Senator MURRAY (1:25 PM) —The Democrats will support the Industry Research and Development Amendment Bill 1998 but we, too, wish to use this opportunity to briefly make some remarks about research and development. As I have already mentioned, 1996 was a very stupid year for industry policy, and research and development was particularly targeted in that era of stupidity. I recall in an estimates session asking the secretary concerned whether they had done a cost-benefit analysis as to what the effect of their changes to research and development would be. The answer was that no, they had not. So I asked, `When would you expect to see what the effects of those changes would be?' and the answer was, `In about three years time.'

Here we are, three years later, and the effect of that stupid policy decision is that our research and development has declined. Our world ranking position within the OECD has dropped. It never was all that high, I might say, but under the policies that were prevailing at the time it was being lifted and it was improving, and we were going up the rankings, which is where we should be as a country.

What they have done is reverse a progressive direction which was in the interest of Australia and I, for one, regret that enormously. One of the major issues at that time was reducing a general industry facilitator, which was the R&D tax concession, from 150 per cent to 125 per cent, and they took that action without regard to the consequences. I asked the question, `Have you done a cost benefit analysis?' They said, `No, we just know how much it costs us, and this is how much we are going to take out of the budget.' But they had absolutely no idea about how much it actually gives back to the community, to industry, to the economy, to the wealth of Australia and to jobs. We had an idea, and we were right because three years later we can see the figures. There is a clear lesson that when you combine ideology with inexperience and rank obstinate stupidity, the consequences for people are the loss of jobs, the loss of competitiveness and the loss of a market position for the manufacturing industry, in particular, which is to be greatly regretted.

Having got that off my chest, let me return to the bill at hand. The people who write to parliamentarians play a great role in provoking thought on issues to which we might not otherwise be alerted. All senators know that the number of representations you get can encourage you to decide whether a bill is non-controversial or not. We were undecided on this bill. We did, in fact, get only one communication that I can recall, and in the end we were undecided about that communication. But I want to put it on record—I notice that the advisers to the minister are present, and they should pay heed to it—because, if this person was right, it needs to be corrected; if they were not right, then it does not need to be corrected, but we will keep an eye on it.

I will give you a summary of what was said. They said that the apparently innocent provision—which is actually item 22—of the Industry Research and Development Board in relation to the exploitation of the results of R&D projects could have serious ramifications. They state:

Previously, the Board had the power to issue certificates stating that the results of R&D activities had been exploited `otherwise than in a manner that is for the benefit of the Australian economy'. As would be expected, the effect of such a certificate is to disallow all claims for the R&D activities, whether undertaken before or after the certificate is issued. Clause 22 of the bill will add to this power by allowing the Board to issue the certificate if:

"It would have been reasonable to expect that there has been some exploitation, after the commencement of this paragraph, of the results of those research and development activities but no such exploitation has occurred."

They go on:

There are two major problems with this.

1. It is effectively retrospective because it applies to R&D projects which may have started a number of years ago under a different set of rules. The only time limit is that the reasonable expectation must arise after the Bill is passed—the power is not restricted to activities which commence after the Bill is passed.

It is very clear that this provision is aimed squarely at R&D syndicates. Whatever your view may be on syndicate investors, they should be entitled to have their R&D projects reviewed under the provisions that were in effect when the syndicate transactions were entered into.

2. The second problem is that the provision is not restricted to syndicates. It is a broadly stated, discretionary power that strikes at the market driven nature of the concession. The IR&D Board will have the power to second-guess companies about whether particular results should be exploited, and how and when they should be exploited. It will be the board that determines if the R&D is successful, when it is reasonable to expect exploitation, and to some extent what form of exploitation is sufficient.

Many companies conduct a range of R&D activities with the same basic aim, and choose to exploit the one (if there is the one) which is the most successful and the most economically advantageous. This is something we should be encouraging, not discouraging.

The proposed new provision can only add further uncertainty to the R&D tax concession. The existing power to disallow claims if the results have been exploited in a manner that is not to the benefit of the Australian economy is more than adequate and should not be extended in a manner that gives the Board power to dictate to companies what they should do with R&D results.

I have deliberately read that to you as they presented it to me, because it appeared to be a fairly cogent expression of their opinion. I will say, particularly to the advisers to the minister, that, frankly, the Australian Democrats were undecided about this and whether there was a real issue to hand, and I would appreciate it from our side if you could keep an eye on it and advise us in due course if in fact these kinds of problems emerge—and you would obviously do that through your representative minister. Accordingly, the Australian Democrats will support the bill in full.