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ECONOMICS LEGISLATION COMMITTEE
31/05/2010
INNOVATION, INDUSTRY, SCIENCE AND RESEARCH PORTFOLIO
IP Australia

CHAIR —Welcome. Do you have an opening statement?

Mr Noonan —No, we do not.

Senator EGGLESTON —I would like to ask a few questions about IP rights. Obviously intellectual property rights are very important in terms of the return on scientific inventions and innovations. Perhaps you would outline how the system works for the benefit of the committee.

Mr Noonan —Yes. The IP rights which we administer are in four parts. The largest part of our resources is devoted to the patent system. The concept of a patent is that a party applies for a patent in respect of an invention which, if granted, gives the person an exclusive right to exploit that invention for a 20-year period. The second right relates to trademarks. A registration of a trademark gives an applicant the right to the exclusive use in business of that trademark for an initial period of 10 years but renewable in 10-year segments after that indefinitely. Next is industrial design. A person who secures registration of an industrial design has the right to exclusively use that design. Finally, plant breeder rights grant a right to use a particular plant variety for a period which varies according to the genus.

Senator EGGLESTON —Thank you very much. I suppose one would say those four sets of conditions brought great benefit to Australia through the exercise of IP rights and licensing them out.

Mr Noonan —Yes. Countries all over the world have run an IP system, in the case of the patent system, to try to encourage innovation by offering those who innovate a commercial return for their innovation free of the possibility of free-riders deriving most of the benefits of their invention.

Senator EGGLESTON —This committee recently has been conducting hearings into the new research and development legislation, which, if passed, would no longer require that IP rights should remain in Australia and would provide the option for them to be held overseas. In their evidence Cochlear Australia expressed some concern about that to the committee and suggested that perhaps permitting IP rights to go overseas should only be for a limited trial period of three years. What other countries do not retain exclusive IP rights within their jurisdictions and allow them to go abroad?

Mr Noonan —I cannot respond on other countries’ laws in the area of research and development funding. I can only say that, in Australia, most of the patent rights that are registered by IP Australia are in fact derived from foreign companies. That is only what you would expect with a country that is relatively small within the global economy. So most patents which we register were originally registered in another country and come to Australia for registration under the Australian system so that that technology can then be used in Australia with appropriate IP protection.

Senator EGGLESTON —So are you saying that, for example, in the United States one presumes these companies you are referring to, if they are an American company, would have primary IP registration protecting their patents et cetera in the United States but, in effect, they transfer that and get a second registration to cover Australia?

Senator HEFFERNAN —So they can make a living.

Senator EGGLESTON —I know, but the R&D legislation—

Senator Carr —I think we are confusing a couple of issues here. What we have done with the R&D legislation is to remove what it is known as the beneficial ownership test, which, under previous arrangements, essentially meant you had to have your IP here. We have said that we want the activity to be here to attract any support from the R&D program. We have just moved the emphasis. It has nothing to do with the patents law as such; it is to do with those who wish to apply for what is now a very, very substantial improvement in terms of the R&D tax credit, which will double the benefits to small business and increase the benefits to large business by one-third.

Senator EGGLESTON —We are just interested in the IP issue.

Senator Carr —Yes, but that is what I am saying to you. The question you are asking goes to legislation which removes the beneficial ownership test. The pharmaceutical industry is an example. To get the benefit for any R&D work undertaken in Australia you actually have to do the work in Australia. That position has not changed. The issue is where the IPs are held.

Senator EGGLESTON —I assure you that I understand the basic IP system; I am just interested in international comparisons. Why is it that we in the past have retained or had legislation requiring an IP for Australian inventions to be held in Australia and are now permitting it to be held overseas? I am interested in international comparisons and whether other countries may have similar legislation or similar provisions.

Mr Paterson —The issues that Senator Eggleston is raising deal with the R&D tax credit, which is not a matter that is within the responsibility of IP Australia. It is an issue for the department. The department is giving evidence straight after lunch for outcome 1, and we would be happy to respond to questions that Senator Eggleston may have at that time. But the beneficial ownership test that the minister referred to, as part of the changes to introduce the R&D tax credit, does not have an impact in relation to IP laws here or overseas. So it is not a question for IP Australia.

Senator EGGLESTON —But you are saying it is a question for the department?

Mr Paterson —I am happy for you to put those questions to the department.

Senator EGGLESTON —Thank you.

Senator COLBECK —I just want to ask a question on that specific issue. You said that a large proportion of our registrations are registrations of IPs from overseas countries which are registered here to support research done in this country. Can you give us a sense of what that proportion is?

Mr Noonan —It is approximately 90 per cent.

Senator HEFFERNAN —It should be moved to Treasury.

Senator COLBECK —Can I say that 10 per cent of the registrations are generated by R&D or are developments that are conducted in Australia. I do not want to make an assumption that I should not make by taking 90 off the rest.

Mr Noonan —It is a complicated question because of the presence of treaties and various ways in which patents can be transmitted overseas. But, broadly speaking, 10 per cent of patents originate in Australia.

Senator COLBECK —I am trying to get a sense of how the strength of our IP protection and our IP protection laws on an international scale benefit the activity of R&D in Australia. I am hesitant to name any other countries, but there are jurisdictions where IP protection is not strong but it is changing and improving—the subcontinent is probably one such area. Is there any sense of movement in registrations in that area, with the changes in IP registrations and the strength of IP protection internationally?

Mr Noonan —I am not sure I understand the question.

Senator COLBECK —It is a bit abstract, I know. I was involved in a conversation recently where they were talking about the strength of IP protection in India not being very high and not being recognised all that well, and there have been conversations previously about what might be going on in China and that goes back some period of time. But those countries are starting to recognise it because of their desire to conduct R&D—they are saying, ‘Bring your R&D here,’ and other countries and companies are saying, ‘We won’t, because your IP is not strong enough.’ I am just trying to get a sense of the change in that overall global environment for IP protection and of what impact that might have on having registrations and activity here in Australia.

Mr Noonan —From the point of view of Australian exporters, it is always an advantage to be satisfied that the countries they are contemplating exporting to will have appropriate levels of IP protection. As you say, this is a situation that is changing in particular countries from year to year, and the government, in various ways, seeks to promote stronger IP protection in other countries.

Senator COLBECK —But are we seeing any movement in the registrations here that might be, for example, being sacrificed to other jurisdictions where it is improving? Are we seeing any change in our numbers, in our registrations? You might not notice it; I do not know. That might be the answer; I do not know. But I am just asking: are we seeing a change in the numbers based on changes in international jurisdictional strengths?

Mr Noonan —No, I would not see any change of number that I would attribute to that. Growth has been fairly steady over the last decade, with some drop-off in the last year or so associated with the global financial crisis—that is a trend that has affected all countries with patent registrations.

Senator COLBECK —You talk in the budget documents about continuing to address the ‘patent applications backlog’—can you give us a sense of the extent of that?

Mr Noonan —Yes. The origin of this was rapid growth in patents around the world for about a decade leading up to about 2007 which, coupled with a strong economy here, made it very difficult for us to recruit and retain the kinds of scientists and engineers we needed to examine patents. In Australia’s case, the backlog peaked at about 75,000 or a bit over that. We have made some progress over the last year or so in reducing that and it is now down to about 65,800.

Senator COLBECK —And you have been resourced to do that?

Mr Noonan —We are a user-pays agency, so we derive most of our funds from the fees that applicants for rights pay.

Senator COLBECK —So is it 100 per cent cost recovery?

Mr Noonan —It is about 97 per cent cost recovery. So, in a sense, we have had to look at our revenues and expenses and work them as hard as we could and we have increased the number of patent examiners that we have, and that has been the main reason why we have been able to reduce the backlog.

Senator COLBECK —What has been the impact of that on your fees and charges?

Mr Noonan —There has been no direct impact on fees and charges arising from recruiting more patent examiners.

Senator COLBECK —How are you actually resourcing the additional cost?

Mr Noonan —A couple of years ago we were running surpluses and now we are running much tighter budgets.

CHAIR —Senator Colbeck, do you have much more to ask?

Senator COLBECK —No, I do not have too much more. I know there are others that want to ask questions. Can you give us a sense of the progress on the implementation of the quality management system project?

Mr Noonan —Yes. Our intention here is to examine many more patents before they are issued from the organisation and to have an independent review by a senior reviewer in order to try to pick up errors before they leave the organisation. Our intention is to review a statistically significant number against each individual examiner. There is some IT needed in support of that, and we hope to have that in place early in the new financial year. At the moment we are conducting trials and working on having the IT in place.

Senator COLBECK —What is the error rate you experience and what is the target you aim to get it down to?

Mr Noonan —At the moment we can only measure that under our previous system, which had far lower levels of review. It has 95 per cent compliance with our quality standards. We would like to review many more files and we expect that the new system will indicate a higher percentage of errors, in which case we would look to correct those.

Senator COLBECK —Is the process of discovery of that error rate based on the review or is it based on the review plus reporting from people involved in having to deal with the issues?

Mr Noonan —At the moment we do have a system of reviewing patents—or we have had—that we derive this data from. That is based on a system of review but a much less sophisticated system than we are aiming to move towards.

Senator HEFFERNAN —Is that approach not drawing a line between inventions and—

CHAIR —Senator Heffernan, you are on the list. We are trying to quickly work through this.

Senator COLBECK —It is a different issue, Bill. I will not be much longer, so you will get a crack in a second. Is there a reporting process that you have alongside the internal review process—an experiential reporting process?

Mr Noonan —Yes. The performance against the standards is reported quarterly to the executive committee of the organisation, and results are published under the customer service charter—I think also quarterly.

Senator COLBECK —You mentioned about a 95 per cent compliance rate. What is your target? Obviously, the ultimate target is 100 per cent.

Mr Noonan —There are targets set out. I think 96 per cent is our target for compliance against those service standards.

Senator MILNE —I want to know if your department is involved in the discussions that are currently being undertaken on a trans-Pacific free trade agreement? Is there any prospect that IP laws and regulations are going to be on the table?

Mr Noonan —Discussions about that agreement are at a very early stage. IP issues potentially could be on the table, but—

Senator HEFFERNAN —You are dead right about that!

Mr Noonan —I cannot give you any more detail about that.

Senator MILNE —That is what I feared. Secondly, can you tell me whether any other countries are using IP as a mechanism for minimising the income of subsidiary companies, wherever they might be in the world, or are using IP as a non-trade tariff barrier?

Mr Noonan —That is a bit of a triple-barrelled question. Could I ask you to break that down a bit.

Senator MILNE —Let me start with the first one. I understand that, if someone owns the IP in the States and has a subsidiary company in Australia, one way of minimising the income of the subsidiary in Australia is to charge very high access fees and service fees et cetera for the IP that is then registered here—hence minimising the income and hence minimising their tax. Is that something you are aware of?

Mr Noonan —That would not be something that we would have any familiarity with.

Senator MILNE —The other issue is in relation to using IP as a form of non-trade tariff barrier.

Mr Noonan —I am not familiar with that.

Senator PRATT —I want to ask about a decision that was made to fast-track patents for green technology. I want to ask why that decision was made and what the significance of it is.

Mr Noonan —We wanted to offer those who had an invention that would be relevant for green technologies the opportunity to have a faster examination of their patent than they would otherwise have had just by progressing through the stockpile, which is large, as we say. So what we have undertaken to do is if they request expedited extermination we will complete that between four and eight weeks after they have asked for it, which is much quicker.

Senator PRATT —Why is it important in particular for green innovation for that to be the case?

Mr Noonan —I think we would see it as IP Australia’s contribution to the promotion of green technologies and their dissemination, to be able to give those who feel that they have invented a patentable technology early certainty about whether their technology is patentable or not.

