on—a festering sore that has created uncertainty in the minds of start-ups and their investors? Why has the government, particularly through the industry minister, not stepped in and sorted this out? They have been able to do it previously and they're not doing it now. New ideas developed on home soil are at risk. Firms will potentially look offshore for a new home, denying us jobs and growth in our own economy. Frankly, this is why I am using the opportunity of this speech to speak up and ask—actually, no; demand—that the minister give some reassurance to Australian start-ups that they are not going to cop a heavy-handed interpretation of the tax incentive, which will work in a way that will potentially cruel some of these firms.

As I said earlier, I don't think anyone on that side or this side believes that, if shonks or consultants have given bad advice to start-ups to set themselves up in a way just so they can qualify for the tax incentive, we should not burn those people out of the system. No doubt that is a shared view, but a lot of other good firms should not feel the heat or have a situation where their investors are treating the incentive, which has done great work over many years, as a liability. Again, I think we have some new firms that we should be encouraging. We should see the emergence of these firms using technology in a way that is helping other businesses grow.

I have to say that in this country we do not have rates of R&D that we can brag about. We are being left behind in this country, particularly if you look at the application of artificial intelligence and the way in which countries and companies are prepared to invest in this. PwC has suggested that potentially $15 trillion in value can be generated through the application of AI, 70 per cent of which will accrue to just two countries: the US and China. Australia is dragging its feet on this.

If we are not seeing investment at a high level in this research and then we take a particularly heavy-handed approach in the application of the R&D tax incentive that means we see smaller firms that could potentially grow into bigger ones crushed, what happens to this country? All we will be is effectively a vassal state to other countries whose economies have gotten a lot more efficient because they've had the smarts to invest in smarts and to make sure they are not left behind.

If this government is fair dinkum about making sure that we see that spirit of entrepreneurialism grow, it will absolutely get on top of this issue and make sure that start-ups aren't left in any doubt about their ability to access the incentive for software development and finally deal with an issue that the sector's been crying out to see fixed for over half a year. I'll leave my remarks at that.

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