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Wednesday, 16 August 1972
Page: 103

Senator WEBSTER (Victoria) - This is a Bill to amend the Industrial Research and Development Grants Act of 1967, a Bill which those who have some involvement in industrial matters are pleased to support. The Government first offered financial encouragement to companies undertaking and proposing to undertake research and development as long ago as 1967. At that time a 5-year plan was formulated to produce a climate in which the Government would encourage industrial research and development. The achievements of that measure have been very considerable in the Australian national interest. One need only refer to the annual report for 1971-72 of the Australian Industrial Research and Development Grants Board to be impressed by the very great achievements following the granting by the Commonwealth of cash assistance, through the scrutiny of the Board, to a number of institutions and particularly private trading companies to encourage them to increase expenditure on research and development. The purpose of this legislation was to encourage further investment in research and development. It was never intended that this would be a subsidy to companies for the work that they did. That is one of the matters at which we must look closely. We must remember that the Commonwealth never set out to subsidise companies for the work that they did although that followed rationally from the Commonwealth's move. The subsidy was basically intended to encourage further research and development in our community and the type of development that has occurred is set out in the report.

I will now mention one or two points contained in the report. The report indicates that a noteworthy feature of the past year's activity was the increase of more than 36 per cent in the number of applicants eligible for consideration for selective grants during the year 197.0-71 as compared with the previous grant year. That being the case it perhaps encourages us to think that this legislation should not by any means be held up, as it is essential that there be a continuing flow of subsidies and a continuing knowledge in companies that they can expect further encouragement for their development. Perhaps this indicates to the Opposition that it may be unwise at this time to refer this matter to one of the Senate committees for further investigation. If that is a point to be looked at - and it is an action which we as senators may encourage in some instances - I think the honourable senator proposing this on behalf of the Opposition would agree that every Senate committee at this time is overloaded with work.

Senator Gair - They are.

Senator WEBSTER - The senior senator for the Democratic Labor Party agrees with me that they are overloaded. I know that each senator is doing his utmost to discharge his duties properly. But each of us in the next few months will be called on to put an intensive effort into the election of our members of parliament. Whether there be a return of the Government or fulfilment of the hopes of the Opposition at the forthcoming election it will be many months before honourable senators are free to devote their time to the work proposed. Senator Willesee has proposed that this matter be referred to the Senate Standing Committee on Industry and Trade. He would know that not only has that Committee several references in front of it but also that it is deeply involved with the reference on trade between Australia and New Zealand and that it will be some time before we see the presentation of a report. Undoubtedly an investigation into the matter now before us could be of some value.

I am confident that the Industrial Research and Development Grant Board, the Department of Trade and Industry, which has been closely associated with administering the subsidies over the past years, and the Treasury, which has had the responsibility of granting the moneys on behalf of the Commonwealth, have ensured that the second 5-year term will be one which will again reflect encouragement for companies to undertake further research and development. The past year has ended with the Board being able to say that a 36 per cent increase occurred in the number of applicants eligible for selective grants. Undoubtedly that was the fact that prompted the Prime Minister (Mr McMahon) when he first introduced this measure on 1st March 1972 to say in a statement to the House of Representatives:

We have now decided on another measure of assistance to industry. This will be the continuing of the financial incentive provided under the industrial research and development grants scheme for a further 5 year period from July of this year.

I say to Senator Willesee that it was proposed by the Government that this scheme should commence from July this year which surely is a further reason why this Bill should not be held up for any great length of time.

The Prime Minister went on to say that the amount of incentive that the Commonwealth will provide will be significantly greater than during the first 5-year period from 1967. Further on in his comments he states that it is estimated that grants under the present scheme over the 5-year period of its operation will be of the order of S60m. That indicates that it is the expectation of the Federal Government that the expenditure on research and development, while not precisely stated in the second reading speech, will be, on the basis of the Prime Minister's assurance, in excess of the $60m that has been provided over the past 5-year period.

Some of the benefits that have flowed from this research and development are discussed in the report to which I have referred. Honourable senators may be interested to hear one or two benefits which are of great significance to the national economy and undoubtedly are in the national interest. I quote one or two of the new and improved products and processes which this type of research and development grant has produced. On consideration of these honourable senators will see what has been achieved. I hope that they will take to heart the second of the items I will quote. Honourable senators may care to look at the stock exchange listing and discover where one company by utilising this scheme has earned many millions of dollars, and I say that advisedly. It has many, many millions of dollars available to it resulting from a process which was never anticipated prior to the introduction of this scheme. On page 1 of appendix F in the Board's report the following appears:

There has been a continuing trend overseas towards the use of ductile spun cast iron pipe to replace the grey iron previously used. Such pipe has a higher tensile strength and a much greater resistance to impact damage, thus considerably improving its usefulness in locations of severe or shock loadings, and for handling and installation by unskilled labour, as for example in some developing countries where advanced handling methods are not available. In order to preserve and expand its established export market, and to withstand overseas competition in Australia, a major company in the metal industry has successfully undertaken the development of a process for the manufacture of ductile cast iron pipe and is now scaling up to commercial production. This development was necessary to adapt basic ideas derived from overseas to the use of Australian raw materials.

