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Wednesday, 27 November 1996
Page: 6115

Senator LUNDY(1.00 p.m.) —I wish to focus my comments on this government's industry policy and budget measures. This government lacks any vision when it comes to Australian industry. Innovation is as much lacking in this government's industry policy as innovation will be lacking in industry itself over the next decade. This government's changes to industry research and development will stifle the progress that Australian industry has achieved over the past decade. This government's axing of the computer bounty will directly cost jobs. Combine these two changes with the funding cuts to Austrade and AusIndustry and this government's policies will be truly devastating not only for Australian industry generally but also for industry development specifically.

The business people I speak to are a little perplexed about this government. Australian business thought that the election of the conservatives would provide them with an environment of growth. They must be wondering where their votes have gone. It is interesting to see that the only major portfolio announcements for industry this year have been negative. Business people are shocked.

If there was one good news story over the past decade for industry to sell which needs to be highlighted—and indeed there are many good news stories because of Labor's role in industry development—then it would have to be the dramatic rise in commercial investment in research and development. Business spending on R&D tripled between 1981-82 and 1993-94 from 0.23 per cent of GDP to 0.7 per cent of GDP.

What is particularly impressive is the rate of research and development intensity—the ratio of research and development to value adding—which in manufacturing has tripled, rising over the decade to 1993 from one per cent to three per cent. This growth was achieved through government intervention that encouraged and rewarded industry investment in innovation, cutting edge technology and research.

The reason government intervention was needed was that in the early 1980s industry was trailing the world significantly in research investment. Australians were destined to have a lower standard of living if the economy could not shift from an economy of assets to an economy of knowledge.

Labor recognised this and took a variety of actions over the past 10 years that resulted in the remarkable figures that I have just quoted. Commentators predicted that if this growth in innovation was maintained throughout the next decade then our economy would be transformed. Professor Peter Sheehan from the Centre for Strategic Economic Studies at the University of Victoria predicted that if investment continued to grow as it had over the past 10 years, levels of R&D spending would be high by world standards and many industry and service sectors would be leading edge and exports of sophisticated goods and services would be a major force in the national economy. Surely that is a desirable objective. It is not for this government.

Senator Mackay —Hear, hear!

Senator LUNDY —Thank you, Senator Mackay. It is not for this government. The penny-pinchers have won over the innovators and they have won over the people with vision. The budget is proof of the product of that battle. The Business Review Weekly headline last week—`Goodbye Clever Country'—is right. One of the most successful industry policies has been scuttled by the Costello juggernaut of fiscal contraction. The result will be innovation contraction.

The foundation of this policy of innovation was a successful 150 per cent tax concession on research and development expenditure—a business welfare initiative that even the bastion of economic rationalism the Industry Commission described last year as having brought net benefits to the Australian economy. The commission argued that its removal would lead to a reduction in GDP and that the scheme should not be changed. For once the Industry Commission got it right.

The reduction from 150 per cent to 125 per cent is a sign of this government's lack of understanding of industry. Industry has said that the reduction results in an actual halving of the concession because its value is in the percentage over the 100 per cent that would be available if the expenditure was written off as a normal expense. Companies are already considering moving their research units offshore.

Labor was not the only party to recognise the importance of research and development incentives. We were not the only country to recognise its importance. Our closest neighbours, Singapore and Malaysia, offer 200 per cent concessions. Deloitte Touche Tohmatsu surveyed 125 companies, and 57 per cent that claim the concession said the reduction would have a negative effect on their research and development decisions. Nearly a quarter of the respondents, and 34 per cent of those already claiming the concession, said that they were already considering moving their research and development overseas.

Taking the reduction in tax concession and the abolition of the syndication scheme together, that amounts to $2.2 billion being ripped out of industry research and development over the next four years. The government is taking a gamble with our investment into the future. Is it even worth saying that yet again the retention of both of these schemes was a pre-election promise of this government? It is a repetitive theme of debate in this chamber. I suppose the government thinks: if one promise is broken why not break them all? It is obvious that innovation and industry development does not fall into the bag of the core promise. If one promise is broken, then we see the rest fall—and we have seen them continually fall. I think this government is counting on the fact that the public will become immune to continual bad news.