Senator PRATT —The last thing I want to ask about is the potential of a staff freeze, a recruitment freeze, and what its impact on the agency would be, particularly if you were not able to replace staff with particular expertise as to particular kinds of patents, and whether the processing of applications for some patents might actually fall behind.

Mr Noonan —Our turnover in the last quarter was 7.2 per cent so if there were a staff freeze eventually numbers would fall across the organisation. It is difficult of course to anticipate where they would fall but if they fell, for instance, in the patent examination area then that would tend to reverse the recent gains we have made in reducing the backlog.

Senator HEFFERNAN —Do the patent examiners have to draw a line between invention and discovery in looking at a patent? You haven’t, so do they?

Ms Beattie —Patent examination is conducted by the patent examiners and they consider whether or not the patent is claiming an invention. If it is claiming an invention then there are other criteria that the application must meet including novelty, inventive step, industrial applicability, description et cetera. In consideration of whether or not something is an invention, yes, patent examiners are required to consider whether it is an invention or a discovery.

Senator HEFFERNAN —So in terms of Gene Technologies Australia’s successful application to have the licence in Australia for Myriad on BRCA 1 and 2, did they draw the line between what was the invention and what was the discovery and what was the method versus what was the substance? They did not, obviously.

Ms Beattie —The Myriad patent was examined in accordance with Australian legislation and Australian examination practices and it was considered to satisfy those requirements.

Senator HEFFERNAN —But my point is there is no line that you draw between the discovery and the invention, is there?

Ms Beattie —With respect, the manner of manufacture test is interpreted and applied in accordance with Australian law.

Senator HEFFERNAN —Yes, all that mumbo jumbo; we will come to that later. I understand the annual appropriations for IP Australia are made in accordance with the outcomes and outputs framework first introduced in 1999. I also understand this framework imposes a means of structuring corporate governance and management arrangements and reporting, on planned and actual performance, on IP Australia. Furthermore, this framework addresses what the government wants to achieve in the form of outcomes, how that is to be done by IP Australia in the form of outputs and how those administering the outcomes can know if IP Australia outputs have been successful in achieving the outcomes in the form of performance reporting. So that is in that context and, on this framework, is it true that IP Australia administers a number of special accounts established by written determination?

Mr Noonan —There is one principal special account.

Senator HEFFERNAN —What is the purpose of that or other special accounts, if there is only one?

Mr Noonan —Essentially it operates the user-pays system which I referred to earlier. Normally a payment received by a government agency would go into consolidated revenue. In our case it goes into the special account and then we are able to draw upon the special account for our expenses.

Senator HEFFERNAN —So it is used to fund your operations?

Mr Noonan —That is correct.

Senator HEFFERNAN —Are you sure there is only the one account?

Mr Pereira —There are three special accounts—

Senator HEFFERNAN —There are indeed.

Mr Pereira —but IP Australia only has control over the moneys in the IP Australia special account. The other special accounts are not part of our financial statements. They are not controlled—

Senator HEFFERNAN —You use one. Could you identify the accounts? For the receiving and depositing of income received from its customers as payment for the provision of its intellectual property there is only the one account?

Mr Pereira —In the portfolio budget statements there is a table that lays out the different special accounts. It is on page 235.

Senator HEFFERNAN —Let us clarify this. Does IP Australia use one or more of those special accounts and, if so, identify them for receiving or depositing income received from its customers as payment for the provision of its intellectual property services? Can you do that?

Mr Pereira —Yes. On page 235 of the portfolio budget statements—

Senator HEFFERNAN —Could you do that on notice for me?

Senator CAMERON —Chair, on a point of order: the witness has tried to respond twice to the question and he is being interrupted each time. I think the witness is entitled to respond effectively.

Senator HEFFERNAN —I want you to take it on notice.

Mr Pereira —The information you are after is in the portfolio budget statements and the annual report.

Senator HEFFERNAN —Could you take it on notice and deliver it?

Senator Carr —Senator, the officer has drawn your attention to the page number and the table. My reading of that table suggests it covers the detail of your question.

Senator HEFFERNAN —Thank you very much. How much has IP Australia received as income from its customers for the provision of its intellectual property services in each year of the past 10 years?

Mr Pereira —I would have to take that on notice. I cannot answer it here.

Senator HEFFERNAN —In meeting the costs of IP Australia’s operations over the past 10 years, what proportion of those costs have been met by the income derived from its customers? You can take that on notice?

Mr Noonan —I can supply you with an answer to your first question, on the total income. In 1999-2000, $74,687,000. In 2000-01, $79,169,000. In 2001-02, $82,931,000. In 2002-03, $85,529,000. In 2003-04, $90,656,000. In 2004-05, $104,405,000. In 2005-06, $115,702,000. In 2006-07, $127,996,000. In 2007-08, $145,122,000. And in 2008-09, $143,649,000.

Senator HEFFERNAN —How much of that income in each year is attributable to the provision of intellectual property services by IP Australia related to or associated with patents which claim as inventions isolated biological materials such as human and animal microbial genes and proteins?

Mr Noonan —I will have to take that one—

Senator HEFFERNAN —God bless you. According to—

Mr Noonan —Excuse me, Senator—

Senator HEFFERNAN —You can take it on notice.

Mr Noonan —We cannot actually provide that. This issue has arisen at a previous committee hearing where our answer was that we were not able to pick out the particular types of technologies—

Senator HEFFERNAN —I am sure you could if you wanted to.

Mr Pereira —Senator, the outcome structure and the output structure have changed significantly over the past decade, so it is an apples and oranges exercise to do that.

Senator HEFFERNAN —You cannot define it?

Mr Pereira —I can define it against the output structure as it is now.

Mr Noonan —Senator, your question was on particular technologies and patents. We are unable to give you that information.

Senator HEFFERNAN —You do not know how much gene patent applications are as a proportion of your budget? Righto. According to the IP Australia cost recovery impact statement 2010, over 94 per cent of IP Australia’s revenue is cost recovered through the sale of goods and services, by which I understand is meant the income it receives for the provision of IP related services to its customers. Is that correct?

Mr Pereira —That is correct.

CHAIR —One more question, Senator Heffernan.

Senator HEFFERNAN —I will put the rest on notice. Of your costs in the cost recovery impact statement, how much are attributable to legal costs incurred by IP Australia in the defence of and the support of decisions made by its examiners and officers in accepting or rejecting patent applications?

Mr Noonan —For what year?

Senator HEFFERNAN —For 2009.

Mr Beattie —Can you clarify what you mean by ‘defending’ because we do have a pre-grant opposition process and there are also court cases where the commissioner may need to appear in order to explain procedures or practices. We normally do not attend court cases which are between parties in relation to infringement or invalidity, but sometimes when the commissioner is required to attend we do so, so which bit are you after?

Senator HEFFERNAN —In administering your set-up.

CHAIR —If that is answered, then that is it.

Senator HEFFERNAN —It is not answered. She wanted clarification.

CHAIR —Are you clarifying?

Senator HEFFERNAN —Of the costs of administering and maintaining the Australian patents system, how much is attributable legal cost incurred by IP Australia in the defence of and/or in the support of decisions made by its examiners and officers in accepting or rejecting patent applications?

Mr Noonan —Legal costs for the year to 21 April 2010 were $158,386.88.

CHAIR —I thank IP Australia for coming in this afternoon.

Proceedings suspended from 1.01 pm to 2.00 pm

CHAIR —The committee will resume with the Department of Innovation, Industry, Science and Research, the innovation and industry section, outcome 1. Minister or Mr Paterson, would either of you like to make an opening statement?

Mr Paterson —I do not have an opening statement but I would like to correct information on two returns to order that have been provided. They were filed by the minister but on the information provided by the department. The latest orders that deal with grants and appointments, which were supposed to be tabled prior to these hearings, were tabled but we have identified 13 errors. It is exactly the same error repeated 13 times in that return to order. A series of grants were listed for $7,400 and they should have been listed for $70,400. In each case the minister has provided to the President of the Senate an amended single page for that return, identifying those grants. They are all from the COMET program. That was provided to the President this morning.

I think you can appreciate that there are a number of overlapping obligations that we have here. There is the Murray order 192, the Minchin order 95 and the Commonwealth Grant Guidelines. They all have different reporting times. They report at different stages in relation to grants and they have different thresholds, so the potential for error is high. Our double-checking after we identified the problems we had with the current return identified that there were two grants that fell into the reporting period of 29 September to 18 January—that is, the reporting period for the previous estimates hearings. There are two grants that were not included in that report. They are both grants from the National Enabling Technologies Strategy. One is for $137,500 paid to the CSIRO and one is a grant of $55,000 paid to the Australian National University. They have been reported on our website under the Commonwealth Grant Guidelines but they were omitted from the previous return to the Senate. The department is responsible for that, and we apologise. I want to bring those to the attention of the committee up-front. So that is two from the last reporting period, and a series which were all the same error from the current report. For the purposes of the current report, we have tabled a correcting return.

Senator EGGLESTON —I would like to go back to the IP issue that we raised this morning in order to clarify something.

Mr Paterson —We will have to wait a moment for the officers to come to the table. I am hopeful we will have an answer to your question.

Senator EGGLESTON —This morning I asked about the provision in the new research and development legislation which enables intellectual property rights or intellectual property to be registered overseas. I was curious as to what impact that would have on Australian industry in terms of rights and royalties and so on. This issue was raised by Cochlear Australia who felt that it was all right to trial having intellectual property held overseas for three years and then we should review it. I must say they were the only group that saw intellectual property going overseas as a problem. Could you flesh this out for us and tell us what are the advantages of retaining the primary registration of intellectual property in Australia rather than overseas?

Mr Pettifer —I think you need to understand the context in which this particular provision has been crafted. One of the key things to recognise is the global environment in which R&D is conducted these days. Many companies would do a lot of their R&D here but they would need to do some associated activities like clinical trials, for example in the pharmaceuticals industry, overseas. It is also important to understand that the actual doing of the R&D itself actually generates lots of benefits for the economy. There are lots of spillovers for the economy from having R&D done here. It brings things like technology, skills, finance and those sorts of things which are of very significant benefit to the economy. It can be all part of developing clusters of excellence which are then important in terms of attracting overseas investment. This was something that was recognised quite strongly in the Cutler report—the Review of the National Innovation System. Cutler says:

The Panel has adopted the principle that all R&D expenditure undertaken in Australia should be supported by the non-refundable tax credit. … The Panel does not consider the focus on IP ownership is appropriate given the global nature of R&D and the movement of global enterprises across continents dependent on where the best environment exists, and in particular to gain access to capability, skills, and markets. Firms undertaking foreign-owned R&D expenditure in Australia would be able to access the non-refundable tax credit.

There are a few more references in there too. A number of other countries also do the same thing. For example, the information that I have here indicates that the UK, Ireland, and Canada all enable IP to be held by foreigners and benefit from domestic support schemes. That is the broader context in which that is crafted. It is a recognition of the significant spillover benefits that such a policy has.

Senator EGGLESTON —I noticed there you did not mention the United States or Switzerland, for example, which do a lot of pharmaceutical research.

Mr Pettifer —One of the things about the United States would be that the economy is so big that the need to do things overseas is probably significantly less than in Australia. There is quite a strong recognition around the world and in terms of the work that we have done that suggests that the benefits that you get from attracting that overseas investment are very substantial in terms of your innovation systems, spillovers, skills and so on and so forth.

Senator EGGLESTON —Do you mean that with a mobile—if I might put it that way—intellectual property right registration you attract more investment? There must be a reason why it was seen previously at least that retaining intellectual property right registration was an advantage.

Mr Paterson —If I could just clarify there is, I think, a continuing area of confusion. This is not about the registration of the intellectual property right. This is about until now the law in relation to R&D tax support has required the beneficial ownership of that IP to be resident in Australia. It is not about registering the right; it is about where the beneficial ownership is held. If the beneficial ownership was held at the head office of a major international corporation headquarters somewhere else in the world then it was not entitled to access the R&D tax concession. Under the changes that the government propose work undertaken in Australia will be able to access the concession notwithstanding the fact that the ownership of that intellectual property is held in another country.

