Mr LAURIE FERGUSON(1.23 p.m.) —The Minister for Industry, Science and Tourism (Mr Moore) really does not have his heart in this measure. I was interested in the contribution of the honourable member for Bowman (Mrs West), a member of the Queensland Liberal Party and close to the operation up there. I thought we might see some of the guiding principles behind this move. What we had was a contribution with the usual slogans about Labor's words and the need for deeds, the slothful inaction of the previous government, comments that statistics mask realities, Labor's penchant for doom and gloom, that Labor had done things too late, they had been too slow, et cetera. In actual fact, the minister concerned does not really have his heart in this measure. He is essentially being dictated to by other elements in the government. I think this is part of the image problem he has in a variety of areas where Australian industry needs protection. Steve Lewis in the Financial Review comments on another area of portfolio responsibility:

It has been more than six months since the change of government. While most of the post-election focus has been on the budget, suppliers to the Commonwealth can be forgiven for thinking Mr Moore, the Minister for Industry, Science and Tourism has lost focus on what is considered a central plank of coalition's industry policy.

Mr Lewis concludes:

In any case, Mr Moore and his department still have to run the gauntlet of Treasury and Finance which traditionally resist any attempt to link industry development with the procurement process.

What we have is a very serious suggestion, which will undermine Australian industry. We can dream about level playing fields; we can dream about spontaneous action by the corporate sector; we can believe that somehow there is venture capital out there. But the sad reality is that, when government members today cite statistics about Australia's lamentable position, I think we have to go back historically and say that in 1985 when these kinds of measures were introduced there was a very real need.

What we are seeing, as other members on this side of the House have commented, is a very worrying departure from the commitment the government gave before the election. We know that in the science and technology policy they said:

Changes to the syndicated research and development tax concession scheme guidelines may well result in the drying up of one of the few effective forms of venture capital available to fund research and development.

If that is not an endorsement of the process, I do not know what is.

Back in September last year, we had other statements of support for R&D. In a paper put together by the parliament's research service it was stated:

In the September 1994 statement, the Opposition has also claimed to have made a big commitment to support basic research and infrastructure. Noting trade opportunities, it stresses the need for a clear, long-term strategic approach to S&T. The Opposition proposes to further encourage industry investment in R&D, to ensure world class basic research through better facilities . . .

They were fine words, but the reality today is that they are condemning Australia to the problems it had before 1985. In 1985 Labor moved towards a variety of measures—tax concessions, direct grants to industry R&D, concessional loans for commercialisation of innovation, sectoral industry developments in a wide variety of areas such as automotive, textiles, pharmaceuticals, food, IT, aerospace, the national research facilities program, Australian Technology Group, cooperative research centres and AusIndustry—designed to tackle Australia's lamentable position.

Peter Roberts, in an article in the Financial Review of 1 August 1996, said:

Commercially oriented innovation, as measured by business expenditure on R&D (BERD), grew by 12.5 per cent a year between 1981 and 1993, the fastest growth rate in the OECD. BERD is now the equivalent of 0.71 per cent of gross domestic product, close to triple the level of 1981 when it languished at 0.25 per cent of GDP.

We have a situation where there are obvious problems still with the level in this country. Whether it is to do with a fragmented industry structure, the domestic focus of companies, hangovers from the tariff situation or bad management, the reality is that much research and development essentially depend on finance from outside the country by corporations that might not see it in their interests to undertake that here and, I guess, our long-term reliance on minerals. They have been problems that the government faced back in that period.

In an article in Science and Public Policy in June 1989, Mark Dodgson said:

Both Australian and foreign owned or controlled industries show an R&D intensity well below the median for eight OECD countries: and the three industries with R&D intensities nearest to the eight-country median were ferrous metals, paper and printing, and wood and furniture. These are. . . low technology industries.

Even after changes—which, I think we all understand, appreciate and agree, improve the performance—R. Slatyer in Search of January-February 1992 could still remark:

Australia has been a low performer of R&D in high, medium and low technology sectors, both against OECD performance as a whole, or in relation to specific areas. The rate of increase from 1983-89 in real terms compounded has been among the fastest in the OECD and it continued to grow during 1989-90. Despite this performance, the growth was from a low base, so that in 1989-90 it was still only 0.52 per cent of GDP. Since other countries have also increased their performance, Australia's remains close to the bottom of industrial R&D performance of OECD countries. . .

The importance of government support for this progressive improvement should be noted.

We did have a crisis of lack of effort. We did have a crisis in comparison to OECD countries. We had a situation where, in the context of our having a high proportion of Nobel prize winners, having a high degree of original inventions and having those kinds of advantages, there was still no delivery. Labor initiated a process with this particular scheme back in May 1985 and made it a permanent feature in the 1992-93 budget. In the November 1987 syndication processes we see the nub of one aspect of what the government is attempting to change today.

There has been a series of investigations which has basically upheld the positive side of these schemes. In a 1994 analysis, the BIE suggested that there was a distortion in regard to syndicates, but it gave an overwhelming endorsement to the broad thrust of the need for these schemes. To give some idea of what is involved here, in a report entitled Future needs 2010, the Australian Science and Technology Council stated that economic growth through R&D could contribute $60 billion over 10 years to the Australian economy. We thus are looking at a series of schemes that are crucial to this country.

Industry reaction to what the government is doing has been very diverse. Not only people involved at the end which the government questions, and accountancy firms that might be involved in facilitating syndication, but also a wide variety of companies are concerned with where this government is going. The orbital engine was one example that the Minister for Administrative Services (Mr Jull) was quick to publicise his involvement with. That company has questioned the abolition of syndication. That company has questioned what this is going to do to its future.

