Senator SCHACHT (1:32 PM) —The opposition, as Senator George Campbell has already indicated, will support the Industry Research and Development Amendment Bill 1998 , and we note that the Democrats are supporting it. The Senate should note the remarks of Senator Campbell and Senator Murray that, although we agree with this bill, we want to make comments on the very sorry saga that this government has put itself and Australian industry through over R&D since, as Senator Murray said, that terrible 1996 budget which slashed the R&D tax concession from 150 per cent to 125 per cent.

I remember John Button, the industry minister in the 1980s who introduced the policy of the Labor government to increase the tax concession for R&D to 150 per cent, telling me that he had to fight the bureaucratic opposition of Treasury and the Department of Finance and their acolytes spread throughout the bureaucracy—including the Department of the Prime Minister and Cabinet—who were utterly opposed to any increase in a special tax deduction for R&D.

He also said that, for every budget after he got it in, the 150 per cent tax deduction was the number one savings option on the hit list from Treasury and the Department of Finance. He said that, for every budget, he had to fight in cabinet against the Treasury bureaucracy's view that this had to be defeated, because Treasury hated it—they hated it with a passion.

I notice that our bumbling Prime Minister in his preamble—or whatever you want to call it—actually mentioned that we should be free of ideology. I wish he would tell the Department of the Treasury to get rid of their ideological obsessions, where they want to impose their view about how the finances and the economy in Australia should run. They are as ideologically obsessed as any group of people in Australia.

Of course, when the new government came in, bingo, they had a new inexperienced Treasurer and a new inexperienced industry minister. It was a case of, `Minister, we have got to make savings.' They said, `We have to get rid of this rort'—as they called it—`this tax deduction of 150 per cent. It is being rorted. There are people out there who are abusing it, and it is not creating any impetus for Australian industry.' Mr Costello and the industry minister fell for the three-card trick and dropped it to 125 per cent. I understand that at one stage it was probably going to be knocked off completely, but someone had enough sense to say that that might be bit much. Industry complained bitterly when they got whiff of it, so it went to 125 per cent.

I have no doubt that, in the budget coming up in a month's time—in the first year of a new government after it has been re-elected—Treasury will put up as a savings option to the government knocking off the remaining 125 per cent of the tax deduction. It will be on their hit list and I trust the new industry minister, Mr Minchin, is already defending the minimum of 125 per cent.

Senator Ian Macdonald —Senator Minchin.

Senator SCHACHT —Senator Minchin. I trust that he is using his influence with the Prime Minister to make sure that there is no further reduction.

Why do we need a concession to encourage R&D? It is very simple. We have a trade deficit running into, on average, between $20 billion and $30 billion a year because we do not export enough high value added manufactures and services from Australia. We manufacture low value added commodities.

All the countries of the Western world of any consequence in the OECD have trade surplus because they export high value added manufactures and services. That is the lesson. And how do they develop high value added manufactures and services? They have an absolute commitment to put R&D up front, both in the public and the private sector. They realise that, out of that R&D, you get the innovation, the ideas and the new products that the rest of the world is willing to buy at a very high price because they are the best products available.

But, no, not our Treasury; they never accept this view—not our Treasury officials and not our finance department officials. If they get the ear of their minister, they all call it a rort. They do not call it a rort in Japan. They do not call it a rort in West Germany, in France, in Great Britain or even in the United States of America. They see this as a legitimate approach to encourage innovative R&D in their countries. We would hope that in this coming battle—as I suspect it will be—the Treasury again hopefully will be defeated. We encourage Senator Minchin and other ministers to look at actually increasing the R&D tax concession back to the 150 per cent to reverse the trend that Senator Murray has outlined.

We support this bill as an improvement in administration. We think it is quite reasonable. But the real issue we want to talk about is why we need to have decent R&D policy in Australia for the long-term future of this country.