In all areas where Australian national interest is spelt out in that wording we can be proud that it is a reflection of some Commonwealth encouragement to industrial research. The second interesting process which has been developed under this encouragement scheme is referred to in the Board's report in the following terms:

A Tasmanian mining and metal extraction company has successfully developed a process which will permit the extraction of significant further quantities of zinc - together with lesser amounts of lead, silver and cadmium - from a 1.4 million ton stockpile of residue arising from more than 20 years of normal processing. In addition to this recovery of valuable metals which would otherwise not have been utilised, the process will permit an increase in the amount of zinc obtained from the processing of new concentrates from approximately 87 per cent to as much as 97 per cent. The company will also benefit extensively from royalties resulting from the use of the process overseas. It has already been adopted in Norway, Spain, the Federal Republic of Germany, Canada, Mexico, Holland and Belgium, whilst negotiations are proceeding in the United States of America, Japan, Yugoslavia, India and Peru.

But the limits of the national interest that has been pursued by the very encouragement of further industrial research in that instance will flow throughout the whole of the Australian community. I may say that there are some very interesting results in primary industry also. The report indicates those very many areas of interest and commercial pursuit which have been encouraged by industrial, research. The report states:

A country manufacturer of wheat and sugar products has successfully formulated new food colouring and texturising materials, resulting in the direct replacement of corresponding imported products. The same company, in the last financial year, achieved export sales of over ft. 5m, principally to the United States of America and the United Kingdom.

Honourable senators might be interested in viewing some of the many research projects that have proved of value. I shall instance another case. A Victorian manufacturer of traffic control equipment has developed a low-cost road line marker which, in addition to being used in most Australian States, has received initial orders to a value of $60,000 from Hawaii, Saudi Arabia and Venezuela. Further exports to a value of approximately $550,000 are anticipated by the company in the near future. So in short we can see the very wide area of interest that has been created by this research work.

I feel that Australians should be particularly proud of what has happened in the past and of the work that will be pursued during this next S-year period.

There is an increasing effort also in the field of environmental control and in the reduction of pollution which could be instanced in the report from which I have just quoted. I believe that the investment made by the Commonwealth by way of these grants can be reckoned to be wise in terms of Australia's industrial development. I see it as one of the few areas in which the Federal Government is giving some direct assistance to private enterprise. When I refer to private enterprise I refer to those companies in the community which to a very large extent are providing the income from which most people in this community are being clothed and fed. I suggest that we as a Senate would be most unwise to hold up this further scheme which is proposed by the Commonwealth.

The second reading speech of the Minister for Civil Aviation (Senator Cotton) is quite extensive and, if it is read and studied closely by all sectors of industry today, those who have written to me may find that many of their problems have not particular significance. I have had sent to me a significant volume of correspondence criticising the proposal that we have before us. The Chamber of Manufactures in Victoria has contacted me on several occasions on this matter. The Minister suggested that this Bill was laid before the chamber some months ago so that industry could communicate and suggest ways and means by which this measure could be bettered. I could quote from letters which were sent to the Government as early as May of this year by the managing director of at least one prominent Australian company pointing out the problems that he saw in the proposal. I am aware that the Associated Chambers pf Manufactures has been in touch with, all honourable senators and indeed the ' Federal Government expressing its views. I think we should take an interest in some of the points that it has mentioned and see whether, on balance, there is benefit to be derived from this measure or whether it will be of negative benefit in some areas.

Senator Willesee,who was the previous speaker in this debate, quoted from com munications he had received from the Associated Chambers of Manufactures to indicate some of the areas in which it has concern. 1 refer again to the first words I used in this speech. Proposed new section 4 states:

The object of this Act is to promote the development of Australian industry by encouraging increased industrial research and development in Australia.

I say again to the Senate and to those who are interested in this matter that the purpose of this Bill is to encourage increased industrial research and development, and that does not mean an increase for a particular year. If there are individuals in the community who are saying at the present time that there was a base year associated with the existing 5-year scheme and that it was on that base year that increased expenditure found some support from the Commonwealth and that that was a good thing, it could be said that that was so. But there were some definite disadvantages associated with that previous 5-year scheme which will be amended and improved by the Bill that 1 have before us. The rolling base is the main objection, as I see it, and this view has been prompted by the several letters that I have received. I have taken note of the point that they have made. I readily see that some companies may benefit by adopting in this new measure a fixed base at the beginning of the period or a base that perhaps refers back to a year or two in the last 5-year scheme. It has been suggested also in the correspondence that I have received that far too many will receive far too little from this measure. Again I say that the Government has always talked of incentives and I believe that the challenges to the several clauses of the Bill really do not justify the rejection of the Bill at this time. The effect of the rolling base will be that each year there must be an increased investment in research and development for the company to receive a benefit.

