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Monday, 22 November 2010
Page: 3140


Mrs MIRABELLA (12:02 PM) —I rise to speak on the Tax Laws Amendment (Research and Development) Bill 2010 and the Income Tax Rates Amendment (Research and Development) Bill 2010. I do so sharing in the great disappointment and frustration of the many industry leaders and businesses out there who are trying to do the right thing, be innovative and get out there ahead of the pack, but are being frustrated by this government’s very flawed and quite amateurish processes. I say that because a debate like this should have been a positive one. It should have given us a chance to concentrate on sensible improvements and to focus on an optimistic vision for the future of business R&D in Australia. Instead, the nature of the government’s approach to this issue means this will be a debate in which we will be required to devote much of our attention to the misguided, arrogant and confrontational attitude of the Assistant Treasurer and the government, which has followed his lead, and to the range of mistakes, shortcomings and missed opportunities that have arisen as a result.

As it campaigned for office in 2007, Labor made a lot of grand statements about R&D and many false assertions about the Howard government’s record. It committed in its election policy to encouraging sustained growth in R&D activity and facilitating higher R&D intensity. As has been the tale on so many fronts under the former Labor Prime Minister, Mr Rudd, and the current one, Ms Gillard, this has proven to be hollow rhetoric. Far from growing and intensifying government support for R&D, the bill now before the House, if passed, will actually do the opposite. This is one of so many contradictions that have underpinned the government’s actions over the last year and it is difficult to know where to begin. Labor has proclaimed its new R&D concession scheme will be more generous, saying it is increasing the rates of financial assistance to recipients. What it has repeatedly and cynically failed to mention is that it is so drastically restricting eligibility criteria that far fewer businesses and activities will actually qualify for assistance in the first instance. It argues that its changes will be revenue neutral, but everyone out there in the real world knows full well that this is a revenue-raising measure.

This is the same Labor Party that all but hyperventilated on the subject of costings during the last election campaign. As with the NBN, it has not and can not produce a single piece of modelling that proves its claims about the impact of its R&D tax changes. It seized on figures that show marked improvements in business expenditure on R&D over recent years, but it has not made the obvious connection that this is happening under the current policy settings—settings it is attempting to radically change. It has talked about the importance of R&D to high-performing Australian companies but has shifted the balance in this legislation so markedly that it actually punishes firms that secure successful R&D outcomes and gives greater rewards to those whose R&D activities end in failure.

Labor stressed that its legislation will facilitate a more predictable and simple system but it has instead sparked uncertainty, because it has been unwilling and unable to explain how many of the aspects of its proposed new regime will work. It surreptitiously inserted into the legislation wording that will cut off government support for R&D in the building industry, yet the man behind those words, Senator Carr, is the very same minister who frequently tours marginal electorates to wax lyrical about what he pretends is Labor’s deep and abiding interest in the future of the building industry. It has said that a key aim of these changes is to limit government spending on big claims by big companies for R&D. Meanwhile, in the last few months alone, it has reached into the top drawer, pulled out Senator Carr’s chequebook and offered $20 million to the bio-pharmaceutical giant CSL and $22 million to the global IT powerhouse IBM for R&D without even blinking an eyelid at its double standards.

It has asserted that it does not believe in the principle of giving government support to activities that companies would have been likely to pursue even without their assistance. But this is the very same party that in the very same portfolio has already allocated $90 million to a program called the Green Building Fund, which operates almost entirely on that basis. And it is now about to enlarge that program and embark on more of that kind of spending.

It has repeatedly cited a report by KPMG to pretend that its new legislation is world’s best, but it has not even had the decency to confess that it misappropriated that report or that KPMG immediately repudiated Labor’s remarks and pointed out the opposite to be true. Indeed, such is Senator Carr’s audacity and desperation on this issue that he cites KPMG as a highly respected and credible authority on occasions when he thinks it would suit him to wrongly quote from this report—and he draws in a number of his colleagues in perpetuating these myths about the report as well—yet at other times he subjects KPMG and other professional businesses to withering criticism for daring to be among a very large number of expert advisory firms that oppose this bill.

This is a government that has made a big play of supposedly compromising on its regressive mining tax but now presents to the parliament another piece of legislation that will whack the mining industry straight between the eyes. It has professed to be interested in manufacturing and has said that it does not want to govern a country that does not make things. But this bill will punish manufacturers at exactly the same time as they are being pounded by rising interest rates, a high dollar and the loss of more than 73,000 jobs over the last three years.