Senator EGGLESTON —All right; I understand that now. In other words, even though it is held overseas, the benefits can still be accessed.

Mr Paterson —The new R&D tax credit will be open to people undertaking work in Australia on that intellectual property, where that intellectual property is held by the corporation offshore. So if they are undertaking research and development in Australia they will be entitled to claim the credit for that work undertaken in Australia, even if the ownership of the outcome of that work resides at head office.

Senator EGGLESTON —I see. Why would you think Cochlear might think it was a good idea to let this happen for only a trial period of three years?

Mr Paterson —We have not had an opportunity to go back over the context in which Cochlear put their position forward. It is interesting that they are resident in Australia, so the change for them, on that particular element of it—there are other changes that they would benefit from—would have no particular consequence for them as a corporation.

Senator EGGLESTON —They were very firm in that point of view. One of my colleagues has sent me an email regarding Singapore Productivity and Innovation Credit. It says:

Currently only research and development qualifies for additional tax deductions of up to 150 per cent of expenditure. The government will introduce the productivity and innovation credit as a major enhancement to spur a much broader range of innovative activities with more generous tax benefits. The credit will cover six activities along the innovation value chain and only research and development done in Singapore. Acquisition of intellectual property, which I presume could be purchased from anywhere in the world, the registration of intellectual property, investments in design done in Singapore, spending on equipment and software to automatic processes and workers training.

That is really not so different from our proposal. Is that the case, in the sense that it enables the acquisition of IP and it gives benefits for research and development?

Mr Pettifer —I am not sure I got the totality of that question; my colleague may have. What we are proposing is a much more attractive incentive to do R&D in Australia. I am not sure I got the thrust of your question though.

Senator EGGLESTON —I was just comparing with this provision in Singapore. In Australia now we are offering increased benefits for research rather than development, I gather.

Mr Pettifer —No, I disagree.

Senator Carr —Senator, I think a number of statements have been made that are not supported by the facts. One of them is the claim that has just been made there. The provisions that we have in the matter that is before the committee are to provide support for research and development. It doubles the level of support for small firms and increases the level of support, by one third, for large firms. This is within the funding envelope of $1.5 billion per annum. This is the most significant measure of support that we have in an entire innovation arsenal—$1.5 billion per annum. That is almost twice what we spend on the Australian Research Council. So the claims about reduction in support are not true. We do not support those assertions.

You compare it with the taxation regime in Singapore. You would want to look at the context and you would want to look at the totality of what is being provided here. This is for measures on terms of spending over and above normal everyday business activities. This is the equivalent of 150 per cent under the old scheme, but this is a tax credit—so it is cash. This is going to assist companies dramatically who are facing problems with the banks. I am afraid that the claims that are being made are not borne out by the facts.

Senator EGGLESTON —With respect, Senator, it might be fine to say that but, nevertheless, a lot of the evidence the committee has heard from various industry people—

Senator Carr —Well, a lot of the evidence is also predicated—

Senator EGGLESTON —is that there is an emphasis on research.

Senator Carr —It is generated by a few people who currently do the overwhelming bulk of the claims. At the moment 100 firms are getting around 60 per cent of the total, that equivalent, in this financial of $1.5 billion. The current scheme, which was a good scheme when it was introduced, is in need of renovation. There are going to be a lot of folk out there—the 100 firms—that have a huge vested interest in keeping the current scheme the way it is. We are actually in the business of helping the 8,000 firms that are currently registered—and I would like to see a lot more firms. Given that we have two million firms in this country, the fact that we have only 8,000 registered for the scheme strikes me as way short of what we need to do as a country.

Senator EGGLESTON —Minister, I think we are pre-empting the inquiry to some degree.

Senator Carr —I am sorry, but that is the nature of the question you asked.

Senator EGGLESTON —It is to some degree—I agree. Nevertheless, there has been a view that the emphasis has been on research rather than development. But where I was coming from in the beginning was to understand this issue about intellectual property. I referred to the Singapore example because it provides for the acquisition of intellectual property and the registration of intellectual property in Singapore. That was obviously seen as a benefit for Singapore.

Mr Pettifer —Our scheme is about doing research and development. It is in the doing of the research and development that you get benefits to the economy.

Senator EGGLESTON —We understand that.

Mr Pettifer —Can I just go back to the issue about it supporting research and not development. If you read the definition for core R&D activities, it includes: ‘That are conducted for the purposes of generating new knowledge, including about the creation of new or improved materials, product, devices, processes and services.’ I would say that is absolutely about doing development, and that is the policy intention.

Senator Carr —If you compare our position internationally, we have a report by KPMG which ranks Australia as No. 1 in the world for incentives to actually foster research and development activity—as a result of this legislation. That is the commentary of someone quite independent from government. They are putting us at No. 1 in the world on the basis of this legislation.

Senator EGGLESTON —That is an opinion. A lot of people thought that a lot of industry research is really related to production and innovation in those areas, and that is excluded under this legislation.

Senator Carr —That is just not true. That is the point I am making to you. Do not buy this con job.

Senator CAMERON —Not even the witnesses were claiming that.

Senator Carr —I understand that.

Senator EGGLESTON —They were in fact, but never mind. They were not speaking with Scottish accents.

Senator Carr —The point is that a claim is different from a fact.

Senator EGGLESTON —We will follow it through and see.

Senator COLBECK —There are claims and counterclaims, and we have to sort that out as part of our process, Minister—which is the point I think that Senator Eggleston is making. It is an inquiry as much as anything else. There is acknowledgment that we are changing the circumstances with respect to holding IP and we recognise, as you quite rightly said, Mr Pettifer, that it is a global circumstance. Perhaps the minister might like to comment on this rather than asking you to make the comment. In the circumstance where Singapore appears to be placing encouragement—and that is what their measures look like they are; they are not regulation but they are actually incentive or encouragement for the IP to be held in their country—I think it is legitimate in the context of this overall debate to question the circumstance where they look like they are trying to encourage more IP to reside in Singapore and yet the changes that we are making are going in the opposite direction, It is a matter of assessing a balance on that for us. That is why we are asking the question.

Senator Carr —It is a policy question. All I can say to you is that it is the government’s intention to improve the level of benefit for small and medium size firms and for firms that are undertaking genuine R&D.

Senator COLBECK —I understand the intention, Minister. I am just asking about the holding of IP. We are often criticised in government, whoever it might be, for allowing our IP to disappear offshore. Whether or not that criticism is valid is another question, but that is a criticism we receive.

Senator Carr —I understand the point you make.

Senator COLBECK —So we are putting you to that this is what Singapore is doing and that we are moving in a different way and we are asking you what the justification is in your sense from that?

Senator Carr —What I am saying is that the KPMG report, Competitive alternatives 2010, says:

Comparing the TTI rankings of countries—

Senator COLBECK —When was the report released?

Senator Carr —I will get you a date for that, but we made public comment on it today.

Senator COLBECK —I do not think the committee has seen it.

Senator Carr —We are more than happy to provide you with a copy—

CHAIR —During our public hearing on this bill, it was alluded to. It was mentioned.

Senator Carr —I have been asked a question. I will try to answer it. The report says:

Comparing the TTI rankings of countries in 2010 to 2008, the most dramatic change is for Australia, moving up from fifth place in 2008, to first in 2010. This change is a result of Australia adopting a new R&D tax credit system as of July 1st, 2010, that is refundable for corporations that meet defined revenue limits.

I can cite that study as evidence for my conclusion that our proposals are actually superior.

Senator COLBECK —The analysis by KPMG?

Senator Carr —You asked me what the basis was for my opinion; there it is.

Senator EGGLESTON —It was an inquiry. Cochlear felt it should be a only a three-year experiment. The question was why was this scheme by Cochlear so crucial?

Senator Carr —We will look at that. The question is: will the system be reviewed in three years? Obviously, there will be recommendations from the committee about the need for future review. We will have a look at whatever recommendations the committee looks at. We take these things seriously. We would not be putting a bill of this importance to the parliament otherwise. Given the statements we made in the previous election, given the inquiry that was run which had a massive number of submissions on this very question and given that this is now the third level of consultation—two draft bills and a Senate inquiry—we are determined to press ahead with this matter. It will be in the Senate, I understand, for the June sittings. We are proposing a start-up date of 1 July.

Senator EGGLESTON —We know that, Minister.

Senator Carr —For individual companies that means a very big increase in opportunities. That is the question the committee will presumably assess when they make the report to the chamber.

Senator EGGLESTON —We will. That question of consultation is one that has been raised several times, and quite a lot of people have in fact complained about short time frames for consultation. That is an issue that perhaps I would like to ask you about. Why is there such a rush? It is important legislation that could be developed over the following year and all those problems could be fixed.

Senator Carr —This is a budget measure. It starts on 1 July this year. It is doubling the benefit to small firms and increasing the level of support for large firms by one-third. The question I put back to you is: why would you delay it?

Senator EGGLESTON —You would delay it because a lot of industries and companies—

Senator Carr —Why would you delay it when it is such a patently good thing for firms.

Senator EGGLESTON —see problems in this legislation.

Senator Carr —The government’s position is that it starts on 1 July. We want to ensure that companies have access to that benefit from 1 July. If the Senate committee takes the view that they should not get access to it, no doubt they will explain their reasons. But I look forward to public debate on why you are denying firms opportunities to double their benefits from 1 July.

Senator EGGLESTON —The Senate committee is still considering its position, of course. Nevertheless, a lot of witnesses have made complaints about the lack of time available for consultation. That has been a bit of a characteristic of the Rudd government over a number of pieces of legislation. There has been little consultation and a great rush to get various pieces of legislation in place. Sometimes it is best to make less haste and take a more considered role.

Senator Carr —This was a matter that was committed to at the last election. This was a matter that was the subject of the inquiry—the innovation review—of which, as I said, there were hundreds of submissions. This is a matter that was the subject of draft legislation last year and a subsequent piece of this year. I will ask one of the officers to comment on the number of firms involved. The Senate inquiry provided further opportunity for discussion. The question you would be asking is not, ‘Why has there been so little consultation?’ because that is patently untrue, but, ‘Why is there such a campaign by such a small number of consultancy firms—half a dozen firms—that control claims that are well in excess of $1 billion per annum?’ The question is: should we cave in to vested interests? I say we should not.

Senator EGGLESTON —I suppose that is one point of view. The other point of view is that we should provide full consideration to the issues involved and the problems that people have seen in this legislation. There really does not seem to be a valid case for rushing such an important piece of legislation against the voiced concerns of industry.

Senator Carr —It is not a rush. You have had 2½ years to implement a proposal, which is hardly what I would call a rush. I will ask one of the officers to indicate exactly what the consultation process has been.

Senator COLBECK —Wasn’t it announced in the budget last year?

Senator Carr —That is right.

Senator COLBECK —So it is not 2½ years.

Senator Carr —No, but we announced our intention to do this at the last election. We have had a full-scale innovation inquiry into the matter. We have had two draft rounds of legislation plus a Senate inquiry.

Senator COLBECK —The first one dropped just before Christmas and the second one dropped just after Easter.

Senator EGGLESTON —A few weeks ago, yes.

Senator COLBECK —We understand that; that is fine.

Mr Pettifer —There has been a huge amount of consultation on it. Following the budget announcement, the department and Treasury had preliminary consultations with industry before the consultation paper was even developed. The consultation paper was then put out. From late September onwards, 550 people attended consultation sessions all around the country. There was the first exposure draft legislation, and 131 submissions were received.

Senator COLBECK —Which arrived just before Christmas.

