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Thursday, 25 November 1993
Page: 3720


Senator ROBERT RAY (Minister for Defence) —I present the government's response to report No. 324 on the Joint Committee of Public Accounts on Commonwealth support for private sector investment in research and development. I seek leave to incorporate the response in Hansard and move a motion in relation to the document.

  Leave granted.

  The response read as follows

COMMONWEALTH SUPPORT FOR PRIVATE SECTOR INVESTMENT IN RESEARCH AND DEVELOPMENT

TAXATION

1. The tax incentive be continued indefinitely. (paragraph 3.29)

Agreed The Government announced in the 1992-93 Budget Statement that the Income Tax Assessment Act 1936 would be amended to provide that the rate of concessional write-off for eligible R&D activities remain at 150%.

2. Consideration of and action on the current Bureau of Industry Economics review of the 150% taxation concession be a priority activity for the Industry Research and Development Board, which should:

take into account the outcome of the current Australian National Audit Office efficiency audit of the administration of the scheme;

determine from the review and audit reports whether evidence exists to support the provision of the concession on incremental expenditure only; and

consider whether further action needs to be taken to remove any distortion caused by the dividend imputation provisions and, if so, what form this action might take. (paragraph 3.29)

Already in progress or (point 3) no action required Consideration of both the BIE and the Australian National Audit Office (ANAO) efficiency reports will be priority tasks during 1993.

The concession is not based on incremental expenditure. This was a considered policy decision, influenced by experience of "incremental" schemes overseas, and by the practical difficulty of administering the tax concession on an incremental basis.

Foreign experience (especially in Canada) suggests that an incremental approach, in practice, does not substantially reduce actual foregone revenue, but does greatly increase compliance costs as energy is diverted into making all R&D incremental.

The dividend imputation provisions support the policy of Commonwealth support for R&D. As the JCPA noted (paragraph 3.19), the dividend imputation provisions ensure that the greatest benefit of the tax concession is to those companies who boost working capital. This is clearly indirect support of commercialisation and marketing.

The other issues raised in the recommendation are being analysed by the BIE and are being considered by the Government.

3. Section 73B of the Income Tax Assessment Act 1936 should be amended to give the Industry Research and Development Board the power to determine the eligibility of plant and equipment purchased for research and development purposes, subject to the concession for eligibility being retained only for plant and equipment which is used solely for research and development purposes. (paragraph 3.35)

Not agreed Administration of the Income Tax Assessment Act is the responsibility of the Commissioner of Taxation. Plant expenditure that qualifies for the R&D concession is expenditure on plant that is used exclusively for R&D activities (subsection 73B(1) ITA Act). What constitutes such activities is a matter for the IR&D Board (section 39K IR&D Act) on which the Board's certificate binds the Commissioner of Taxation (section 73B(34) ITA Act). In practice, the Australian Taxation Office would seek expert advice from the IR&D Board where there was any doubt about the purpose of the plant and equipment.

Expenditure incurred in acquiring or constructing plant that is to be used exclusively for the purpose of carrying on R&D activities qualifies for the R&D concession and can be written off over three years of income. The concession applies in the first year of income in which the plant is used exclusively for R&D purposes and in the two succeeding years of income (subsection 73B (15) ITA).

The concession is not available for plant that is acquired or constructed with the intention of using the plant for the concurrent dual purposes of producing assessable income and conducting R&D. In these cases the plant will qualify for depreciation deductions in the normal way (section 54).

If after the first or second year of income in which plant has been used exclusively for R&D purposes, the plant is no longer used exclusively for that purpose, the R&D concession is no longer available. However, the proportion of the cost of the plant that has not been claimed (two thirds or one third as the case may be) may be depreciable (subsection 73B(21)). In such a case none of the concession allowed for the years in which the plant is used exclusively for R&D purposes is clawed back.

4. The enabling legislation be amended to remove any doubt that the concession applies to research and development which is mainly undertaken in Australia, as currently interpreted by the Australian Taxation Office. (paragraph 3.35)

Agreed The definition of R&D activities for the purpose of section 73B refers to activities that are carried on in Australia or in an external Territory. However, in Taxation Ruling 2442, the Commissioner of Taxation has ruled that, where some ancillary or incidental part of a project that is being carried on in Australia has to be undertaken overseas, expenditure on the overseas activities qualifies as R&D expenditure. For instance, it may be that testing facilities of a particular kind are not available in Australia or that R&D staff go overseas for training, to observe techniques or to attend relevant seminars. In both examples, where the activities undertaken overseas are directly related to the company's R&D activities carried on in Australia, the cost of those activities will be accepted as part of R&D expenditure.

However, the Government will make the necessary legislative amendments to remove any uncertainties in this regard.

5. The Australian Taxation Office and Industry Research and Development Board continue to work in close consultation on matters of legislative interpretation, particularly as it relates to the commercialisation of research and development and the determination of whether the research and development is undertaken by companies on their own behalf. (paragraph 3.35)

Already existing process The ATO and the IR&D Board will continue to work in close consultation. Such consultation has been recently facilitated by the resolution of concerns over the application of the secrecy provisions of the income tax law.

6. The Industry Research and Development Board, in consultation with the Australian Taxation office, continue to monitor the operation of the syndication and collaborative research elements of the tax concession to ensure that every opportunity is provided for joint research efforts that will bring net benefits to Australia. (paragraph 3.39)

Agreed The recommendation is consistent with Government policy, which is to achieve an appropriate balance between encouraging joint research efforts and discouraging artificial tax minimisation schemes.