Just contemplate for a moment how draconian and how destructive a piece of Labor legislation must be for even the AMWU to be moved to tell the Labor Party in no uncertain terms to go back to the drawing board! It has also pontificated about how consultative it has been towards R&D stakeholders, but in reality we know that it has been the exact opposite. It has barely feigned an interest in the constructive criticism and opinions of others. The two key times at which it sought feedback on its plans were over the Christmas and Easter holidays, when most of the affected businesses were not even open.

The minister himself has spent much of the past year lashing out at people who have dared to suggest changes to his proposals. He is prepared to publicly label people of goodwill as ‘well-organised campaigners with vested interests’ and ‘losers who squeal like stuck pigs’. I would hate to think how he describes some of his enemies behind closed doors, or in fact some of his factional opponents.

Possibly worst of all in this process is that Senator Carr has set up a full review of innovation policy in Australia. He did that when he first became minister. He appointed Terry Cutler to head the review. Whenever challenged during his first year or more as minister he gave a stock-standard answer that every conceivable problem known to man would be solved by the Cutler review. This was as true for R&D policy as for most other issues in his portfolio.

But, as those of us with a genuine interest in innovation know, it turned out that Senator Carr immediately turned his back on that review. Like his leader and his frontbench colleagues he has shown a complete distaste for, and disinterest in, necessary and sensible reform. So much so that, in the same spirit as the likes of John Mendoza and Ross Garnaut before him, Dr Cutler has now been moved to publicly voice a series of concerns and criticisms of this rudderless government and express his acutely felt disappointment at the way in which his advice has been disregarded. But we on this side of the House are not surprised.

On R&D policy in particular Dr Cutler’s criticisms are damning. He has stated that Senator Carr has taken what was a good idea and ‘strangled it with even more red tape and a hostile narrowing of eligibility criteria’. Then, just to top it all off, Labor seeks somehow to blame the coalition for the incompetence and the ad hoc nature that has characterised the government’s entire carriage of this issue.

Among Senator Carr’s repeated slurs, one of the best was his attempt to convince the media that the coalition had supposedly filibustered on this legislation in the Senate back in June. The reality for anyone who has followed this debate is that there could hardly have been any filibustering of this legislation because it was not even in the chamber for debate. He is also fond of saying that the coalition wants to oppose this legislation sight unseen. Quite apart from the fact that the argument is completely wrong, let it be remembered that this is the same minister who, when he has not been insulting them, has consistently turned a blind eye to the views of those who have had any constructive criticism to make.

If the implications were not so serious, all of these problems and contradictions would be comical. But they are actually frightening, because the government not only fails to acknowledge any of them but shows no interest in rectifying them. When challenged, it only digs its heels in further and aggressively blames anyone but itself for a mess that is entirely of its own making. Sadly, what is really at the heart of this matter is a wilful misunderstanding by Labor of the crucial importance of business R&D, and far from bringing the kind of substance to an important debate that should be expected from a national government it has tried to silence and intimidate people who have a different point of view. I am disappointed. I would expect something more from a minister who has spent the last 17 years as a senator in the Australian parliament and who has reached the ripe age of 55. You would expect greater wisdom and a greater willingness to act in the interests of Australians and Australian businesses, particularly in manufacturing, but all we have seen is a lack of direction, vision and leadership.

That is why the coalition will move a second reading amendment to this bill, a point to which I will return very soon. We do not have a problem with changes such as the proposed shift from concessions to credits, the relaxation of foreign ownership rules in relation to IP, the idea of encouraging more blue-sky exploratory research or giving increased support to SMEs. Each of those objectives is perfectly reasonable and the coalition have never had an issue with them, despite the government’s serial attempts to misrepresent our position and assert otherwise.

Naturally, it is also absolutely fundamental to ensure value for money for the taxpayer, but this legislation goes way beyond all of that. Among its many ill-conceived effects, it will restrict the range of activities that qualify for support; introduce regressive new definitions of ‘core’ and ‘supporting’ R&D; alter the eligibility criteria so that supporting R&D will only be funded if it satisfies a confusing and very complex dominant purpose test; increase the barriers for assistance under new feedstock provisions; make the role of Innovation Australia and AusIndustry more discretionary and less accountable; lift the compliance and administrative complexities for firms because of increasingly onerous provisions on them to prove their eligibility; and reduce support for spillover and additionality benefits.

All of this comes before we even get to the issue of the government’s extraordinary decision to make this legislation retrospective. Quite simply, this is an absolutely ludicrous proposal and something that plainly defies common sense. We are talking about taxation arrangements here. I do not know whether the Labor Party are aware of this—I am guessing not—but no government should ever take lightly a decision to backdate amendments to tax law. In fact, whether a government should ever do that raises the quite serious question of fair, accountable and just government.