Mr Pettifer —Well, 131 submissions were received on that, and the submission period closed on 5 February. Then there was the second exposure draft, and there have been 54 submissions on that. As well as those formal processes, though, we have had detailed consultations with a number of players in the industry on this. There has been a lot of consultation on this.

Senator COLBECK —There have been a lot of meetings; I accept that, and I will acknowledge that the government made some significant changes—or changes—from the first exposure draft. Changes were made to the legislation following the first exposure draft and the discussion we had here at estimates in February, so I am happy to acknowledge that there has been some movement on the legislation. There are still, though—as you acknowledge, Minister—some concerns within the industry about certain elements of it. I do not think it would be fair of me to say that industry is unhappy with all of the measure in the legislation.

Senator Carr —Some industries, Senator—I think you should be accurate.

Senator COLBECK —There are certain concerns about certain elements of it. Timing is certainly one, particularly when the department told us at the hearings the other week that information and educational information on the program will not be available until July—after the scheme starts. Surely it would have to be a concern to the government—but maybe it is not—if information on the operation of the scheme is not going to be available to industry until after it starts.

Senator Carr —That is not right. The information is available now. I will let the officers speak for themselves, but I do not think that is a reason for delay. Some sections of industry are going to campaign against what they perceive to be a change in their circumstances. That is not unusual with tax legislation; it is certainly not unusual in this area of R&D policy. A good change does not necessarily mean that every single person has to agree with it. That is not a measure of success of government policy; a measure of success is whether it stands up to the weight of evidence. I think the evidence is very, very strong in support of the government’s position, and I intend to pursue it through the chamber.

Senator COLBECK —You are entitled to that view, and the committee obviously will consider its view.

Senator Carr —That is why I ask one of the officers, if you have made assertions about what they have said, to address them.

Mr Peel —As the minister has indicated, it is difficult to provide people with information on the new program until the legislation is actually passed by the parliament.

Senator COLBECK —I accept that.

Mr Peel —That is not scheduled to happen or to come into effect until 1 July. AusIndustry does, however, have a plan for detailed information sharing with potential registrants for the new tax credit. We are already behind the scenes preparing all the documentation for that, which may need to be amended if there are amendments as the legislation goes through the parliament.

Senator COLBECK —I understand that that would be the process.

Mr Peel —They also do not claim the tax concession until 12 months after—or they have 10 months from the end of the financial year to claim the new tax credits—so there is a fair bit of time before they need to put in a claim.

Senator COLBECK —Perhaps my recollection is wrong, but I was certain that we had some discussion, at our hearing a couple of weeks ago, about the desirability or otherwise of not having the information available until after 1 July. I accept the processes that we are talking about. I have no issue with any of that, because that is as it is. The issues is that we are right up against the implementation date, potentially, with the passing of the legislation through the government’s processes, and that is one of the issues that makes it difficult to provide the information prior to the commencement date of the measure. We have asked a number of people about this, and they have also expressed their concern, especially about their decision-making processes and what they are going to invest in their R&D. I think that is a reasonable basis for us to ask questions about the implementation timetables.

Senator Carr —If we assume the parliament agrees that this legislation be passed into law and we assume that claims can be made as of the end of the financial year and 10 months thereafter—that is almost two years after the start date of 1 July. In most taxation law changes, there is an announcement and then the legislation is dealt with in the chamber. This is actually most unusual, in the sense that there is so much consultation about changes to taxation law. It is because this is such important legislation that we have given this matter so much attention in terms of our consultation processes.

Senator COLBECK —We might just have to agree to disagree in respect of some of those issues—that is fine; that is part of the deal. Of course, the committee will consider its report in due course. I just want to go back to you, Minister. You actually have not addressed the issue that Senator Eggleston and I both raised in respect of IP. I accept what you are saying in respect of the overall assessment of the report, but I would like you to respond to specifically to the question of the different approaches that we are taking versus the approaches that another country is taking at the moment. I am just asking you to put a rationale on the table in respect of that specific issue. You have talked about the KPMG report and that is taken—I will have a look through that and I can read that myself—but I am interested in the IP issue. It has been raised by Cochlear, which is quite a prominent company, and we have evidence of different approaches being taken. I am asking you just to—

Senator Carr —Yes. I will try to answer your question. Cochlear have asked for the matter to be reviewed in three years time. That is a matter the committee will make recommendations on and the government will consider their report. In general terms the beneficial ownership test is a change we have made, which I have championed for some time. I used to take the view that you had to have the IP held in Australia otherwise we would be losing something; but, after careful consideration and looking at all the evidence that I could see, I have personally come to the view that, given the nature of international business and international investment, we were actually inhibiting our opportunities for R&D work to be undertaken in Australia by maintaining that old provision. The officers here have referred to the case in the pharmaceutical industry, where it was actually an impediment to the growth of our capabilities in Australia. I think it is more important to maintain and develop the capabilities here—the actual research, the employment of the scientists, the employment of people in the labs—than it is to say, ‘We own the IP.’ On balance, the weight of evidence has come before the committee to sustain that view.

Mr Pettifer —In a sense, there may be a bit of confusion around this. There are very substantial benefits that we have talked about in actually doing the R&D. There are very substantial spillovers from doing that, and that is what gives an economic justification for providing support to it. Another issue is: where do you exploit the IP? If you have to run a competitive economy to exploit the IP, having a strong science and technology base, undertaking lots of research and development activity, developing clusters of excellence are all important in terms of attracting investment to actually exploit the IP and build new businesses. In that sense, it does not matter who owns the IP. The issue is attracting the investment into Australia, because we are an attractive place to do business because you can access skills, you can access networks and all of those sorts of things. A lot of that comes from doing the R&D.

Senator COLBECK —The advantage, though, of owning the IP would be the revenue stream, if there was one, that came from that.

Mr Pettifer —Hopefully, a lot of the revenue streams that come at the end of the day come because we are employing people, we are generating exports, we are generating income and all those sorts of things.

Mr Paterson —The point has been made in passing in relation to the pharmaceuticals sector that there is global consolidation going on, as you would be aware, and that many of those global pharmaceutical companies, headquartered either in the United States or somewhere in Europe, own all of their intellectual property at head office, so they hold all of the intellectual property for the corporation. Wherever it is developed, they hold the ownership of that intellectual property at head office. If we ignore that reality and say, ‘You have to hold it in Australia,’ then we will not be encouraging those pharmaceutical companies to pursue research and development in Australia. We will be denying them access to the benefits that would flow. That is one of the reasons that was persuasively put through the review processes, and has been consistently supported since that time, for removing that restriction. Yes, there are strong encouragements in the variety of programs that we support and in the nature of the registration processes for intellectual property to be developed in Australia and held in Australia. So there are dual encouragements. This is not saying we should ignore developing R&D in Australia and holding the ownership of that R&D in Australia; it is saying do not deny yourself access to the research and development that may come because the ownership of the corporation happens to be resident in another location.

Senator Carr —If I can amplify that: the point of our scheme is to actually encourage small and medium sized enterprises to change their habits of thought and their patterns of behaviour.

Senator COLBECK —I understand that is the stated intention that you have.

Senator Carr —But, by the same token, we are not saying to the big end of town: ‘Don’t do work in Australia.’ I think that the present arrangements were actually limiting our capacity. Firms would say, ‘We won’t do the work there because we can’t get any benefit under the schemes; we’ll do it elsewhere where we can get a higher level of benefit, such as in Singapore.’ That is one of the competitive advantages that Singapore was developing for itself. We are changing the arrangements to actually encourage that capacity to develop here. The whole scheme is about building capacity.

Senator COLBECK —I understand your stated intentions, and I appreciate the fact that you have now actually put something on the record in respect of IP. That is all I was asking for. There are some reasonable rationales there, and now that there is something on the record people can look at it and make a judgment one way or the other. There has been some discussion and some allegation about certain specific projects that were gaining access to the current regime, specifically ‘whole of mine’. There was a discussion about a building where an innovative air-conditioning system allowed a significant claim with respect to the rest of the fabric of the building. Of those three or four examples—and they are pretty much on the public record—how many of them were actually disputed or under challenge by the department? The claim has been made by a number of people that those things should not have received support—and I do not think there is necessarily any disagreement about that—and that they did not or should not have fitted within the existing guidelines. I want to get a sense—

Senator Carr —I will ask the officers to comment on the details. Can I say in the policy sense that this is not a case of just one or two. I just make that point to you. This is not just a couple of aberrations. What you have is a very good scheme when it was created but that over time has been altered as a result of a whole series of administrative practices brought on by judicial interpretations. So it has been distorted.

Senator COLBECK —Although there has not been any judicial interpretations for—

Senator Carr —There have been. I will let the officers deal with that in a minute. I am making the point to you—

Senator COLBECK —If they could make a note to really work on that point.

Senator Carr —I do not use the term ‘whole of mine’. There is whole of project. This is an example whereby people are claiming as R&D stuff that is clearly not R&D; it is normal business activity. The case of a road has been used in examples of that type of major project. There have been cases in the financial system of people claiming their normal IT expenditure as R&D. There are a whole series of activities and some of them have involved hundreds of millions of dollars. But it is not true to say that this involves just one or two isolated cases.

Mr Peel —The cases that you are referring to—for example, the building case—are actual cases that we have uncovered through our compliance activities. While we would agree with you that those claims should not be allowed; nonetheless, our compliance activities are undertaken after the company has registered for the tax concession and after it has received the benefit. So what we are attempting to do in those cases is to claw the money back for the taxpayer, but the companies have actually claimed and got the benefit because the tax concession is a self-assessment scheme, just as you do with your own income tax return. If you are unlucky, you will be picked up by the tax office and they will do a check on you. It is the same with the R&D tax concession. We do not have the resources to audit every one of the 7,7800 claims. But we do audit a number—

Senator COLBECK —It is up to about 10 per cent. Is that correct? It is about 700 now, or is it the intention to go to about 700?

Mr Peel —We are doing, say, 300 or 400 at the moment. We are going to increase it to over 700 this year and take it up to over 1,000 the year after that. We have been given additional resources to help us to do that. The claims that you are referring to are actual cases. We have made them anonymous. We have not betrayed any confidences or confidentiality, but people have claimed those things, received the benefit and we are now looking at them to try and get the benefit back. And, of course, they are challenging our challenging of them, if you like.

Senator COLBECK —That was the point I wanted to make. Obviously, they have been discussed as part of the scrutiny process of the legislation. There have been claims about them made from various perspectives. What I was looking to see—and it is one of the issues that has been raised several times—is whether there is general agreement that those sorts of claims should not receive the benefit of these measures, either the current ones or the old ones. I was trying to find out whether a process was going on to deal with them, given that the general consensus is that they should not or do not fit within the principles of the scheme. That, therefore, indicated to me that there was some general acceptance of that. I am interested in the minister’s comments that they have effectively occurred—

Senator Carr —As I say, these are matters that are subject to legal dispute.

Senator COLBECK —That is why I am not trying to go into any specific detail. I am not asking any questions about that.

Senator Carr —I am just making the observation, Senator.

Senator COLBECK —It was purely to establish whether there was some pursuit of these things under the current guidelines. I just wanted it to establish that.

Senator COLBECK —None of us are; I think that is fair enough.

Senator Carr —So the question is: what is a legitimate claim and what is not a legitimate claim? That is the fundamental question that we have to come to terms with. In my view, given the growth in expenditure that has occurred in this particular area—and it has doubled in the last couple of years—you have to make an assessment as to whether or not you think the level of genuine R&D investment has doubled in that length of time. It poses another question: are claims being submitted that are not legitimate? Under the current way in which the law is interpreted, people are able to do this. We want to make some changes because if you do not do the changes then the whole scheme becomes unsustainable, the whole process is brought into disrepute. In my judgement, I would be negligent not to act and take action if I knew this was going on, had responsibility for the administration of this program and held it in the regard that I do. That is what we have done. We have moved it from a system of deductions to a system of credits. We are doing it within a funding envelope, as I say, of $1.5 billion a year. That is the revenue-neutral arrangement we have struck given the budgetary circumstances. We are not cutting it; we are maintaining it. In fact, we are increasing the level on previous assessments. But we want to do it on the basis that there is genuine R&D undertaken. In that process there are going to be some squeals. There are going to be winners and there are going to be losers. It is the nature of reform that the winners usually say very little and the losers scream like stuck pigs. What we are going to do, though, is press ahead with this. We will put it to the chamber and argue it out.