7. The Industry Research and Development Board and Australian Taxation Office continue to discourage use of the tax concession legislation for artificial tax minimisation schemes which do not result in a net benefit to the nation. (paragraph 3.39)

Already established process In the 1992-93 Budget, the Government announced legislation to limit eligibility for the R&D tax concession in the case of syndicates, and other structured financing arrangements, involving tax exempt researchers where the investors' funds were not fully at risk. The IR&D Board was also given discretionary powers to declare particular finance schemes to be ineligible for the R&D concession. The IR&D Board will develop and publish the guidelines used to assess whether or not an ineligible finance scheme exists in relation to particular research and development activities.

8. Market analysis and development of market entry strategies be allowed as eligible supporting activities under the tax concession legislation, up to a limit of 10% of total eligible research and development expenditure in the relevant project. (paragraph 3.41)

Not agreed This recommendation has been previously considered and rejected by the Government, most recently in the 1992-93 Budget context. Extending the tax concession to non-R&D expenditures would provide scope for abuse, add complexity into the tax law and be difficult to administer.

9. The Industry Research and Development Board, in consultation with the Australian Taxation Office, examine the potential for distortion of investment and commercialisation decisions created by subsection 73B(27A), in conjunction with other parts of the Income Tax Assessment Act. (paragraph 3.44)

Not agreed Subsection 73B(27A) reflects intentional Government policy: if a taxpayer receives a deduction for R&D expenditure then any receipt which results from that expenditure should be included in the assessable income of that taxpayer. This is consistent with the general taxation principle of matching deductions with related income to ensure that tax is levied on the net income or profit of taxpayers. To allow deductions from an activity to be received by one taxpayer while attributing the income of that activity to another taxpayer would allow taxpayers to artificially structure their affairs to minimise tax with a consequent loss to the fairness and revenue generating powers of the taxation system.

10. Action be taken to remove any anomalies, without creating a loophole for unintended tax minimisation schemes. (paragraph 3.44)

Agreed The Government will continue to identify anomalies and take action where appropriate.

CAPITAL

11. The Department of Industry, Technology and Commerce reconsider the existing requirements for the operation of Pooled Development Funds to determine whether they should be modified to make the Pooled Development Funds concept more attractive to the market. (paragraph 3.74)

Not agreed The Pooled Development Funds (PDF) program, which was announced in One Nation, is designed to provide equity investment principally to established small and medium sized firms. Recently the Government announced that the PDF concessional rate will be reduced from 30% to 25% from 1 July 1993.

As part of the Government's ongoing commitment to the PDF program, DITARD will continue to monitor the ability of PDFs to meet the objectives of the PDF program, as outlined in One Nation.

12. The initial focus of the Australian Technology Group be upon a limited number of industry sectors and technologies, particularly in areas where there is a domestic market as well as an international market to ease the commercialisation process. (paragraph 3.76)

13. The Australian Technology Group give initial focus to forming joint ventures with established major corporations as a means of developing credibility and wider investor confidence (paragraph 3.76)

Already in progress The Government has established the Australian Technology Group Pty Ltd (ATG) as a technology commercialisation corporation to contribute to the translation of Australian research into products and services which can be delivered to the Australian and international markets on a totally commercial basis. Given the long-term and high-risk nature of investment in technology commercialisation and the need to attract private sector investment to the ATG, it is clear that the ATG must be allowed to develop its own business strategy and operate along commercial lines.

The ATG Board has indicated during public seminars held in late 1992 that it is conscious of the need to focus its activities to develop credibility and investor confidence and to forge appropriate alliances both in Australia and overseas during its initial operations. Whilst the ATG may well develop along the lines suggested in these recommendations, the initial focus of its operation is a matter for the ATG Board and management to consider in the development of their business strategy. In that regard it should be noted that the ATG has appointed a Managing Director and other staff who bring with them extensive experience in international technology commercialisation and specialist knowledge in high technology areas.

14. The Government require superannuation funds to report details of their holdings in certain types of investments, including investments in new asset classes such as development and venture capital. (paragraph 3.78)

Partially accepted The Government has undertaken to establish a comprehensive and effective prudential framework to give adequate protection to superannuation savings and to promote a more efficient superannuation industry, while avoiding the imposition of unreasonable supervisory and compliance costs.

The disclosure of adequate and appropriate information to members is a critical element in the prudential arrangements. However there are significant costs to an appropriate level of regulation. The direct financial costs to superannuation funds of complying with supervisory requirements are ultimately reflected in lower benefits available to fund members when they retire.

Substantial new disclosure requirements, which the Government announced in August 1991, have applied to all superannuation funds with five or more members from 1 July 1992. These extensive requirements must include, among other things:

the investment strategy, proportions, or the amounts, of the value of assets of the fund specified by the asset classes listed in regulation 18K(1) of the Occupational Superannuation Standards Regulations, and the value of particular assets of the fund if they exceed 5% of the value of all assets;

the names of trustees, investment managers or other financial advisers or consultants;

its earnings;

the credit rate and reserving policy; and

fees, charges or other expenses deducted from a member's account.

To the extent that the Government requires information on particular types of funds investments for policy purposes not related to prudential supervision, there may be merits in obtaining this information from surveys of a representative sample of funds rather than introducing further mandatory reporting requirements.