Another argument that I have noted is - I think this was a point made by Senator Willesee - that some overseas organisations apparently are receiving the major portion of the research grants. I suppose that does not rest in a person's mind too well when he sees that the Commonwealth Government may be putting out to overseas based companies a large proportion of the financial encouragement that is provided. However, I believe that, although financial assistance is going to overseas commercial organisations, they are responsible for more than 60 per cent of the total research that is being conducted in this country today. If that happens to be a fact which perhaps cannot be challenged, it is not unreasonable that the majority of the research assistance is going to those organisations.

Some honourable senators opposite may be able to point out some facts of which I am not aware, but it appears to me that if nearly two-thirds of the total research is being conducted by certain groups of firms it is not unreasonable to think that they would, at the outset, receive that proportion of the research grants. As I have said, there are benefits which come out of this measure and which were not involved in the previous Act. To the best of my ability and understanding, I shall mention 3 areas. These are areas which have been criticised in the paper work which has come to me.

Firstly, in relation to plant and equipment it has been argued that certain types will not receive the support which has been received in the past. I point out to the Senate - I believe this to be correct - that approximately 35 per cent of the first $50,000 expended on plant was accepted as eligible for support under the first 5- year scheme. As I understand the situation, now, it will be some 50. per cent of the first $50,000 which will be supported by these grants. If one looks at the second reading speech of the Minister for Civil Aviation one finds that he states:

The Government has decided that a broad incentive along existing lines should continue with, as at present, general grants for increases in eligible expenditure up to $50,000 and selective grants for eligible expenditure over $50,000. At present the general rate of grant is 35 per cent. The Government has announced that the general rate of grant for the first year of the extended scheme, 1972-73, will be increased to 50 per cent. Itis proposed that in future the general rate will be announced at least 6 months before the commencement of the relevant grant year. As at present,rates for selective grants will be determined by the Grants Board in accordance with national interest criteria specified in the Act, and having regard to the total funds available.

In fact there is a benefit to beachieved by firms in that measure. I understand that there has been some argument relating to the expenditure on pilot and prototype plant, but I believe that herethe rolling base period provisions do not apply to the calculations of expenditure eligible for consideration for grant purposes. An important exception is to be made in the case of expenditure on plant. In relation to plant other than pilot and prototype plant, the basis is to regard expenditure which represents an increase in capacity to carry out industial research and development as eligible for grant purposes. I am convinced that the circumstances of the new provision will be more beneficial to industries than that which was provided previously. Certain expenditures were unacceptable under the former Act. In this Bill we see a complete change and an acceptance by the Government of many areas of expenditure by companies which areattributable to their industrial research and development. To state this situation correctly I read from the Minister's second reading speech which states:

Items of expenditure which qualify under the present Act are salaries and wages of personnel employed essentially full-time on industrial research and development for the whole of the year; contract work for a firm undertaken by, an approved research organisation, and allowable plant expenditure. The restrictionofexpenditure allowable under the present Act to these items has given rise to some inequality of treatment between companies which conduct; industrial research and development work in. their own plants and those which have industrial research and development performedfor them by an approved research organisation.' The Government therefore proposes to allow a much wider coverage of in-company items of expenditure. This will largely or completely eliminate any existing advantage that contract workmayhave over incompany work under the present legislation.

The Minister goes on to set out very many areas. It looks as thoughitems such as travel; hired staff; technical information and reference services; repairs and maintenance work on plant;printing, stationery and general supplies; rent andleasing charges for the use of building, including notional charges wherethebuildings are owner-occupied; insurance;light, power and water; and telephonerentals etc. are now accepted by the Commonwealth under this measure as being applicable for grant purposes.

There is another most important matter which I believe has been completely overlooked by the chambers of commerce. I hope 1 am not doing the various chambers of commerce an injustice when I say that they have completely overlooked it. In the previous period where there was an expenditure running over those 5 years, in each year a calculation was made which reflected the inflationary tendency over the period, so that, if an amount were spent at the end of the period, when compared with the base period it had to be reduced by a significant amount to bring it to a notional amount which would be taken as the expenditure in that base year. Paragraph 10 on page 2 of the Annual Report for the year 1971-72 states:

After examination of official statistics and information obtained by the Board directly from official sources,, a rate of 30 per cent was fixed, in relation to grant year 1970-71, for adjustment of base year salary expenditure in accordance with section 29.

In short, expenditure on salaries in 1970- 71 had to be adjusted downwards by 30 per cent before being accepted as the true expenditure.

The PRESIDENT - Order! The honourable senator's time has expired.

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