Senator COLBECK —That is fine, but the point that I was wanting to make is that the whole context of this comes around to definitions. That is what the argument is about and that is why the debate is as it is. I have conceded as part of my commentary, if you want to call it that, during this debate that there are measures within this new bill that almost everyone is happy with, including some who are criticising other specific elements. So it is not a blanket opposition; it is an opposition to certain elements of the legislation from those that are criticising it.

Senator Carr —I am pleased to hear that. It is the first time I have heard an opposition senator say that.

Senator COLBECK —That is how I read the evidence. What I also wanted to clarify was that even under the existing definitions, given that that is what the basis of the argument is about, there is also general agreement about the disputed claims. We have now established they are being disputed—those that are known of and have been audited, and there may be others in the system that have not been picked up, and let us accept that. There is also general agreement across all of those who are supporting and opposing the changes that they should not receive support under the current guidelines. The current definitions should also exclude support.

Dr Edwards —The two that you specifically talked about have claimed and have received the benefit. We are in the process of auditing. Their specialist R&D consultant and the firms believe both those claims meet the definition of R&D and are opposing any move by us to claw the money back.

Senator COLBECK —And of course you will deal with that through the appropriate process.

Senator Carr —This is not the only reason we need to change the arrangements. The draft legislation is being pursued for a range of purposes to actually lead to an improvement. We do want to refocus the effort. We want to change attitudes because the fact is that in this country our R&D performance is bloody awful. We have to double our efforts overall over time. One of the ways of doing that is to change the way in which the incentives are organised.

If we are to maintain our place vis-a-vis our competitors, given that so many countries in the north of Asia and in Europe are outperforming us dramatically, then the policy rationale for this goes beyond just the question of stopping dubious claims. It actually goes to the fundamental motivations about how we develop an innovative economy, how we actually change people’s behaviour and how we change their attitudes about making sure that their businesses in this country are able to remain competitive and provide those high-skill, high-wage jobs which I believe everyone in this room would aspire to.

Senator COLBECK —That is all very well, and I know that it is not just about one thing. But the definitions are being considered carefully from a certain perspective. They have been criticised from a certain perspective, including by people who support other elements of the legislation. They form a fundamental part of the disagreement. There has been some very credible evidence given to us in relation to those definitions. Of course, the committee will deal with that in due course, when we hand our report down in the next week or so.

Senator Carr —And that will be the opportunity to discuss amendments.

Senator COLBECK —And then we will deal with it as part of the legislative process.

Senator Carr —That is the normal legislative process.

Senator WILLIAMS —I refer to the line item ‘Small Business Advisory Services’ on portfolio budget statement page 31. The forward estimates in last year’s budget had $10.2 million expenditure but in this year’s budget it is $5.4 million. Where are the cuts being made?

Mr Peel —There is not a cut being made in that program. What we have done is borrowed some money from another program so we can make about $4 million or $5 million worth of payments this year; we then need to repay that money next year. It looks in the budget papers as if it has been reduced, but we are actually paying that money this year, rather than next year. So the same amount of money is going out of the door.

Senator WILLIAMS —I am just concerned about regional offices being done away with. There will not be any closures of regional offices as far as the Small Business Advisory Services Program goes?

Mr Peel —No. We are honouring all of our contractual commitments under that program fully. Really we are funding business enterprise centres under that program. Regional offices of AusIndustry, if that is what you are alluding to, are not affected at all in the budget.

Senator WILLIAMS —What is their forecast in the forward estimates?

Mr Peel —They have been funded till the end of the next financial year. We have just completed an evaluation of those regional offices of AusIndustry, and we will be looking to put some proposals to the government in the next budget as to the future of those offices. But that report has not yet gone to the government, so I probably should not comment any further on it.

Senator WILLIAMS —I ask because I believe they do a good job.

Mr Peel —They are reported quite extensively across regional Australia by a number of their stakeholders as doing a first class job, yes.

Senator WILLIAMS —Wonderful. I would also like to ask about the LPG Vehicle Scheme. The budget this year is $105.3 million, which I guess is for subsidies for conversion of private vehicles to gas, but in 2011-12 the amount you expect to hand out is $74.5 million and in the following year, $50 million. Is it because of the excise tax on LPG that you expect less demand for these conversions?

Mr Peel —We believe there are two fundamental reasons why there has been a drop-off in demand for the program. One is that the petrol prices have stabilised over recent times. When the program was first introduced, petrol prices were very high.

Senator WILLIAMS —So are you saying you are not seeing as many conversions these days as what you did three years ago, when we had the extreme fuel prices?

Mr Peel —That is right. Also, in the early days of the scheme, we brought forward money from future years to the early years. When you look at the budget papers, you can see those amounts are decreasing because we have already spent it earlier on. Fundamentally, we are seeing a drop-off in demand, and we believe that is essentially due to the relative price of petrol compared to when the scheme started off. Also in the budget before last, the government introduced some reductions in the benefit that is available for conversion to R&D, so that is probably playing apart as well, although we think that is probably playing a very small part in the demand.

Senator WILLIAMS —Looking at the price of fuel, I think we saw a peak of about US$138 a barrel during the so-called boom time, down to around US$72, US$73, and basically fluctuating between US$70 and US$83 a barrel. If we see the world come out of the global financial crisis and things start to move along again, wouldn’t you expect the price of oil to go up substantially?

Mr Peel —I am not really qualified to comment on that; I am sorry.

Mr Paterson —I was just going to say the same thing. We do not make comments or predictions in relation to the price of oil.

Senator WILLIAMS —If we see an increase in the price of oil and hence the price of petrol and diesel in the forthcoming years, have you budgeted at all for perhaps more people to go on to conversions to gas?

Mr Paterson —We are administering this program within the overall budget profile from end to end. As Mr Peel has already indicated, the early demand in the scheme meant that we brought money forward from the out years to pay for the demand at that time, and we are managing the program consistent with the profile that remains within the program.

Senator WILLIAMS —Wonderful.

Senator PRATT —I want to return to the topic of R&D tax credits, because I think what the minister outlined was a movement in Australia’s place in R&D tax competitiveness. I also want to know what the implications of this move might be for Australia’s overall tax competitiveness.

Mr Pettifer —I did not get all of your question. Were you asking about our more general situation in terms of competitiveness in relation to tax in the KPMG report?

Senator PRATT —No, because that would not necessarily be a question for this department. As I understand it, this tax credit has some influence on Australia’s overall standing in tax competitiveness in broader terms.

Mr Pettifer —Yes.

Mr Paterson —The KPMG report, of which we provided a copy to Senator Colbeck earlier, concludes on page 4:

Australia’s rank does not change—remaining in fourth place—but it sees the second largest decrease in TTI among the countries studied. This improvement is largely due to changes in Australia’s R&D tax incentives in 2010 ...

So the overall ranking on the KPMG analysis was that our overall tax competitiveness remains the same but the single biggest change in the whole report was their change in relation to assessment of Australia relative to the changes in relation to the R&D tax credit.

Senator PRATT —Thank you. What are the implications of attracting international investment based on these kinds of findings, noting of course the changes in IP where that intellectual property can also be held overseas?

Mr Pettifer —Was your question: what are the implications of being able to attract that investment?

Senator PRATT —I would assume that they are positive—

Mr Pettifer —Yes, absolutely.

Senator PRATT —but I want to know what the department’s understanding of that is.

Mr Pettifer —Yes, there are two implications, I suppose. There are the ones we have talked about already in terms of being able to attract skills, finance and technology as part of those research and development efforts. It helps then to create clusters of expertise in the economy, which can be a very attractive influence on securing new investment. That is the R&D. Then, to the extent that you can secure the investment and generate new business, if you like, from the commercialisation of the R&D, that generates itself—jobs, exports, new income for the country—so there are very significant benefits.

Senator Carr —Senator Pratt, the assumption that has been made here is that, because it is more consistent with international best practice, it should attract additional support from international investors because they are dealing with a scheme they are much more familiar with.

Senator PRATT —Okay; that makes sense to me. I wanted to ask about a specific project relating to assisting the Australian book industry to adapt to the changing digital age. I understand that a Book Industry Strategy Group has been established. Could you give me an update on that group’s purpose, activities and where it hopes to be at the end of its program?

Mr Fearn —The Book Industry Strategy Group was announced on 9 April and we will be having the first meeting of that group on 1 June—tomorrow.

Senator PRATT —What are the objectives of the group in terms of where you might hope to be in 12 months time?

Mr Fearn —Essentially presenting a report to the minister on strategies to look at the efficiencies and opportunities of the book supply chain.

Senator PRATT —What are the current challenges that need to be overcome which this group is seeking to address?

Mr Fearn —The challenges relate to the impact of the digital book industry on our book production industry and certainly on the opportunities that could arise out of that for us and how we address those challenges, particularly the implications of e-books.

Senator PRATT —So it is an issue of getting books to market and Australian—

Mr Fearn —It is much broader than that, certainly looking at a whole range of areas along the book supply chain, from authorship all the way through to retailers. We have members from all aspects of the book supply chain on that group, including printers, authors, retailers and publishers. The idea is to look at the efficiencies of that supply chain and how it may take advantage or address the challenges of the digital books that are coming in through platforms such as Amazon and e-books.

Senator PRATT —It is pretty apparent that that supply chain is evolving pretty quickly in the current climate. Are we confident that we can get through these changes keeping the Australian book industry in tact and growing and thriving?

Mr Fearn —That will be the aim of the group. It is certainly a challenge in the program over the next 12 months. We have done a fair bit of work in the secretariat to look at a clear program of activity to try to ensure that we do cover all aspects of the terms of reference.

Senator PRATT —Can I ask how Australians and stakeholders with an interest in the work of this group can be involved?

Mr Fearn —There are several aspects to that. We will be looking at putting to the strategy group for agreement tomorrow the issue of using workshops as a mechanism. We will be looking at submission processes for people who have interest and we are going to go and do some direct consultation with key players in that area.

Senator PRATT —Will you be visiting all states?

Mr Fearn —We are currently looking at where the series of workshops will be held. That is to be confirmed at this stage, but we are looking at visits along the east coast as a minimum.

Senator PRATT —I have got another set of questions relating to the Steel Supplier Advocate and I wanted an update on the progress of work there.

Senator EGGLESTON —I just wondered if the minister might assist us by letting us know how much is being spent to establish the Book Industry Strategy Group.

Mr Fearn —At this stage we have four officers as part of the secretariat that has been engaged to look at the strategy group. Funding for consultancies and other arrangements will be considered by the meeting of the strategy group tomorrow. But we have actually done one contract for $15,000 to look at digital platforms.

Senator EGGLESTON —What was the composition of the group? Who is represented on it?

Mr Fearn —The composition is posted on the department’s website and consists of people from Melbourne University Publishing, the Printing Industries Association—

Senator EGGLESTON —From which association?

Mr Fearn —The Printing Industries Association of Australia; also, the Australian Manufacturing Workers Union, the Australian Campus Booksellers Association, Tantalus Media, McPherson’s Printing Group, REDgroup Retail, Gleebooks, Macmillan Australia Group, Copyright Agency Limited, Australian Society of Authors, the President of the Small Press Underground Network Community, McGraw Hill, and Media, Entertainment and Arts Alliance.