15. The Insurance and Superannuation Commissioner develop a standardised reporting system for use by superannuation funds in reporting on their investments. (paragraph 3.78)

Partially accepted The Government supports the recommendation that there be prescription of specific asset allocation for use by superannuation funds in reporting their investments and has developed such standards. As mentioned in response to Recommendation 14, the disclosure requirements introduced from 1 July 1992 require the reporting of details of the proportion, or amount of the value of assets invested in certain prescribed categories. In addition, trustees must report details of individual investments which exceed 5% of the value of all assets.

16. The information provided to the Insurance and Superannuation Commissioner be reported to the Parliament. (paragraph 3.78)

Agreed in principle The Commissioner receives information from over 70,000 funds on an annual basis. Aggregating such information to permit a meaningful report to Parliament would involve an unwarranted resource cost.

The Government has, nevertheless, recognised that public dissemination of some fund information is desirable from an accountability perspective. The Insurance and Superannuation Commission (ISC) has developed a public access database system in the context of the Superannuation Guarantee arrangements to provide readily available information concerning the compliance status under the OSS legislation of superannuation funds. The Government also announced in the Strengthening Super Security Statement (21 October 1992) that it will further improve the availability of information to third parties, by requiring funds to provide, on request, the annual report and (on an aggregate basis) such information as fund members are entitled to request.

17. The Government review the prudent man rule with a view to removing any impediments to the investment of superannuation funds in research and its development and commercialisation. (paragraph 3.81)

Already undertaken The Government has just completed a review of the prudent man rule and announced in the Strengthening Super Security Statement that it would codify in legislation the prudent man provisions. These provisions will be comparable to those in United States legislation. In this Statement, the Government noted that:

one of the essential duties of trustees is to invest in a manner that seeks to maximise the rate of return on members' entitlements commensurate with a prudential approach to risk;

the best way this could be achieved would be to encourage trustees to adopt a balanced portfolio approach to the investment of members' funds; and

the adoption of a balanced portfolio approach will allow trustees to invest a proportion of funds in areas such as venture capital without breaching their fiduciary obligations.

18. The Government examine the possibility of introducing a tax exempt savings program with a requirement for a substantial component of the savings accumulated to be invested into Australian research and its development and commercialisation. (paragraph 3.84)

Not agreed Tax exempt savings accounts are unlikely to be an appropriate means of addressing any perceived shortage of capital for investment in research and development as there are significant doubts as to their ability to encourage greater national savings and conditionally favouring R&D could be at the expense of other economically worthwhile investments.

In the context of providing tax support for superannuation, the Government has indicated that it does not intend to specify where superannuation funds can invest, except to the extent necessary for prudential purposes. Similarly, if tax support were provided in the form sought in the Report there is no basis to suggest that such funds should be invested other than on a fully commercial basis.

INTELLECTUAL PROPERTY

19. The Government establish an independent body to review the costing and structure of the Patents Office and determine whether there is any scope to achieve greater efficiencies and streamline the process. (paragraph 5.59)

Not agreed There have been a large number of independent and in-house reviews of the Australian Industrial Property Organisation (AIPO) and its predecessor in the last decade. These reviews, including the DITARD/AIPO/Finance review of the Management Improvement Program, have led to major changes in the AIPO's framework and operations. On 1 July 1993, AIPO moved to a Group 2 Trust Account. The benefits of AIPO operating under a Group 2 Trust Account arise largely from the systems and procedures which AIPO are to adopt as a condition of the arrangement. These include the adoption of accrual accounting, the development of corporate objectives and strategies to achieve them, and pricing and performance targets which substitute for the absence of effective competition. Under these arrangements the Government believes AIPO will be a more cost-effective body and responsive to the market for industrial property rights.

AIPO's fees and service compare favourably with the major international industrial property organisations. It should be noted that the fees charged by AIPO form only a small portion of overall patenting costs. The costs imposed for services provided by the patent attorney profession, the costs involved in obtaining overseas patents, and the cost of enforcement of patent rights through the court system are all significant elements in the overall cost of patenting and are all outside the control of AIPO.

AIPO has ongoing review and monitoring mechanisms in place and is responsive to user needs. It maintains close contact with its main interest groups on all matters of significance—including fees. In addition to these informal arrangements, AIPO makes use of more formal working parties to consider major issues. Appropriate arrangements for the oversight of AIPO's business and administrative activities are also under consideration by the Minister for Science and Small Business.

20. The Department of Industry, Technology & Commerce:

set up an advisory committee of users to monitor the costing structures of the Patents Office on an ongoing basis and provide feedback on their needs and the services provided; and

consider whether programs supporting research and development should be extended to giving assistance towards the cost of patents where those costs may deter the commercialisation of research and development, especially on an international basis. (paragraph 5.59)

Agreed in part The Government accepts that an advisory committee of users to monitor costing structures and to provide feedback on their needs and the services provided may be useful. Members would need to have experience or expertise to understand the environment in which the Office works. As mentioned in the response to recommendation 19, however, AIPO already seeks and responds to feedback and suggestions of its users. The current move to a Group 2 Trust Account for AIPO will also provide a more efficient and responsive service for users. The Minister for Science and Small Business is considering appropriate arrangements for the oversight of AIPO's business and administrative activities. The role of the Industrial Property Advisory Committee in providing policy advice to the Minister is also under review. The establishment of an advisory committee of users will be considered in this context.

