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Wednesday, 14 December 1983
Page: 3805

Senator HILL(9.43) —I rise to speak to this package of three Bills-the Industrial Research and Development Incentives Amendment Bill 1983, the Australian Industry Development Corporation Amendment Bill 1983 and the Management and Investment Companies Bill 1983. The Opposition will not be opposing any part of the package. In fact, for part of it the Oppositioon offers enthusiastic support. I have spoken previously of the need to restructure Australian industry, of the concept of a dynamic economy-an economy ever changing, able to seize new opportunities and also able to discard the old way that may no longer show sufficient community benefit. I have recognised the responsibility of government to guide the nation in its post-industrialisation progress. I have identified the key to such economic development in upgrading Australia's level of technological innovation and adoption.

This is a lesson which should be learnt from those nations with the greatest increases in gross national product since the mid-1950s. Of developed Western societies, Switzerland, Sweden, Denmark and the Netherlands come to mind. Of the tremendous growth region of Asia, Japan, Taiwan, Singapore and now South Korea are examples. Certainly, lower labour costs may have helped them along the road but with wage increases they have been able to maintain their growth increases. No doubt the secret lies in the recognition that maximum competitiveness rests with the continual adoption of updated technology.

I have mentioned before that Professor Slatyer, President of the Australian and New Zealand Association for the Advancement of Science Conference, had identified three areas contibuting to Australia's poor technological performance . The first was low levels of participation in education which raises the whole subject of skills development and an ever more sophisticated industrial environment. The second factor was low levels of industrial research and development, about which one of these Bills is concerned. The third factor was the lack of venture capital, about which another one of these Bills is concerned .

I will deal with the subject of venture capital first. In May of this year I remember specifically dealing with the subject. In that regard I made reference to the report of the Espie High Technology Financing Committee which had been brought down earlier this year. It is worth remembering that it was the previous Government that asked the then President of the Australian Academy of Technological Sciences to inquire into ways of assisting particularly financing high technology industrial development. As a result, the High Technology Financing Committee of the Academy, headed by Sir Frank Espie, was given the task and it reported in April. As I then indicated, the Committee made recommendations in relation to the financial obstacles inhibiting the development of high technology industries in Australia. The one obstacle it recognised was that high technology enterprises have unreasonable difficulty in raising finance for the start up and the early growth phases of their enterprises. In the view of the Committee, government incentives were necessary to channel capital in such directions where the likelihood of reward is very difficult to assess. The Committee looked at a number of ways of doing this and recommended venture capital companies-small financial organisations which provided seed, start up and development capital and management guidance to new businesses. It took its example, of course, from experience in America. It recommended that incentives for funding the venture capital companies should be fully tax deductible for capital investments. It is worth noting in passing that the Espie recommendation was one of minimum government involvement in the decision making process. By this Bill, the Management Investment Companies Bill 1983, the Government is implementing in close detail the recommendations of Espie. The emphasis in the tests of the type of company that can benefit is good .

I am very restricted in time tonight; so I will not go any further into that. However, I mention that we are surprised that mining technology is not included in clause 29 (6) (a) of the Bill and no doubt the Government will be able to give us an explanation for that. But speaking generally, the Government is putting into effect what the Fraser Government put in train and this is to be commended. I only regret that the complementary taxation legislation has not been included and therefore we can anticipate further delay in implementation.

The second Bill I want to deal with is the Industrial Research and Development Incentives Amendment Bill 1983. As I indicated, Professor Slatyer also identified low levels of industrial research and development as contributing to our poor technological performance. Also included in this package is a Bill to amend the Industrial Research and Development Incentives Act of 1976. The scheme of the current legislation is well known. It comprises three elements: Commencement grants, project grants and public interest project contracts. There can be no doubt as was stated in the Industries Assistance Commission's discussion paper 'New Technology Industry Assistance' of July of this year:

The development and implementation of new technology is one of the driving forces behind the process of economic growth.

This has been recognised by governments in the past. The Minister correctly stated in his speech that since 1967 successful Commonwealth Governments have sought to encourage Australian industry to reduce dependence on imported technology, to increase indigenous innovation and to undertake associated industrial research and development. Again, I do not have time to outline the list of methods by which a government has so encouraged industrial research and development. They can be found in the 1982 IAC report 'Certain Budgetary Assistance to Industry', but the major method is, of course, grants under the Industrial Research and Development Incentives Act 1976. Regrettably, the results of that encouragement have been limited. The purpose of this Bill is to extend the scope and increase the effectiveness of the scheme, and it is intended to achieve that purpose in a number of ways. I suppose the most important are to give greater flexibility in grants to companies in the business of computer software development, to allow grants not only to manufacturers but also to agencies carrying out projects for corporate clients. It gives power to specify limits in the area of research and simplification of forward commitment provisions.

Because of the importance of industrial research and development to our economic growth, it is worth reviewing our record briefly. The incentives grants scheme can then be placed in a proper perspective. The Australian Science and Technology Council produced a report in June this year entitled 'Incentives for Innovation in Australian Industry'. Firstly, it expressed concern that the level of industrial research and development performed in Australia as a proportion of gross domestic product is low when compared with that of other Organisation for Economic Co-operation and Development countries. It stated that only Greece, Italy, Turkey and Portugal were, in fact, lower. A perusal of the table to which it refers indicates that Canada might also be in that category. I think it would have been fairer to say that Australia is in the middle level of the table. Certainly, at approximately one per cent of gross national product it is much less than countries such as Switzerland with 2.4 per cent, the United States of America with 2.49 per cent, and Japan with 2.04 per cent. More dramatic, however , is that, in Australia, an unusually large part of national research expenditure is spent in government laboratories. The table of selected countries provided in the IAC's report 'Certain Budgetary Assistance to Industry' put only Portugal and Turkey ahead of Australia. In 1978-79, out of a total of 1.04 per cent of GNP spent on industrial research and development, industry provided only 0.22 per cent or, in other words, about a quarter of that of government. This is totally out of step with other OECD countries.