Senator EGGLESTON —So that is quite a broad group. How long will they have to make their recommendations?

Mr Fearn —Twelve months from the first meeting, which is tomorrow. So in 12 months it will be 1 June 2011.

Senator EGGLESTON —Who is the chair?

Mr Fearn —Barry Jones.

Senator EGGLESTON —What is he being paid? Or is he on a retainer for this?

Mr Fearn —$615 a day, exclusive of GST.

Senator EGGLESTON —Is this for the whole of the year or is it just when he is engaged in work or associated with it?

Mr Fearn —He will be engaged on the basis that we are planning about six meetings. It is likely to be six meetings plus a day’s preparation and there may be some ad hoc requirements for workshops or other consultations.

Senator IAN MACDONALD —How many are in the total membership of that group?

Mr Fearn —Fourteen, I understand, plus the chair.

Senator IAN MACDONALD —How many of them are representing unions?

Mr Fearn —Two.

Senator IAN MACDONALD —Can you just repeat those?

Mr Fearn —The Australian Manufacturing Workers Union and a representative from the Media, Entertainment and Arts Alliance.

Senator IAN MACDONALD —Are the board members paid a per diem amount as well?

Mr Fearn —No, they are covered for reimbursement of reasonable travel expenses to attend the meetings.

Senator IAN MACDONALD —Where does the council normally meet?

Mr Fearn —Tomorrow’s meeting will be in Canberra and then it is likely to be either Melbourne or Sydney.

Senator IAN MACDONALD —Do they change it around, do they?

Mr Fearn —That is right. We will have a schedule that will probably rotate between the two locations since most of the members are based in either Melbourne or Sydney.

Senator IAN MACDONALD —Is it always in Australia?

Mr Fearn —That is right.

Senator IAN MACDONALD —Does the council involve any overseas work at all?

Mr Fearn —Not at this stage.

Senator IAN MACDONALD —Not at this stage but it could, though?

Mr Fearn —The meeting tomorrow will determine the work program and agree to it. It may change over time as people decide they need to look at other issues or consider other elements of the book supply industry.

Senator IAN MACDONALD —There was a very well publicised cabinet decision on the book industry. I think it might have been before the last estimates committee. Was this dealt with then?

Senator Carr —Sorry, what was the question?

Senator IAN MACDONALD —I said there was a well publicised cabinet meeting on the importation of books.

Senator Carr —I don’t know how publicised the cabinet meeting was. What do you want to discuss?

Senator IAN MACDONALD —My first question was whether this was dealt with at the last estimates.

Senator PRATT —This is unrelated to that decision. I do not quite understand the connection.

Senator Carr —I do not recall a question on it.

Senator IAN MACDONALD —The first question was: was this issue dealt with at the last estimates?

Senator Carr —I have just said to you that I do not recall a question on it at the last estimates.

Senator IAN MACDONALD —Could you repeat what the role of this council is?

Mr Fearn —It is to facilitate the adjustment of the Australian book industry in the digital environment. Digital e-books are certainly a major challenge for the printed book, and we are looking at the efficiencies and what strategies may need to occur for the whole book supply chain with the increasing presence of digital—

Senator Carr —Would it be helpful if we tabled the terms of reference for you?

Senator IAN MACDONALD —No, that is fine, thank you.

Senator Carr —The aim of the group is to work with industry and the government to develop a comprehensive strategy for securing Australia’s place in digital books, and also to ensure the Australian book industry is more efficient and globally competitive. So it goes beyond just the question of digitalisation; it goes right through the whole supply chain.

Senator PRATT —And the viability of our creative industries.

Senator IAN MACDONALD —Do I understand correctly with digital books that they are books which are available electronically as opposed to in hard print? Is that correct?

Mr Fearn —That is correct.

Senator IAN MACDONALD —What strategies does the government have to ensure that Australian authors are not swamped by international authors? Or is there a strategy?

Mr Fearn —The aim is for the strategy group to come up with the strategies and to provide a report to the minister.

Senator IAN MACDONALD —Okay.

Senator Carr —Perhaps if we table the terms of reference they will cover your inquiries?

Senator IAN MACDONALD —If you are keen to do that, that may help me, and shorten the—

Senator Carr —Chair, we table the terms of reference.

CHAIR —That would be very helpful, thank you.

Senator IAN MACDONALD —While that is coming; I do not want you to pre-empt the work of the committee, but how do you ensure what Australians read electronically, when the world is such a small place these days? How do we support the Australian writing industry when there is—

Senator Carr —The terms of reference go to:

6. (a) How business models are likely to change in the digital environment; (b) how this is likely to affect business models for printed books; and (c) what can be done to facilitate these changes.

The committee will also be making recommendations to government on:

7. Opportunities for the Australian book industry to participate more actively in the global marketplace for printed and digital books over the next decade, including by creating, adopting, and using new technologies.

So there is ample scope within the work of this committee.

Senator IAN MACDONALD —What you are really saying is that I am asking you questions now that are the role of this committee to have a look at.

Senator Carr —The purpose of the committee is to provide advice to government on what policy framework we can develop to meet the emerging environment.

Senator IAN MACDONALD —So there is not a policy position of the government at the present time?

Senator Carr —There is a range of issues that we are taking at the moment. This is an evaluation of the current circumstances that we find ourselves in, and what actions can be taken to facilitate the growth of this industry. At the moment estimates on the growth in the market for digital books vary, but as I understand it they are less than one per cent of sales in the United States and considerably less than that in Australia. Nonetheless, we are in a position of looking at what new technologies are likely to do to the way in which this industry develops. This is an important industry for Australia, and important insofar as many tens of thousands of Australians are part of the creative process and the production process to actually ensure that this important industry is sustained into the future.

Senator IAN MACDONALD —Thanks, but until this committee does its work, what is the government’s current position on helping the Australian industry against competition from—

Senator Carr —In itself, I would not put the formulation in those terms. It is not about helping against competition, it is about how we more effectively share in a global marketplace. How do we ensure that Australian businesses are internationally competitive? How do we ensure that our industries are as productive as possible? How do we ensure that opportunities exist for Australian creativity to be able to be reproduced as widely as possible? I could speak at length about all of those things and what we are doing at the moment. There is a range of programs that we operate through this department alone, not to mention what occurs in other departments. The question, more specifically, goes to: what do we anticipate are the likely changes to the industry over the next decade, and how do we adapt to those perceived changes? That is the work the committee is designed to produce.

Senator IAN MACDONALD —I am digressing slightly, Minister. You have said you could speak for hours on what the government is doing. Rather than taking up the committee’s time to allow you to tell us for hours what is happening, could I get from you on notice a short summary of the things that you just mentioned that the government already has in place?

Senator Carr —Let’s take Enterprise Connect as an example. Some 2,000 individual firms already have received assistance in terms of improving their capacity to manage a changed economic environment. There are some 35 programs that AusIndustry is currently operating—

Senator IAN MACDONALD —Sorry, Minister, but I was confining it to books. I was wanting to know, on notice—I do not expect your department to have all this at their fingertips—in relation to books, what programs, paid for in the current budget, which is why it is relevant to estimates, does your department or the government have to enhance the ‘book’ industry at the present time. If you could give me a list of the different programs.

Senator Carr —We will come back to you.

Senator IAN MACDONALD —Thank you, Minister.

Senator PRATT —I was about to ask a question in relation to the Steel Supplier Advocate, who I think was appointed late last year. I would really like to know what progress Mr Benjamin is making. I have a particular interest in Western Australia and the fabrication industry there.

Mr Fearn —Mr Benjamin has been conducting a fairly extensive consultation process with various players throughout the steel fabrication sector and the steel supplier sector. He has made a visit to Western Australia and spoken to a number of fabricators, and also spoke to Chevron Australia in relation to Gorgon issues. He is expected to provide a report in the near future to the minister in relation to his activities over the past six months.

Senator PRATT —So it would be expected, for example, that that report would cover the reasons why local fabrication firms failed in their bids for some of the fabrication work that went offshore in relation to some of the big oil and gas developments that are currently taking place there?

Mr Fearn —Yes, that is correct.

Mr Paterson —Senator, if I could add to that. I am the Chair of the Steel Industry Innovation Council. I met with the steel advocate recently. He outlined at least some of his initial conclusions to me in that conversation. I do not want to pre-empt his report to the minister, but certainly he has discussed with a variety of players the issues that impact on whether companies bid for some of those projects, because in some cases Australian companies did not bid for some of those projects. So it is not so much providing an explanation as to why they did not get there. It is a bit hard to win the work if you do not bid for it. But there are a variety of considerations that influence behaviours, and he has examined the full suite of those issues. As Mr Fearn has indicated, he will be providing a report to the minister on that in the near future. My conversation with him went to his initial observations. He is doing some further work, and having some further consultations, before he finalises his report to the minister.

Senator PRATT —Can I ask if that report will cover questions of skills shortages, based on your current knowledge?

Mr Paterson —It will address the issues from his perspective. I cannot say what will be in the report or not in the report at this stage. As I said, it would be unfair to pre-empt what he says to the minister. He has had some initial thoughts; he has met with a variety of people. But he will be firming up in his conclusions and will then provide the report to the minister. So we will wait and see what that says.

Senator PRATT —Thank you.

Senator CAMERON —I want to come back to the R&D tax credit. There has been plenty of discussion here about what was said at the economics committee and the inquiry into the R&D approach. We have had evidence from the Property Council of Australia to say that they would need research and development funds if they were conducting research and develop-ment while building a project. The example they used was of a 75-storey building with a small footprint. They argued that they would need to maybe go 12 storeys high and then conduct a whole range of tests and research just to see whether this building would be able to be built to 75 storeys. I do not suppose you can answer this. Firstly, I do not know anywhere where experimental buildings of such a size are funded by venture capital or super funds or anything else. I am just wondering whether you have examples where venture capital is put in on the basis of not knowing what the building is going to be like. Secondly, if that occurs, how do you control how much research and develop takes place? If you have to do it at 12 storeys, do you do it on every storey? What could be involved? Maybe you could start with that. It just seems to me that that is a perfect example of one of the conundrums we have got with the research and development issue, when these sorts of claims can be made. If you had research and development claims coming in on every floor, it would take a huge cut out of that $1.5 billion that is available for industry.

Mr Weber —The question you have asked goes to the heart of a lot of the issues with the R&D tax concession. The question is: where does research and development start and finish, and where do things become normal production? I cannot answer your specific question but what I can say to you is: where the department, through AusIndustry, would have expertise they would obviously make a decision, but where that expertise was outside their bounds they would bring in an international expert. That is the way in which the new system is designed. So you would ask the question: ‘What is the experiment being undertaken, and what is valid as part of that experiment? How much of that can be done in a production phase and how much of that production phase just turns into normal, commercial production?’ What we do not want to fund is that normal commercial production.

Senator CAMERON —Mr Weber, are you aware of any proposed buildings that have been commenced and then stopped after research and development has been undertaken on the building because it was not feasible?

Mr Weber —Any things like that might come through Dr Edwards at the main AusIndustry, but I do not see them.

Dr Edwards —As you know, we only look at a small percentage of the claims, but I do work in Sydney and I have not seen too many buildings stopped in my time.

Senator CAMERON —That is right. The other discussion that took place in the committee was the example I used of a food factory processing peas, where the company develops—and this is a practical, real example—innovative technology, using computer technology and pneumatic technology, to blow black peas off a production line. That technology is done in a back room. It is then brought on to be fitted to the production line. The production line stops to allow the technology to be fitted. It could then take a day to prove it; it could take a week to prove it; it could take a month to prove it. This, I think, was the perfect example of the concern that some were raising with the committee in terms of being able to get the go-ahead to extend the funding to make such a complex change to the production line. Can that be handled under the proposal that we are putting forward?