The Government does not believe it is appropriate to extend the scope of existing programs to cover the costs of patents. It is the Government's view that the commercialisation of research should by and large be handled by those closest to the research project as they are in the best position to judge both the commercial viability and risks associated with any particular research and commercialisation project.

The recommendation would require Government to determine which projects have commercial potential and/or whether the cost of patenting is the actual deterrent to commercialisation, or whether the development costs are the prohibitive factor. These assessments are best made by those undertaking the commercialisation process. Government already provides substantial assistance to encourage innovation through a range of programs such as the 150% tax concession for research and development and the Grants for Industry Research and Development program. In the Government's view, existing programs provide the appropriate balance between assistance and commercial decision making.

21. The Law Reform Commission review:

the Government's policy for protecting intellectual property;

the appropriateness of the present legal framework for protecting intellectual property, and

the administration of intellectual property protection by three Departments. (paragraph 5.65)

Agreed in part The Australian Law Reform Commission (ALRC) is not well placed to undertake such a broad review of the Government's policy for protecting intellectual property as its legal focus is not suited to investigating the broad economic and policy considerations involved, and its function is to investigate and report on the state of the law, rather than government arrangements for administration and policy development. Further, much of the individual Intellectual Property legislative regimes have been or are in the process of being reviewed.

The patent legislation has been the subject of a review in recent years and the new Patents Act 1990 is a direct result of this review. The trade marks legislation has also recently been reviewed and it is expected that an exposure draft of the new legislation will be available for public comment towards the end of 1993. The designs legislation is currently being reviewed by the ALRC. Various aspects of the Copyright Act are currently under review by the Copyright Law Review Committee (CLRC), which has presented six reports during 1983-1991 and is expected to report on its two current references in 1993. The Government has responded to the CLRC reports already presented and will in due course respond to the reports expected from that body and the ALRC.

The operations of the Plant Variety Rights scheme have also been reviewed recently and the Plant Variety legislation is being redrafted following public consultation and review. The Government will continue to review legislation and individual issues on a case-by-case basis drawing on the advice and work of those organisations best placed to undertake such reviews.

In regard to the administration of the intellectual property system, this issue will need to be considered further in the light of the possible benefits and costs associated with changes to current administrative arrangements. The Government acknowledges there may be benefits from forming a single intellectual property protection administrative body, such as the convenience of a "one stop shop" for users and client groups of one or more of the intellectual property systems, and possibly a more consistent, focused and comprehensive legislative and policy approach to intellectual property as a whole.

However, the extent to which it is practical to integrate approaches to review and reform of the various intellectual property regimes, with their diverse policy objectives and dependent industries, needs to be carefully considered. Also, there are possibly costs involved in a single overall intellectual property administration, such as a loss of direct involvement with clients, and a possible erosion of the relevance and effectiveness of the focus on individual elements of intellectual property rights (eg the separation of Plant Variety Rights from the Department of Primary Industries and Energy might mean the agricultural/horticultural interests are not as effectively addressed) needs to be considered. The issues of funding and charging would also need to be addressed as the individual elements of the intellectual property system operate under varying cost recovery regimes or, as in the case of the copyright system, generate no revenue for its administration. It should also be noted that the Government already has in place mechanisms such as the Intellectual Property Consultative Committee, to improve the coordination and consultation between agencies responsible for intellectual property regimes. This issue will need to be further considered in the context of current coordination arrangements and the potential costs associated with a single administration.

A range of intellectual property issues identified in a report presented to the Prime Minister's Science and Engineering Council and another report prepared by the Industrial Property Advisory Committee are currently being considered by Government. Issues being considered include awareness and education in intellectual property protection, practice and procedures for the enforcement of industrial property rights in Australia and Australia's involvement in intellectual property issues associated with Asia.

22. The Government consider amendments to the taxation legislation to allow the depreciation of world-wide patents that add to work in Australia, but do not provide income, as a means of encouraging Australian companies to operate on the world market. (paragraph 5.73)

Already established practice Current industry policy seeks to encourage Australian companies to become more internationally oriented. Some companies have claimed that international patents costs are prohibitive and have been a deterrent to pursuing certain international markets.

Under existing tax law, capital expenditure incurred in the development or purchase of a patent may be amortised over the effective life of the patent in the hands of the owner. For expenditure incurred after 21 August 1990, amortisation has been extended to foreign patents, provided they are used for the purpose of producing assessable income in the year of income or a previous year of income.

The interpretation of the legislation by the Australian Tax Office is to allow deductions for the cost of foreign property rights which are purchased by Australian businesses to protect exports in foreign markets from competing production where the exports generate assessable income in Australia. Given that such costs are presently deductible, the Government considers legislative change unnecessary.

MANAGEMENT TRAINING

23. Companies receiving grants for research and development be:

examined by the granting body to ascertain whether they require management training, and

assisted to obtain this training. (paragraph 6.11)

24. Innovative companies be assisted to obtain management advice of a high order from experienced managers. (paragraph 6.11)

Already established practices The Government considers sound management to be at the core of successful commercialisation and thus that it should be developed and supported at every opportunity. Consideration of management issues is implicit to the current evaluations made by funding bodies such as the Cooperative Research Centres Program, and the Primary Industries and Energy R&D Corporations; the issue of effective management is of increasing importance to all IR&D Board programs and is one of the factors taken into account in the current granting process.

Under the yet to be finalised "Ineligible Finance Scheme Guidelines" management performance of commercialisation partners will be one of several factors the IR&D Board will take into consideration in determining the eligibility of financing schemes associated with the performance of R&D to be claimed under the provisions of the tax concession.