It is all right to run around with the Australian flag and give out free photos of the Queen, but Australians are questioning why the government would undermine a company like that. This company has been in the forefront. It is actually sponsored by the minister. Its product is deemed worth while to put into government vehicles. The government has been involved in the road testing. Yet, five minutes later, that same company is saying that this series of decisions is undermining where it is going.

Mr Rudolf Werner, a research and development tax specialist, was quoted in the Sydney Morning Herald of 22 August as saying:

Your after tax benefit on R & D expenditure now falls from around 18c in the dollar to 9c. The benefit at 125 per cent is marginal. What industry is saying is that `we'll do what we are going to do anyway but we certainly are not going to do more R & D'.

That is the other end of the spectrum. Technology Resources Australia, in conjunction with the major syndicate financiers—Bain and Co., Bankers Trust and Macquarie Bank—found that every $1 spent on the 50 pending syndicate applications would generate $2 of private R&D expenditure.

Nina Field's article in the Australian Financial Review of 19 August 1996 stated:

Research and development syndicates caught in an administrative backlog when the Government scrapped syndication last month would create about $218 million worth of R&D over the next two years if they were allowed to go ahead, according to analysis released yesterday.

That analysis was by Technology Resources Australia. Graham Carew, the director of R&D services at Deloitte Touche Tohmatsu, commented that the budget:

. . . might as well have contained a plane ticket to South-East Asia for Australia's innovative technology projects.

How much stronger a statement can anyone make as to where the thrust of the government will lead? Essentially, it said we are transferring Australian innovation, Australian scientific discoveries, Australian technology, Australian production possibilities to South-East Asia.

Mr Ian Holland of Digital Ideas—a computer graphics hardware and software producer which spent over $430,000 on R&D during 1995-96 and employs eight of its 25 staff specifically for research—in the Age of 2 September 1996 was quoted as saying that it was implicit in the government's decision that it did not value R&D companies or understand the long-term benefits of supporting them. That is not exactly a mild comment. It is not exactly equivocal. It is not exactly giving the government a second chance. That approach is typical of a wide variety of companies that, along with a significant number of analysts, are saying that this decision condemns Australia to the problems of a decade and a half ago.

Peter Roberts said in the Financial Review of 27 August:

Australians, and especially those who drafted last week's federal Budget, seem to have a peculiarly dated idea of the role played by science and technology in a modern economy. The Budget as it affected innovation was very kind to the basic science—

and even within science there is some debate as to the government's expenditure there, with help for the CSIRO but undermining in other facets of science—

end of the innovation spectrum and harsh on applied development. Readers need hardly be reminded that Australia performs well by international comparisons at the `R' end of R&D but is only a medium-level performer at the `D' end where real wealth is created.

So what we have there is a significant spectrum of people who are very much asserting that the variety of measures the government is undertaking essentially to decrease the tax concession down to 125 per cent, under the subterfuge of concern with rorts, undermined the syndication aspects. We all know that the minister admitted, as quoted in the Financial Review , that maybe he was wrong in the initial statements, that maybe most of these supposed rorts were actually picked up in the review process, in the process that looked at the proposals.

On 1 August 1996 on ABC radio Mr Moore appeared to backtrack even further. Asked by journalist Matt Brown why the government was not prosecuting rorters, Moore replied:

Well, they've been knocked back in the research and development committee which do the research and evaluation of the various projects.

This less critical view of syndication is backed up in a 1996 report on the scheme prepared by DIST but erroneously referred to by the government as a report of the Bureau of Industry Economics. The report surveyed 163 taxable syndicates and found 158 were genuine and only five were pseudo-schemes.

So what we have here is an attempt by the government to cut back on its responsibilities by utilising the occasional, rare rort in this system to undermine a system that has essentially been defended by Australian industry, a system which reviews have shown is on balance very worth while to industry, worth while in promoting this country internationally. Moreover, the minister has said that most of those rorts that he is going to utilise as an excuse for these changes would essentially have been picked up in the process.

We do know that over the period of Labor government there has been, as I said earlier, a variety of schemes to essentially encourage Australian industry, to make sure that research does attempt to match OECD changes. This is a country which is desperately on the back foot with information technology imports and the hardware imports in that field, a country which, as the government tells us so often, has such a difficult trade future, a country which has for many decades had a very big difficulty with the delivery of R&D. It is being undermined very seriously by this government in a wide variety of research and development areas.

At the same time, we will see essentially no attempt whatsoever to look at other industries in Australia that do have difficulties, to go back to a pattern of industry assistance, industry plans, that are obviously necessary. The Deputy Prime Minister (Mr Tim Fischer) has been making plane trips around Asia to say that there will be no halting, no slowing, no ifs and buts about Australia's push to be the leader on tariff reduction. He is out there trying to make sure that his name is up in a lot of neon lights on tariff reductions, saying that there is not going to be any equivocation. But what this government is doing is essentially leaving Australian industry with a utopian kind of concept of a level playing field. The country's interests are seriously undermined by the suggestion that we should halt this syndication and at the same time reduce tax concessions.

They can talk all they want about their budget problems, they can talk all they want about rorts, but the reality from all surveys that have been undertaken on this is that it was a net contributor. Yes, there have been increases by other OECD countries; they have been increasing their research and development at the same time as we have. Yes, we are still desperately behind the pack. But the reality is that those inquiries of Australian industry, those surveys of what they think have shown that, fundamentally, investment would not have been made and research would not have occurred unless schemes like this were available. I commend the opposition's position on this matter.