Of course, anyone who has closely followed this debate knows that Labor’s use of the threat of retrospectivity was primarily a political tool—an ambit claim, if you like. By putting this spectre into play and then indicating behind closed doors that they were prepared to give some ground on it, they were able to make it look to observers as though they were somehow making some generous concession. This tactic has also helped them to shift the focus away from many of the other retrograde elements of the bill. That Labor have chosen to take us and industry for fools, to try to dupe us and to elevate this kind of party political strategy and expediency ahead of certainty for thousands of Australian businesses is nothing short of a disgrace. But, sadly, this is not a surprise coming as it does from a weak government and a weak minister—a minister who never had a way, let alone lost his way.

In the end, I suspect that what lies behind this whole sorry saga is Senator Carr’s desperate need to find savings and to start offsetting the billions of taxpayers’ dollars that he has been wastefully splurging in his portfolio. Another likely motivation is that the Minister for Innovation, Industry, Science and Research is trying to mop up the unholy mess he made in 2008 by scrapping the highly successful Commercial Ready program and, with it, commercialisation support that represented a lifeline to so many Australian innovators. Some of the businesses worst affected by that decision were in the IT, biotechnology and pharmaceutical sectors—and, hey presto, as if by magic, these are the industries that generally stand to lose the least from the R&D tax credit legislation. Of course, that is a relative statement because, although many may not realise or appreciate it, many firms in those sectors will also be adversely affected by the new arrangements in the legislation. Unfortunately, far from putting an end to the mayhem, Senator Carr is now compounding his original error by cutting off support to myriad other industries as well.

What kind of regime is it that would be likely to penalise a manufacturer for inventing a new product and successfully taking it to market? Sadly, that is what will happen with this bill because, once the government deems that product to be commercially successful, which can often be years down the track, it is going to claw back its support—so much for encouraging innovation. And what kind of legislator would seriously let a mining company that built access roads and tunnels receive support for them if they were temporary and unsafe but not if they were permanent, designed for the long-term benefit of the area and helped facilitate even more R&D in the future? More to the point, why on earth would you award support to a company for its R&D activity carried out in a disused mine when you would not support exactly the same activity performed by exactly the same company if the only difference was that it was carried out in one of its existing mines?

I can only guess at how it is deemed logical for firms that create new products to now need to laboriously categorise all of the different individual costs associated with their work. Madly enough, instead of devoting all of their energy to continuing to develop and enhance those products, they will now have to waste an enormous amount of time on forensically itemising every one of their costs—all for the purpose of subtracting many of them for consideration under Labor’s system.

We all shake our heads at the absurdity which says that, if a meat-processing company disposes of all the waste from failed production trials to landfill, it will be eligible to claim because the waste material has no value, but if that same company makes a smart business decision to maximise the use of waste material to produce, say, compost or tallow, it will not qualify for support. I am almost inclined to give up completely on the Labor Party when I see wording in a bill that will ensure support is awarded to building activity only where it occurs away from a building!

Remarkably, what this set of rank amateurs in government is trying to legislate is that, once you include any of the results of building and construction R&D in a house or office or in any other kind of structure for that matter, you will lose all entitlements to government tax incentives. I am not sure whether this is a deliberate mistake or sheer incompetence but, either way, it is utterly absurd. In Australia, construction sector claims under the scheme currently amount to around $400 million annually—and the considerable activity that goes with it will all but evaporate if this bill is passed into law. This will be a devastating blow to an industry that is a leader in the field of innovation in Australia. In short, the coalition believes that there are a series of fundamental problems with the bill. I therefore wish to foreshadow that, at the end of my contribution, I will be moving a second reading amendment that will specifically aim to address these shortcomings.

What this amendment will confirm again for all to see is that the coalition has a very considered and simple approach to R&D policy and a better approach, a better way, than a penny-pinching government that is doing the bidding of Treasury rather than listening to industry. After all, this is a bill that we know originated out of the bottom drawer of Treasury—something that was a try-on. They tried it on with the previous coalition government. They did not succeed. They have tried it on again. Their only concern in Treasury is to claw back some more funding. They are not interested in providing incentives for research and development and Senator Carr, the Minister for Innovation, Industry, Science and Research, is the bunny who is sitting there doing their bidding.

Indeed, businesses across the length and breadth of this country can rest assured that the coalition will continue to stand up for them and for our continued economic progress and growth and, importantly, economic reform. Unlike those opposite—whose actions in 2010 stand in complete contrast to their words of 2007—we will continue to honour our promises on R&D policy. We said during the recent election campaign that we would seek to reverse Labor’s attempts to limit access to R&D incentives. We said we would reject its heavy-handed changes. We said that we would see to it that, under the coalition, revisions to the system would not be introduced before 1 July 2011.