In line with the new administrative arrangements for the IR&D Board, Committees provide feedback to applicants at both the Expression of Interest and Application stages. Such feedback can include advice on management training, business planning, marketing and other elements of their proposal and the applicant's capabilities.

DITARD offers a referral service to other Government programs and advice on remedial action, such as improving specific areas of a firm's capabilities.

Companies seeking management training have access to a number of Government programs including the National Industry Extension Service (NIES), the Workplace Reform Program, Australian Best Practice Reform Program and the Small and Medium Enterprise Development Program. IR&D Board Grant approvals are, at times, awarded conditional on the applicant undertaking NIES enterprise improvement programs.

Under the Cooperative Research Centres (CRC) Program, Centres are encouraged to seek appropriate management training. Some management schools have expressed an interest in organising courses specifically tailored to CRC managers. The Office of the Chief Scientist supports these initiatives but believes that the Centres must decide for themselves what type of training they wish to foster. Centres are allowed to use CRC Program funds to support training, including management training.

NETWORKING

25. Increased funding be provided for networking so that the number of networks supported can be increased, training of network facilitators pursued and information disseminated about networks. (paragraph 10.59)

Already existing process A National Industry Extension Service pilot program for demonstration networks began in 1990. Funding of $500 000 per year continued in financial years 91-92 and 92-93. Supported networks include HunterNet, an engineering network in NSW, the Tasmanian Fine Foods Network, the Scientific and Industrial Electronics Network (SA) and the Darling Downs Agricultural Machinery Group (Queensland).

26. The Australian Technology Group concentrate its activities on forging alliances and building networks for Australian researchers, companies and industries. (paragraph 6.11)

Not applicable See response to recommendations 12 and 13.

INFORMATION AND RESEARCH

27. The Industry Commission take steps to ensure that its work is prosecuted with careful attention to the acquisition of adequate data and the use of appropriate methodologies. (paragraph 7.33)

Already instituted The Industry Commission's inquiry process ensures that its work is based upon the fullest set of available data. The Commission seeks to ensure the widest possible participation of interested parties through publicising its inquiries, holding public hearings and usually producing a draft report canvassing policy options before submitting a final report to Government. Discussions with interested parties are often held to assist the Commission to identify issues and assemble appropriate data. Further, where relevant data is not available from official sources, the Commission approaches participants for information on their activities.

28. The Government provide additional funds for research into the process of innovation, the effect of government assistance on private sector investment in innovative activities, and the efficacy of different forms of support for private sector investment in research and the development and commercialisation of this research. (paragraph 10.13)

Already instituted The Government recognises innovation as an important part of developing Australia's international competitiveness and devotes considerable resources to a variety of programs both to further understand the process of innovation and to encourage private sector investment in innovative activities:

150% tax concession for R&D expenditures;

Cooperative Research Centres Program;

IR&D Board Grants;

joint industry and government funding through the Primary Industries and Energy R&D Corporations;

funding DITARD, the Bureau of Industry Economics, the Prime Minister's Science and Engineering Council and the Australian Manufacturing Council among others, which have all published work related to innovation;

funding higher education institutions where academic research related to the innovation process takes place; and

funding of the ABS which is investigating the feasibility of collecting and publishing data related to innovation.

DITARD has recently released the first part of a comprehensive study of the importance of innovation for economic growth and international competitiveness. The Department has also taken an active role in the substantial study of the innovation process being conducted by the OECD. The Government has initiated reviews (as part of its wider evaluation process) of the effectiveness and efficiency of certain programs designed to foster private sector innovation and the commercialisation of research. These include the recent Industry Commission Inquiry into the National Procurement Development Program and a BIE study of the R&D tax concession. A wider, more thorough review of government R&D activity and the support it offers to the process of innovation by the Industry Commission is due to begin soon.

29. Agencies providing support for research and its development and commercialisation give priority to producing a single compendium of information about all available forms of support. (paragraph 10.27)

Not agreed The Scitech Technology Directory, Being the Best, and the Government Support Services for Industry Database meet the needs of the majority of users and, in addition, most individual programs produce their own information directories.

While preparation of a single consolidated information directory of R&D support programs could be regarded as ideal, this would duplicate to a large extent services already provided in both the public and private sector.

30. A review body be established by the agencies that provide support for research and its development and commercialisation to ensure on an ongoing basis that:

overlap between programs is minimised;

any gaps in the support provided are identified and rectified; and

information flows readily from agency to agency. (paragraph 10.32)

Already instituted Inter-agency coordination is the responsibility of the Coordination Committee on Science and Technology (CCST) established in 1989 which meets quarterly and is chaired by the Chief Scientist. It is responsible for ensuring that overlap between programs in different portfolios is minimised. An example is the consideration by the Coordination Committee on Science and Technology of the R&D implications of the Government's over-arching policy on Ecologically Sustainable Development. Agencies are responsible for identifying gaps in support within their respective policy fields and addressing these in new policy initiatives.

Communication between agencies is facilitated by cross membership between, for example, the CCST and the IR&D Board, the CRC Committee and the National Health and Medical Research Council and the Australian Research Council.

With respect to possible overlap between generic IR&D grants and CRCs, the IR&D Board is aware of the possibility of an overlap in funding and is actively examining ways to address the problem.

As noted above, the Industry Commission is to review publicly funded R&D, and is expected to address aspects of this recommendation.