Mr Weber —That is a pretty good example of where you might be able to use the production line to actually test your experiment. I am no expert in black peas, but I would have thought—

Senator CAMERON —Maybe the Black Eyed Peas?

Mr Weber —If that was something that was a new development around the world and could not be easily accessible and you could get an expert in to say that for a period the experiment was part of the research and development, I would have thought that was the kind of activity that would be theoretically covered by the scheme. So that is the kind of activity that would be rewarded.

Senator CAMERON —One of the arguments that was put up from Cochlear was that there should be so much allocated to the backroom research and a percentage to the production process. I must say that when they put that forward there were groans coming from the rest of the audience. It did not seem to me to be that practical. From your perspective, is that practical?

Mr Weber —We hear examples like this all the time but the problem is that you hear an example from one sector and how long you allow the production trial to run for might be substantially different to what another sector might need the production trial to run for in order to prove your experiment. So it is very hard to put in these arbitrary caps or ratios into legislation that covers all the sectors of the scheme and, as an entitlements based scheme, it goes across all sectors of the economy.

Mr Pettifer —We have thought very carefully about all those particular options and have reached the view that they are very much B-grade policy solutions because you introduce complexities and rigidities in the system which might be okay for one sector but will not work for another. You then have a lot of problems.

One of the key principles about all this that I think is really important is trying to craft something that is simple and easily understood in terms of having an attractive and well-understood incentive. The moment you start putting thresholds or caps or ratios into it then you move away from that and it becomes much less easily understood and therefore a less attractive incentive.

Senator CAMERON —One of the other issues I would like you to comment on is this industry that seems to have developed around the R&D support packages that have been put in place by various governments. For instance, Deloitte have got 60 people employed giving advice on R&D, and they are one company. I am told that there is something like 50 or 60 companies out there giving professional advice.

There was this polemic at one stage in the debate, I think, where some companies were arguing that you should not change anything because there was 25 years of corporate knowledge on how these things work. Then when I asked the question of one of the presenters they said: ‘No. We have been using it for 25 years but we always employ an expert.’ It seems to me that this is one of the issues—the complexity of these schemes and whether people can actually make an application, use the funding and do this separate from this industry that is clinging on to the R&D investment program.

Senator COLBECK —More reason for the consultants.

Mr Peel —You are right. There are a number of companies out there that earn their living from helping people through the current R&D tax concession. The legislation the government has put forward is going to change the rules if it is passed, and of course they have got, I guess, all of their systems and processes and advice in place based on the current tax concession. If we change it, that will mean they will have to change the nature of their work and the approach that they take to their work. So if all things stay the same then it is of obvious benefit to those companies.

Senator Carr —The whole point of this is to actually reduce the level of red tape. We want it to be simple so that people can apply and not be terrified by it. They should not have to be captive to a handful of consultants. They should be able to approach the department, put a claim in, have it assessed quickly and get straight answers from people. I cannot see anything wrong with that. People will no doubt say, ‘I have been doing it for 25 years. I built my business on doing it this way for 25 years.’ I am afraid we are not there to cater particularly to a group of accountants. This is designed to change the way in which this economy operates.

Senator CAMERON —This is my last question. Professor Roy Green gave evidence. He spoke about two reports that have been presented in the UK. One is the Dyson report called Ingenious Britain: making the UK the leading high tech exporter in Europe, and the other was a report that came out of the Imperial College London by Professor Jonathan Haskel which is about the public support for innovation. I think both of those reports said that 25 per cent of government R&D should go to early stage, high-tech small and medium enterprises. That is where you get the biggest spillover and benefit. Is that consistent with what the government is trying to achieve?

Mr Weber —The OECD has also done a lot of work on where the greatest benefits from research and development incentives are based. Their research also points to the fact that greater benefits are derived from providing incentives to smaller businesses. That is at the heart of where our policy of having a dual-rate system with a higher rate for small to medium enterprises comes from.

Senator Carr —I met with some senior executives of a very large corporation and they explained to me, ‘We do not make our decisions based on whether or not we are going to get a tax benefit. We make our decisions on a business case, given the scale of the projects that are involved. Once we have made the decision, we send the claim down to our accountants to clean up and submit to the government for a benefit.’ Under the present regime, why wouldn’t you? What we are trying to do is directly affect the way in which decisions are made. That is why we have tailored it to be of direct benefit to those companies where the sort of benefit that we can provide through the scheme will make a substantial difference to the companies as to whether or not the work is undertaken. That is the philosophy behind this. We want to make a big difference, we want to change behaviour and we wanted to change attitudes. The judgment call that I have made, based on the evidence that I have seen, is that this is the sort of thing that can affect the way companies do business.

Senator CAMERON —I am not sure if you want to comment on this, but a proposition has been put here that there was all this huge opposition. I attended both the hearings myself. Sure, there was opposition, but the opposition was very strong from the industry that is hanging off the R&D system. That is the consultants. There was very strong opposition from them. From many of the people who are actually out there doing the work, the argument was that we are pretty close and we can get this fixed with some minor changes. Where do you see the situation is up to at the moment?

Senator Carr —I share your view about this. This proposal has been subject to a campaign by a relatively small group of people. They are very vocal, very well organised and have the ear of a couple of financial journalists. It does not surprise me that that would occur. Equally, I have said from day 1 that if people can show me and the Treasurer—because he is the joint sponsor of this proposal—any initiatives that we have taken do not respond to our stated policy objectives we are prepared to look at changes. We have done that.

I have said that there has to be a genuine process of consultation. I know the Treasurer has said similar things. I think we can demonstrate our bona fides by the changes that we have already proposed. We will examine the committee’s report seriously. We want this legislation. This is not just a statement of intent; this is a determination by us to pursue this question. I genuinely believe this is going to make a big difference, so we will look carefully at any suggestions that are made. As you say, I think we are very close.

I am going to read your report with some care. I hope you will be able to come forward with some suggestions that we can work within. We have a set criterion—that is, we have to have this being revenue neutral, given the budgetary circumstances, in terms of my responsibilities to the government as a whole. If you can demonstrate to us that there are things we can do consistent with our policy objectives to improve the bill, then it is our job, it is incumbent upon us, to have a dialogue about that, and I will talk to other senators, no matter where they are in the chamber, about securing passage of this legislation within those principles.

Senator IAN MACDONALD —Is it correct that the leading manufactured goods export industry in Australia at the moment is pharmaceuticals?

Senator Carr —In exports?

Senator IAN MACDONALD —Yes, the manufactured goods export industry, ahead of cars—

Senator Carr —Just a moment, Senator. I want to be absolutely accurate about any information we give you. Could you just bear with us until we get the right officers at the table, because these figures do jump around a bit.

Senator IAN MACDONALD —I am told it is ahead of cars and wine.

Senator Carr —I know the claim, but I would like the relevant officers, who have the paperwork in front of them.

Mr Chesworth —It fluctuates on a year-to-year basis, but it is usually in the top one or two. That is correct.

Senator IAN MACDONALD —I am told it brings $4 billion a year into Australia. Do you perhaps have more accurate figures than that?

Mr Chesworth —That is certainly a figure that associations such as Medicines Australia and the Generic Medicines Industry Association use. I suspect that we would probably rely on the same sources as they do.

Senator IAN MACDONALD —Are you a branch in the department? What is your status in the department?

Mr Chesworth —We are a branch.

Senator IAN MACDONALD —Is it the pharmaceuticals division?

Mr Chesworth —No, it is the innovation division.

Senator IAN MACDONALD —But you mentioned pharmaceuticals when you started.

Mr Chesworth —That is correct, but my branch is pharmaceuticals, health industries and enabling technologies.

Senator IAN MACDONALD —Okay. I am really concerned about the health of what is if not the best then one of the best export industries in Australia. Are you able to tell me what assistance is given to this industry in the form of research grants or in any other way? Is anyone at the table able to do that?

Mr Paterson —I will make an observation at the outset. One of the industries that I think has already expressed public support for the change to the R&D tax credit is the pharmaceutical industry. The changes to the beneficial ownership test in the R&D tax credit are designed to assist a range of industries, and the pharmaceutical industry is one of those. We used that as an example earlier today. The nature of the pharmaceutical industry means that quite often the companies that operate in Australia are headquartered elsewhere and they own their intellectual property at head office, so the changes in relation to the R&D tax credit are explicitly designed to address those sorts of challenges. That is a very tangible example of a proposed change in policy that is designed to directly assist the pharmaceutical industry and a range of others.

Senator IAN MACDONALD —Do you know how many people are employed in the pharmaceutical industry in Australia?

Mr Pettifer —It is about 40,000.

Senator IAN MACDONALD —Is that in manufacturing or is that in pharmacy stores et cetera?

Mr Chesworth —Senator, it is across a range of those sectors within the pharmaceuticals industry. There is a manufacturing element. There is also a research and development element, a significant element in clinical trials, as well as sales and marketing.

Senator IAN MACDONALD —Do you have a break-up of figures in the manufacturing and R&D?

Mr Chesworth —I do not have those, Senator, no.

Senator IAN MACDONALD —Is it available, do you think?

Mr Chesworth —I could try to get that for you.

Senator IAN MACDONALD —I am told that there are 5,000 people employed in the generic medicines sector. Are you able to comment on that claim?

Mr Chesworth —That is certainly the figure that has been put to us by the Generic Medicines Industry Association.

Senator IAN MACDONALD —So I am obviously at the right place if the Generic Medicines Industry Association has been approaching you in relation to recent proposed changes in their industry. Have they been talking to you about this?

Mr Chesworth —We have ongoing interactions with the GMiA.

Senator IAN MACDONALD —They tell me that a recent MOU signed by the government with the industry will have a big impact on the industry. Was your department in any way involved in that MOU?

Mr Chesworth —The answer is no.

Senator IAN MACDONALD —Perhaps this is a question for the secretary or the minister. It is claimed that recent government initiatives within the MOU and the PBS will devastate the generic medicines industry. This is obviously a matter for the Department of Health and Ageing and we will be pursuing it there. Is that something that the department would have been involved in in its industry promotion capacity?

Senator Carr —Devastating an industry?

Senator IAN MACDONALD —Yes.

Senator Carr —I do not think that we would, Senator.

Senator IAN MACDONALD —In the same way that you are very involved if the car industry is in difficulty.

Senator Carr —I think the officers have indicated to you that in terms of the MOU it is a matter for the health department.

Senator IAN MACDONALD —I understand that, but my question was: if the motor car industry, for example, sneezes then your department is involved.

Senator Carr —I take a serious interest in the health of the automotive industry, but I also take a serious interest in the health of the pharmaceutical industry.

Senator IAN MACDONALD —That is why I am raising this question.

Senator Carr —The statement you have made as to the effect on the generics industry, we have not had representations on that, Senator.

Senator IAN MACDONALD —I am asking your department, Minister, or you.

Mr Pettifer —The generics industry has made some broad statements in the media that the reforms might have a significant impact on them. One of the manufacturers, Alphapharm I think, has attributed some job losses in the past to PBS reforms, but we have not had an overwhelming reaction, or any official reaction, in relation to the reforms.

Senator IAN MACDONALD —Why I am asking these questions of your department is that, as I say, if there is a problem in the motor vehicle industry you are rightly concerned and involved. I am told and then asking you whether you are aware of this concern in the pharmaceuticals industry, which we have already established as one of the big manufacturing goods exports, if not the major one, in Australia at the present time—bigger than cars.

Mr Pettifer —We are aware of it. We are all aware of the statements that have been made on it.

Senator IAN MACDONALD —Is it your department’s role in relation to the motor vehicle industry that, if there is an issue involved, you are in there supporting it and trying to get government to be aware of the difficulties and perhaps look at solutions? In the same way, are you aware of these difficulties in the pharmaceutical industry and are you the advocate for the industry in a business and industry sense, not in a health sense—we will deal with that elsewhere.