Thirdly, ASTEC also expressed concern that the level of industrial research and development expenditure carried on by business has been declining in real terms for a number of years. The low quantum of such development by business must be a major element of this debate. Perhaps a corollary of the fact that our industrial research and development is dominated by government is that we spend much more of our funds on basic research and less on experimental development than other like countries. We publish a lot of papers but the results are not applied in Australia's industry. In fact, it is reported that we publish 1.6 per cent of the world's research papers and yet produce only 0.3 per cent of the world's patents.

Another concern that one must have in looking at the Australian Industry Research and Development Incentives Board annual report 1980-81, is that there has been a decline in the number of those seeking grants with a significant export potential from 50 per cent in 1976-77 to 28 per cent in 1980-81. There are therefore a number of obvious concerns with respect to our industrial research and development performance. That leads to the question of how best government can encourage change for the better. As has been said by the IAC: ' What approach to government assistance is most consistent with the objective of facilitating growth and enhancing general community welfare?'. Despite what looks a reasonably disappointing record in relation to the incentives grants, the Government is clearly determined to continue in that direction, albeit with a slightly expanded scale and with an orientation towards sunrise industries. The IAC indicates that this in itself raises issues, such as whether there are gains to be made from assisting industries with good prospects, and in any case whether governments can identify those segments of industry with the greatest growth potential. Of course one who has been sceptical of the answer to that question is our shadow Minister, who has had the view that to produce indigenous new technology is important but it is more important, more practical, beneficial and effective certainly in the shorter term to adopt overseas state of the art technology in our manufacturing industries in order that they may be internationally competitive. That was the Japanese lesson, and still is to some extent.

However, it was clearly also expressed in the ASTEC report that the assessment and adaption of technology developed overseas which will be a principal source of new technology for Australian industry in many areas also requires that local enterprises maintain a considerable industrial research and development effort. Therefore, whether our industrial future is directed towards sunrise industries or the updating of existing industries, it still appears that there is a need for increased practically orientated industrial research and development. That gets back to the question of whether the grant system that we have at the moment is the best approach available. ASTEC concluded that it has not been established whether the incentives scheme has been an effective mechanism for raising the level of IR and D among business in Australia, and it seemed to be relying on the conclusions of the IAC in reaching that conclusion. The IAC said:

It is not clear to what extent the scheme has met its objectives of encouraging additional IR and D.

Mr Deputy President, this Government could have chosen a number of other alternative methods which I would have liked to have detailed but because of the time constraints cannot. Let me simply say that it could have looked to tax concessions or to repayable loans conditional on the successful outcome of the project. Such a system of repayable loans certainly has the difficulty of determining a successful outcome but it is worth noting that it was recommended by the Committee of Inquiry into Technological Change in Australia in 1980 and is also in use in the United Kingdom in the form of the National Research Development Corporation. I for one would like to know why it was discarded by this Government. Similarly, taxation concessions are in operation in Canada, Japan, Sweden and Germany. ASTEC recommended a taxation incentives scheme as an addition to our current Australian industrial research and development incentives scheme as a more effective means of stimulating industrial research and development activity. Again, I would like to know why that alternative has been rejected by the Government. But the Government has decided that selective intervention should continue. That raises the question that the IAC found difficult to answer; that is, selective intervention is helpful if it can be successfully implemented but the $64 question is whether it can be sufficiently successfully implemented.

There still seems to be considerable doubt as to whether the Government has chosen the best course, given the doubtful history of the effectiveness of grants and whether a further extension is an adequate response to the difficulties our country faces. Our past record has been to be import competitive rather than export oriented. That is another subject that must be looked at. In regard to tax incentives, perhaps we also ought to look at tax treatment for our investments which still does not facilitate rapid entry and departure from products and processes. Part of the answer might lie in the general macroeconomic climate in Australia to which the Government clearly must devote attention. All of these matters require Government attention. Our publication oriented rather than project oriented research has meant that although we might give away a lot of knowledge free of charge, in terms of receipts of payments for licences and patents we take in about ten times what we sell. That is clearly an unsatisfactory situation. We must therefore look to better integration between our research establishments and our industries. We must overcome what has become known as the research-innovation gap. There is obviously need for government encouragement in that regard.

The third Bill which I will touch upon but briefly is the Australian Industry Development Corporation Amendment Bill. It makes a number of changes to the current Australian Industry Development Corporation. It increases the resources available to the Corporation by increasing its capital and gearing ratio for borrowings. Provision is made for its borrowings to be guaranteed by the Commonwealth. Its capacity to provide equity finance will be increased by relaxing restrictions on the investment of its capital. Whilst it will be able to invest in any industry, priority will be given to manufacturing and internationally tradeable services, including tourism and the development of new technology industry.

It is worth noting that the Bill largely adopts the recommendations of the House of Representatives Standing Committee on Expenditure. As I indicated, the Opposition will support the Bill. It is recognised by the Opposition that the Corporation is serving a worthwhile purpose, particularly in helping the development of new industry and restructuring existing industry in circumstances where funds are not otherwise available. There were some other comments I wished to make on that Bill but because of the time problems I mentioned earlier they will have to be left. However, in conclusion and in summary, the Opposition will not oppose any of the three Bills. Certainly, we enthusiastically support the Bill which deals with venture capital.