31. Agencies that provide support for research and its development and commercialisation give high priority to establishing and maintaining a centralised record of the assistance provided to individual firms. (paragraph 10.37)

Not agreed A publicly accessible central record would be impractical as many of the programs are bound by various restrictions on the access to information provided by users of programs (eg any information regarding the actual amount of a claim under Section 73B of the Income Tax Amendment Act is covered by the secrecy provisions of the governing legislation). Other programs are bound to treat much information received as strictly Commercial-in-Confidence or there may be some other express agreement not to divulge information (eg a Ministerial agreement relating to the non-disclosure of information including the names of companies registered for the tax concession).

32. Agencies providing assistance for research and its development and commercialisation provide reasons for their lack of success to failed applicants. (paragraph 10.39)

Agreed The Government considers positive feedback to both successful and unsuccessful applicants is an integral part of a funding agency's mission.

For example, under the various legislative provisions of Section 73B of the Income Tax Assessment Act and Section 39 of the Industry Research and Development Act, all negative decisions of the IR&D Board require that written reasons for that decision be provided to the company or organisation concerned. In addition, there are certain appeal mechanisms available in order to have such decisions reviewed both by the Board and externally through mechanisms such as the Administrative Appeals Tribunal and the ADJR.

The revised administrative procedures for IR&D grants under the Industrial Research and Development Board include a two stage application procedure and involves extensive contact between applicants and a case officer located in the appropriate Department of Industry, Technology and Regional Development's State Office. This aims to provide a quality service to applicants through appropriate advice and feedback to applicants.

The dedication of further resources to advising and assisting failed applicants must be balanced against the funding agency's overall priorities.

33. The Bureau of Industry Economics examine the programs that provide firms with targeted assistance for research, development and commercialisation with a view to:

assessing the extent to which the programs support the company and industry attributes needed for successful international commercialisation of research;

establishing how effective the programs have been in bringing products onto the domestic and overseas markets; and

indicating any changes that should be made to the Government's suite of programs to improve their performance.(paragraph 10.42)

Partly instituted The BIE's evaluation of the 150% tax concession for R&D will address most of the questions raised by the JCPA but with respect to the 150% tax concession program only. Another BIE study on the contribution of small and medium enterprises to innovation will also touch upon some of these questions although there will not be a systematic review of relevant programs within the framework suggested in this recommendation.

The BIE has developed expertise both in the evaluation of government programs and in the area of innovation and would be interested in conducting a study along the lines recommended by the JCPA. However, other commitments preclude it from commencing any further work in the near future. BIE and DITARD will discuss the possibility of additional resources being made available to expedite such a study.

It is however important to consider this recommendation in conjunction with the foreshadowed Industry Commission inquiry into R&D.

Depending on how the terms of reference are framed, it may be that the proposed work will be fully covered. On the other hand, depending on the timing of the Industry Commission inquiry, it may be useful for the IR&D Board to sponsor such work from the BIE as input to the Industry Commission inquiry.

INDUSTRY RESEARCH & DEVELOPMENT BOARD

34. A review be carried out of the role and operation of the Industry Research and Development Board, with a view to recommending how it might play a more central and effective role in the commercialisation of Australian research. (paragraph 10.47)

Already instituted The Board has recently reviewed its programs and its Grants Committees have been restructured to be simpler and more effectively administered from the Board's clients' perspective (see response to R46). There will be an increasing focus on `close to market' research support. In addition the Board requires applicants to provide a detailed plan indicating how the products from its R&D will be commercialised.

In addition to this internal review, there is a current BIE review being conducted on the Tax Concession; the Audit Office has reviewed DITARD's Tax Concession support operations, and the Industry Commission will commence a review of R&D including the Board's programs and commercialisation of Australian research later this year.

35. The mission of the Board and the objectives of its programs be revised and very clearly specified. (paragraph 10.47)

Already instituted The IR&D Board is examining its Strategic Plan as part of the Board restructuring process. Under the new administrative structure an ongoing task will be the evaluation of the program to meet the evolving Government policies and economic strategies and the needs of industry.

In consultation with DITARD, the Board will be reviewing its priority areas on an annual basis in line with industry policy objectives.

POLICY

36. Agencies, which provide grants for research and its development and commercialisation, continue to concentrate support for areas in which Australia has a competitive advantage, and tailor the assistance provided to the particular needs of industries and firms. (paragraph 10.19)

Agreed The Government supports the principles underpinning this recommendation. Moreover, it notes the possibility of creation of advantage based on intellectual endeavour in areas where Australia might reasonably develop a competitive advantage. At the same time, competitive advantage based on research findings and new technologies can be very quickly and easily lost, and it is important to make decisions predicated on future market opportunities and threats and the dynamics of the innovative process.

The Cooperative Research Centres (CRC) Program, through its requirement for close involvement of industry and other research users in all activities, including planning and management, ensures that CRCs continue to address the needs of industries and firms and that their activities build on Australia's competitive advantages and are relevant to industry's capabilities.

The IR&D Board is restructuring and will set its priorities in terms of industry areas in conjunction with DITARD. The Board is somewhat limited in its support for commercialisation as it focuses assistance on R&D under the Act's definition. There is some scope available for flexibility in grants and the Board is looking at this aspect in its restructuring.

The Primary Industries and Energy R&D Corporations have a strong commercial focus. Strong links with industry mean that grants for research and development activities do consider Australia's competitive position and dovetail with needs of Australian industry. The R&D Corporation model reflects overall Government policy which is directed at the need to develop better links between government, research users, the public sector research effort and private sector research effort.