I will continue my examination of the government's attack on the industry through its budget measures; namely, its abolition of the computer bounty. Bipartisan support for the bounty has seen the program set to continue until the year 2000. Again this is another forgotten promise and again another promise broken. How can industry effectively plan for the future when the government changes its mind as often as this government seems to?

The computer bounty, along with other programs that the government has axed, was aimed at encouraging the development of Australia's information technologies. The exports of Australian computer hardware has increased. Information technology will be the major industry of the future, and Australia could have been riding the crest of the wave. Revenue to Australia from information technology grew from less than $20 billion in 1990 to over $33 billion in 1995. The facts say it all.

This is also an industry centred on small enterprises. I add very proudly that the ACT is home to a vibrant information technology industry dominated by small operators. Nationally, 95 per cent of these businesses employ fewer than 20 people. So we are talking about not only small business but micro-businesses—very dynamic and happening organisations that have risked a lot to take Australia to the forefront of that technological wave.

Already companies have stated publicly that contracts have been cancelled because of the decision of this government to return to the bottom line budget cuts. Contracts cancelled mean jobs lost—not a favourable outcome when the unemployment figures are so appalling.

In light of these changes, it is little wonder that the government follows up with budgetary cuts to AusIndustry and Austrade. In all reality, will there be much demand on these two bodies with the changes to the bounty and research and development? I doubt it, because not too many people will be able to afford to invest.

AusIndustry, a relatively newly expanded body, has had its funding slashed by $34 million while Austrade, Australia's trade commission, has been cut by $100 million. Australian businesses need the support that these two bodies give, the push to establish and the push to export. They have been a successful part of Australian industry. Austrade does take Australian business to the world. This government is assuming that industry can do it on its own. Maybe some will—I am sure many of them will—but how many will fail in the process from a lack of that key support provided by that government body? I repeat: what a gamble this government is taking with Australia's investment.

Australian industry was moving towards being a major exporter of leading edge technology and products, but now I foresee that Australian industry will be a major exporter of jobs, particularly regional jobs. Although the past decade has seen dramatic improvements in industry investment in research and development, we will still trail behind countries like Sweden, Japan, the US, Finland and France in research and development spending.

We have got a long way to go. Before this government came in we had a hope of reach ing those goals. Another decade of similar growth would have seen Australia as a leader in research rather than as a follower—a leader in the provision of sophisticated technology rather than just a consumer—and our economy and our children would have reaped the benefits.

According to the Bureau of Industry Economics, the small business sector contributed almost $500 million to Australian research and development in 1993-94. Research and development spending by small business has had a faster average annual growth rate than expenditure by big business. Indeed, the sector expenditure on research and development trebled in the decade from 1984.

This is not surprising, since government intervention encouraged investment at that time. It meant that once high-risk ventures would be rewarded in some way, if not in product development. It is not a surprise that the President of the United States, Bill Clinton, chose Australia to raise the importance of information technology in the future. Information technology will be a vehicle of social and economic enfranchisement for many people around the world. But will Australia be a part of this revolution?

The high-risk gamble here is the one that this government is taking with Australian industry research and development. The result will be many years off. This gamble will not pay off. This government's policy for industry will be seen as a mistake. In 10 years time we will be looking back and seeing a flawed policy and wondering where we could have got to if the path that Labor initiated was continued with. My greatest fear is that it will take a long time for this government to realise the seriousness of its mistake and it will not move quickly enough to rectify what I see as a glaring and appalling deficiency in its policy structure.

Australian industry will suffer. There will be fewer jobs. We will lose the momentum of riding the crest of the wave of the latest phase in the information technology revolution. The future will be that much less bright for the next generation.