We are following through with all of those promises to the Australian people and Australian industry. We will not vote for legislation that is worse than the current regime. We will not vote for the bill as it currently stands because we cannot stand by and see this government decimate one of the very best tools in the armoury of government to foster innovation. Those opposite have already destroyed other vital innovation support mechanisms and now they are at it again.

They have recklessly wasted billions of dollars on programs like the BER, the home insulation debacle and large handouts to multinational companies, and now they are setting out on the path again with their gigantic $43 billion white elephant called the NBN. Yet they see Australian innovators as expendable and happily deprive them of hundreds of millions of dollars, even though innovation is so critical to our productivity and to continued economic growth into the future.

Make no mistake: in its current form, this legislation will do untold damage to the Australian economy and Australian innovation. That is why I am passionate about opposing this bill and that is why I will continue to oppose any measure by this government to inflict greater pain on the great entrepreneurs that exist in our small businesses and in our large enterprises that are the backbone of continued economic growth in this nation.

The existing R&D tax concession system has not only been in place for a quarter of a century but also delivered excellent results. Serious analysis of the figures will show you that it has played a critical role in fostering increased business investment on R&D. Business R&D expenditure in Australia rose to $16.9 billion in the 2008-09 year on the basis of the latest available figures released by the ABS in September this year. I would hope that it continues to increase into the future. These statistics point to a continuing tale of very impressive increases in R&D spending, particularly during the past decade and especially in areas of the economy that have been vital to Australia and will continue to be important, such as mining and manufacturing.

There is no doubt the ongoing growth in these numbers and the availability of the R&D tax concession has been far more than just a passing coincidence. As my colleague the member for Wentworth observed in the House in June, the concession has almost certainly been vital in kick-starting business investment in innovation from very low levels in the mid-1980s, in driving the strong subsequent growth and in making R&D less costly for firms which invest in eligible activities. When it comes to R&D, we do not believe the government should be trying to destroy the current regime. We think it should be aiming to strike a logical balance between safeguarding those past gains and sensibly stimulating future increases. We also want to ensure that Australia continues to take advantage of the myriad spillover benefits that resourceful and enterprising businesses inevitably create for our nation.

Innovation is essential to Australia’s future success. To maintain our competitiveness internationally, we must continue to expand our innovation capacity and capabilities and embrace opportunities to bring new approaches to many of the country’s existing problems. It will always be a priority for the coalition to create and foster conditions in Australia that lift productivity, encourage enterprise and stimulate discovery and innovation. Of course, we hope the government sees these goals as important too. Everything it has done so far, unfortunately, has indicated the opposite. Now is the time for it to set aside its spin and falsehoods, abandon a misguided agenda and join the opposition in trying to achieve genuine reform. Some might even be tempted to call for Labor to embrace a ‘new paradigm’ when it comes to its attitude on R&D.

The coalition believes that increased innovation is crucial to Australia’s economic development. The way in which Labor responds to the coalition’s second reading amendment will offer a profound insight into the extent of its own commitment to a more innovative future. It is not too late for the government to relent, to finally come to the table and to put an end to its multitude of inconsistencies and contradictions. From the ashes of a process that has not served anybody well, it can retrieve the situation and show that it is prepared finally—at long last—to work with industry, importantly, and the coalition to secure a practical, workable and positive outcome. In that vein, I move:

That all the words after “That” be omitted with a view to substituting the following words: “the House:

(1)   reaffirms its commitment to providing continued high levels of support for Australian businesses that invest in research and development (R&D) activities;

(2)   notes that this bill weakens the current system, and recognises that the bill has significant limitations in relation to the following:

(a)   the proposed start date of 1 July 2010;

(b)   the establishment of a ‘dominant purpose’ test;

(c)   the application of feedstock provisions to a wide range of activities and results;

(d)   the reduction of support for R&D in the building industry;

(e)   the disqualification of many small and medium-sized businesses from support because of new rules in respect of their ownership structures and turnover;

(f)   the requirement for costs to be documented and attributed to ‘core’ and ‘supporting’ activities;

(g)   the new provisions relating to third-party investors in firms’ R&D; and

(h)   the proposed application of new rules relating to the disposal of R&D results to actions taken prior to the commencement of this legislation; and

(3)   urges the Government to release full modelling demonstrating the impact of its proposed changes, and reconsider its approach in order to ensure that encouragement of business R&D activity is not substantially reduced.”


The DEPUTY SPEAKER (Mr KJ Thomson)—Is the amendment seconded?


Mr Randall —I second the amendment and reserve my right to speak.