37. Agencies awarding grants for research and its development and commercialisation review the merits of requiring at least part repayment of grants by firms that gain financial benefit from receiving them. (paragraph 4.40)

Under consideration The IR&D Board is also currently examining the issue and the Industry Commission Report on the National Procurement Development Program (NPDP) put forward suggestions for a restructured, self funding NPDP scheme. The Industry Commission is expected to address the issue in the forthcoming Inquiry into R&D. The Government will take into account any proposals or recommendations bearing on this matter arising from the Industry Commission Inquiry.

The Government notes that the concept of sharing the risks and benefits of research, development and commercialisation has already been adopted by the public sector research agencies and the Primary Industries and Energy R&D Corporations. These matters were discussed fully in a (January 1992) paper "Costing and Pricing of Research" put out by the Coordination Committee on Science and Technology, and the 1992 Government White Paper on Science and Technology endorsed general principles covering costing and pricing of research. These provide for the transparent negotiation of contracts between research and funding organisations.

38. The Government provide a performance bond guarantee facility for sales in Australia of technology and related products, as recommended by the Task Force on the Commercialisation of Research. (paragraph 7.40)

Not agreed The Government does not consider public monies should be used to underwrite the commercial viability of new technology based products. This would insulate manufacturers from

market discipline and involve high costs in admiistration and operation. The Government has taken steps to encourage the private sector to fill this role—a workshop sponsored by DITARD and the Australian Development Capital Association Ltd was held in Sydney in October 1992.

39. The Government increase the role played by organisations representing engineers and technologists in providing advice to the Government and assisting in framing policy relating to innovation. (paragraph 10.65)

Already instituted The Government supports a pluralistic S&T policy-making process and welcomes the input of individuals and groups with interest and/or expertise. It recognises that Australia's diverse science and technology system requires effective coordination, and put a number of formal mechanisms in place in the May 1989 science and technology policy statement.

The most recent significant example of its support was the announcement in the 1992 White Paper on Science and Technology that the Prime Minister's Science Council be renamed the Prime Minister's Science and Engineering Council; and that it was to be expanded to include the President of the Institution of Engineers, as well as the Treasurer, reflecting the Government's view that science, technology and engineering must be integrated into the broader policy debate.

40. The Government consult widely with all sections of the community to establish concrete targets for increased production and exports of value-added goods and services. (paragraph 10.71)

Not agreed The Government considers that production is usually organised most efficiently through the use of markets. The Government aims to provide the environment and the infrastructure in which this can be done with maximum efficiency. It is recognised that the market does not always necessarily operate in such a way as to maximise industrial competitiveness, or welfare in general, and where market failures exist there may be a case for intervention, subject to rigorous analysis of the economic, ecological and social costs and benefits of the alternatives.

REWARDS FOR COMMERCIALISATION

41. The Government institute a system of public reward for individuals and organisations that contribute in an outstanding manner to promoting Australia's success in commercialising its research and development. (paragraph 10.67)

Already instituted Several public and private prizes are already in place. These include the Australia Prize, the Clunies-Ross National Science and Technology Award, the Sir Ian McLennan Achievement for Industry Award and the Eureka Prizes. DITARD's Science and Technology Awareness Program is exploring ways by which the Government might use its influence and resources to increase the public awareness of the achievements of the winners of these prizes and the importance of their work, in order to demonstrate the commercial importance of research and technology.

COMMERCIALISING MEDICAL RESEARCH

42. The National Health & Medical Research Council and the Industry Research & Development Board cooperate to produce a program to further stimulate the commercialisation of medical research. (paragraph 4.44)

Action proceeding Australian medical researchers are world leaders in a number of fields and there can be significant net benefits from successful commercialisation of medical research. The Government recognises the potential for greater commercial benefit from Australian medical research and is pursuing it by, amongst other things:

the exchange of expertise between the IR&D Board and the NHMRC through attendance of the Board Chairman at the Medical Research Committee (MRC) meetings and by his membership of the MRC's Development Grants Sub-committee which assess development grants applications;

the charter of the ATG which includes commercialisation of medical research. The ATG will have complete independence from the Government regarding decisions as to the areas of research to support.

43. The Business Regulation Review Unit and the National Health & Medical Research Council consult on an ongoing basis with interested parties to identify regulatory barriers to the commercialisation of medical research and recommend on ways of minimising them. (paragraph 9.25)

Action proceeding The Government, through the Office of Regulation Review (formerly Business Regulation Review Unit) and, if necessary, through specific inquiries from time to time, has an ongoing agenda to remove or redesign regulations across all areas of the economy which are unnecessary impediments to the international competitiveness of Australian industry. Any regulatory impediments to the commercialisation of medical research would be expected to be identified and dealt with by these mechanisms. The Government notes in this regard that the JCPA report acknowledges the substantial streamlining of the regulatory process for the registering of drugs and pharmaceuticals for human use following action by the Government in response to the Baume Report.

In framing its recommendation the JCPA also referred to the Coghlan Report on Commercialisation of Medical Research Discoveries which recommended closer links between the NHMRC, the Business Regulation Review Unit and interested parties as regards regulatory barriers. The Government believes that existing arrangements provide an appropriate mechanism for liaison between the two bodies. Consideration of the Coghlan Report's recommendation by the Development Grants Sub-committee of the NHMRC's MRC is expected to shape the nature and the extent of such liaison.

NATIONAL INDUSTRY EXTENSION SERVICE

44. Additional funds be made available to the National Industry Extension Service so that it can supply its services to firms that have not yet used them and more extensive services can be provided to existing clients. (paragraph 6.29)

Not agreed The Government recognises the importance of the work of the National Industry Extension Service in enterprise improvement. It also notes the complementary work of Primary Industries and Energy's Marketing and Business Service, which focuses on rural areas. The Government considers, however, that further funding should be considered within the context of the Budget process, not before the end of its current funding period or prior to the Industry Commission Inquiry.

NATIONAL PROCUREMENT DEVELOPMENT PROGRAM

45. The NPDP be continued to 1995, as agreed by the State and Commonwealth Governments. (paragraph 7.36)

Agreed in part The Government has decided to continue support for the National Procurement Development Program. This has occurred within the context of the grants component of the Industry Innovation Program (IIP). The IIP has itself been extended to December 1995. By that time the Industry Commission will have reported on its review of Research and Development and the future of the IIP will have been considered by the Government.

46. The Industry Research & Development Board continue to modify the Program to eliminate inefficiencies in its operation. (paragraph 7.36)

Already instituted In line with the operational review of the grants programs (including the NPDP) and the IR&D Board, a number of initiatives have been taken to improve its efficiency and effectiveness.

In February 1993, the Board launched the new, streamlined Industry Innovation Program, which incorporates the Discretionary and Generic Technology Grants schemes; the Advanced Manufacturing Technology Development Program; the National Procurement Development Program; the National Teaching Company Scheme; and the 150% tax incentive; and aims to make the schemes much more accessible and responsive to client needs and to speed up the whole grant approval process. Applicants now need to put in only a single Expression of Interest for all the schemes which will be considered by one of five new industry focused committees. They will provide feedback and decide if it is worthwhile for an applicant to go ahead and make a much more detailed full application. Unsuccessful applicants receive greater feedback as to the reasons for their lack of success.

There will be a single point of contact in each State, and advisory services and project management will be located in the relevant State offices, where staff can become more involved in monitoring, reporting and reviewing the project, and commercialisation of the results. This should make the program more accessible to companies, researchers and purchasers. Such requirements as establishing milestones will be strengthened and become an essential part of a stepped payments regime through the life of the project.

The structure of the IR&D Board has also been revised to enable committees to develop a greater understanding of the needs of specific industry sectors, and to reduce the time taken for applicants to receive feedback and notification of successful, or unsuccessful applications. The sectoral committees are:

Information, Communications & Electronics

Health, Food & Bio industries

Manufactured Products

Engineering, Infrastructure & Environment

Service & Consumer Products

The criteria by which applications will be assessed include:

i. the applicant's capacity to commercialise the product or process;

ii. the applicant's expertise and capability in the research area

iii. market factors, including the competitive advantage of the product or process; and

iv. the level of benefits gained by the Australian economy.

A national marketing strategy will increase the level of awareness and understanding of the grant programs, and a continuous improvement process in the operation and evaluation of the grants programs will be introduced.

DEFENCE OFFSETS PROGRAM

47. The Department of Defence undertake a full scale assessment of the national significance of the Defence Offsets Program, in particular its success in meeting its objectives. (paragraph 8.6)

Not agreed In its report No 305 Implementation of the Offsets Program the Committee recommended that ". . . an independent full scale assessment be undertaken of the national significance of the offset policy . . . .". In a supplement to the Finance Minute on JCPA report 305 the Department of Defence responded and did not accept the recommendation.

Resulting from a study of Defence Policy and Industry in 1992 (under the guidance of Parliamentary Secretary Price) a policy decision was made to use offsets only as a measure of last resort and specific commercial arrangements are to be preferred for the transfer of technology and development of support capability in Australian industry. The Industry Commission is due to review Defence Procurement in July 1993 and will include Defence Offsets as part of the review.

Given the new initiatives and the diminished role of Defence Offsets in the procurement process the Government does not consider a separate review of the Defence Offsets program necessary.

48. The Department of Defence produce a separate report containing details of the Defence Offsets Program, similar to that produced by the Department of Industry, Technology & Commerce on the Civil Offsets Program and the Partnerships for Development Program. (paragraph 8.13)

Not agreed In view of the Government's policy decision (made in 1992) to use offsets only as a measure of last resort, and the decline in offsets obligations due to increased levels of local content in projects over the last few years reporting similar to the DITARD report is not warranted. The Department of Defence will continue reporting to the Minister on current offsets obligations and achievements.

Partnerships for Development

49. The Department of Industry, Technology & Commerce expedite its evaluation of the Partnerships for Development Program. (paragraph 8.39)

Process in place The evaluation of the Partnerships for Development Program commenced in July 1993, with an interim report in October 1993 and a final report by December 1993. Current departmental workload precludes earlier evaluation.

50. When evaluating the Program, the Department identify the success of the Program in meeting Program objectives and examine the Program's deficiencies, particularly the need for:

improved guidelines to make the requirements of the program clearer to firms;

continued standardisation of reporting requirements for partners in order to improve the quality of information prepared by them; and

comprehensive descriptions of activities conducted during each year by participating firms (paragraph 8.39)

Agreed in principle This recommendation will be taken into account when preparing the terms of reference for the evaluation.


Senator ROBERT RAY —I move:

  That the Senate take note of the document.

  Debate (on motion by Senator Reid) adjourned.