Mr Paterson —I think it is important that we do not confuse our roles. No, we are not the advocate for the pharmaceutical industry—

Senator IAN MACDONALD —Or the car industry.

Mr Paterson —Nor are we the advocate for the car industry. In fact, both of those industries engage industry-specific organisations that represent their interests and advocate to government. We provide advice to government on the range of issues that we have policy responsibility for. We were not involved in the development of the MOU that you referred to, but the stability, investment, growth and employment prospects in the pharmaceutical industry are matters that we take an active interest in and provide advice to government on. We are not an advocate for the industry, and it is important that we are not represented as being an advocate for the industry. We certainly provide policy advice to government about the current state of play in the industry and future prospects.

Senator IAN MACDONALD —Perhaps my choice of ‘advocate’ was incorrect. But, as the minister has quite honestly and factually indicated, when the car industry is under attack, he is an advocate for the industry.

Senator Carr —What I said was that I am very concerned about the health of this industry and all industries.

Senator IAN MACDONALD —Absolutely.

Senator Carr —I am not denying that; I am just saying to you that we do not have the role of being advocates for the industry.

Senator IAN MACDONALD —Well, let us not have an argument about ‘advocate’. I will change the word. Here is one of Australia’s best—if not Australia’s best—manufacturing industries, which is, according to representations made to me and others, is in real danger. When the motor vehicle industry is in trouble, it is all systems go in your industry—and so it should be. I am just trying to work out whether you have had any involvement in these suggestions. I am not saying they are correct. These things are brought to me as they are brought to all of us. That is why I am asking you.

Mr Paterson —We are aware—and the evidence is already before the committee—of the assertions that are being made by parts of the industry. Clearly, the MOU was with the pharmaceutical industry, represented through Medicines Australia. So at least part of the pharmaceutical industry is a party to that memorandum of understanding. There certainly have been some claims made by other parts of the industry who are not parties to that agreement that it has potential consequences for them. We provide advice to government on the health of the industry and matters that might affect them. We are not here to provide the nature of the advice that we provide to government, but certainly this an area of active interest to us.

Senator IAN MACDONALD —Mr Paterson, you are talking to me in pejorative terms regarding the industry. You are saying ‘it is alleged’ and ‘there are allegations’. It sounds as if you do not believe them.

Mr Paterson —No. I am merely saying that they have alleged that there are consequences; they have not taken action to give effect to those consequences. They are saying that there are potential consequences for them. If they were to assert that this is going to shut down the industry, I would say, ‘It is alleged that it is going to shut down the industry.’ If they had shut it down it would be difficult for me to say ‘alleged’. Many claims are made in the cut and thrust of these sorts of situations, and we have to in a somewhat dispassionate but interested way make an assessment of the claims that are being made in the marketplace—

Senator IAN MACDONALD —That is what I am asking you. Are you doing that? I am not asking you to tell me what your conclusions are, but are you making those assessments?

Mr Paterson —The fact that we have a branch within the Innovation Division focused on the pharmaceutical industry indicates to you that both in the structure of the department and in the interests of the government we play a very active part and have a very active interest in the claims that are being made and what the policy drivers and influences might be affecting that industry, and we would be providing advice to government to that effect.

Senator IAN MACDONALD —I understand that $6.2 billion is spent over 13 years for the car industry and there is $14.5 million to Pacific Brands and $1 million to Zeiss to encourage them to expand and remain manufacturing in Australia—all of which, of course, is something your department would be involved in.

Are you aware that recent budget initiatives, according to my constituents, will cause the jobs to be removed, rather than remain in Australia. These budget measures are exporting jobs from Australia overseas. The Australian taxpayers have spent $6.2 billion, $14.5 million and $1 million on other companies and industries to get them to stay in Australia and here is a government initiative that is going to do the exact opposite. I am putting that to you on the basis that if this is even half right it would be something that your department would be working on, would it not?

Senator Carr —What we can say is that the government and Medicines Australia reached an agreement to deliver an additional $1.8 billion in savings to the PBS over five years. This was an agreement which was announced in the 2010 budget. That is a matter of public record. What we have also said to you is that this department was not involved in the negotiations concerning the construction of that MOU.

Senator IAN MACDONALD —But, Minister, that is my exact point.

Senator Carr —You mentioned a number of other industry programs. We have sectoral programs, particularly with regard to the automotive and textile industries. However, the pharmaceutical industry program ended on 30 June 2009 and currently there are no sectoral programs operating in the pharmaceutical industry. I did establish the Pharmaceutical Industry Strategy Group to look at this issue and to look at the ways in which the government can work with the industry to ensure its long-term sustainability. In fact, that group did not recommend support for a program for the pharmaceutical industry. Instead, it argued for economy wide programs that pharmaceuticals, biotechnology, medical devices and other innovative companies were able to use. So, when you look at the support that goes to pharmaceuticals, you actually have to look at the range of programs that are delivered, including programs in the biotech and nanotech areas. You have to look at the support for medical instruments. You have to look at the support that is rendered through the Australian Research Council and the NHMRC and the support that is rendered for clinical trials.

What you can say specifically is that, with regard to the R&D tax credit, this approach is absolutely consistent with the recommendations of the Pharmaceutical Industry Strategy Group. That is the approach that we are adopting at the moment. As to the specifics of any claims about the adverse effects of the MOU, I am not aware that there have been approaches directly to the department. I will double-check that.

Senator IAN MACDONALD —Just double-check it. I thought department said—

Senator Carr —I am not aware of any representations directly to me on the matter. We have very good relations with the industry.

Senator IAN MACDONALD —I thought one of your people mentioned the same submission that was made to me. They mentioned that your department was aware of it.

Senator Carr —There is a difference between that and public comment, of which I am aware. Like you, I read the papers. But I am not aware that there has been specific correspondence to us on these matters. However, we will obviously work with the industry to do all we can to ensure that employment and investment is renewed.

Mr Pettifer —We mentioned early on that we do meet with the industry associations, such as GMiA, the Generic Medicines industry Association, and Medicines Australia, and these issues have come up in those discussions.

Senator Carr —We also have a regular series of consultations with the industry, in joint collaboration with the ministry of health. But have we had any specific correspondence on the MOU?

Mr Pettifer —Correspondence?

Senator IAN MACDONALD —What about contact, in your regular meetings?

Mr Chesworth —The GMiA has raised that with us. The current president of the GMiA is Dr Martin Cross, who is also the CEO of Alphapharm, and he has raised those issues with me, yes.

Senator IAN MACDONALD —And how recently was that?

Mr Chesworth —GMIA, in the past 10 days, and Dr Cross, I would suggest, in the past eight weeks or so.

Senator IAN MACDONALD —Okay. Minister, you mentioned you set up a Pharmaceuticals Industry Strategy Group. When did you do that?

Senator Carr —In the first year of the government.

Senator IAN MACDONALD —Good. That is close enough. It was not in recent times, obviously, from that answer.

Senator Carr —We did a report.

Mr Pettifer —Yes, it would have reported in January 2009.

Senator IAN MACDONALD —So it is not still current?

Mr Pettifer —It is a pretty current assessment of the state of play.

Senator IAN MACDONALD —Who is on the strategy group? Is it just a group in your department?

Mr Pettifer —Brian McNamee from CSL co-chaired it with a departmental officer.

Mr Chesworth —The strategy group was co-chaired by a departmental officer and Dr Brian McNamee of CSL. It also comprised representatives of the pharmaceutical industry, the biotechnology sector—both actual companies and industry associations—and in addition there were representatives from the union movement.

Senator IAN MACDONALD —And it has finished its work, has it?

Mr Chesworth —Yes. The strategy group ran for a particular period—my recollection is that it was from about April to November in 2008. It had specific terms of reference which it was required to fulfil. It met formally on six occasions and a report was released in January 2009.

Senator IAN MACDONALD —So it is not current at the moment.

Mr Chesworth —Whilst the strategy group does not sit, the recommendations remain with us, in a sense.

Senator IAN MACDONALD —Sure.

Mr Pettifer —And, Senator, if you were to look at the recommendations, you would say there has been action on them. One of them was to improve the environment for clinical trials. The minister has established a clinical trials working group, and the report has come forward on that, I think. The strategy group was very strongly supportive of moving to an R&D tax credit and reducing the corporate tax rate, which is another proposal which is currently being pursued. So, if you look back at the recommendations—

Senator IAN MACDONALD —You told me as much—

Mr Pettifer —But I just want to say, Senator—

Senator IAN MACDONALD —No. You are answering my questions, please. You have told me all I need to know about the strategy group: it is not now operating. That was all I needed. Thank you for the rest of the information. It is very interesting.

Senator Carr —We are implementing recommendations that have been made.

Senator IAN MACDONALD —Yes, okay. My concern is about a group that you are aware of—I am talking about the industry aspects of this; do not talk to me about the health aspects—which comprises a very substantial part of what we have established is Australia’s biggest manufacturing export industry, bigger than motor vehicles; yet the government has recently signed an MOU with only one section of it, a section that does not involve the Generic Medicines Industry Association. Why that happened in a health sense, we will ask somewhere else. What I am really asking you as the industry department is how the government could make a deal in this area without consulting a substantial part of the industry which, I am told—and it makes sense—will be seriously impacted upon by the import of cheaper generic drugs.

Mr Paterson —You know we cannot respond to that question. We are not in a position to pass observations in relation to government policy or decisions taken by government. Neither my officers nor I are in a position to respond to a question which leads us to comment in relation to government policy choices.

Senator IAN MACDONALD —I certainly do not want you to do that. Let me establish this: you were not involved in those MOU decisions?

Mr Paterson —We have already established that.

Senator IAN MACDONALD —Does it concern you—

CHAIR —Senator Macdonald, we are at afternoon tea time.

Senator IAN MACDONALD —The officials can come back at quarter past if you want to go now, Madam Chair. I will be another five or 10 minutes on this, if you wanted to continue.

CHAIR —In that case, we will break for a short afternoon tea and come back at 4.15.

Senator IAN MACDONALD —Thank you.

Proceedings suspended from 3.59 pm to 4.17 pm

CHAIR —The committee will resume with the Department of Innovation, Industry, Science and Research. Senator Macdonald is continuing with his line of questioning.

Senator IAN MACDONALD —I understand that the recent memorandum of understanding includes some government spending on the industry to, what is said, assist the industry. Is your department aware of that? Are you administering that or is it being done somewhere else?

Mr Chesworth —No, that is not being administered through this department.

Senator IAN MACDONALD —In your dealings with industry sectors do you always ensure that all sections of the sector are involved? For example, if you are doing a car industry thing you deal not just with Ford but also with Toyota and others.

Mr Chesworth —Certainly the sector is very broad. You have what would traditionally be called big pharma, which broadly coalesces around Medicines Australia. You have GMIA, which I have already mentioned, which represents six generics manufacturers. As well as that, there are other parts of the sector which you may not regard as being traditionally pharma, in particular the biotechnology sector, which, probably with the exception of CSL, is characterised by about eight good sized companies and an awful lot of very small ones which straddle that area between research and commercialisation. In our discussions we consult with them broadly and on a regular basis.

Senator IAN MACDONALD —Medicines Australia is only about 30 per cent of the total pharmaceutical industry in Australia; is that correct?

Mr Chesworth —My understanding is that it is a bit more than that. I think the GMIA members might be about 30 per cent. Once again, it does often come down to questions of definition. There are some therapies, medicines and pills that are regarded as pharmaceuticals in some circumstances but not in others.

Senator BARNETT —The industry says that they are responsible for 70 per cent of the market for GMIA. I just want to put that on record. That is their advice.

Senator IAN MACDONALD —Of the off-patent market?

Senator BARNETT —That is right.

Mr Chesworth —That is a separate market and will probably change significantly in the next couple of years as a very large number of drugs come off patent.

Senator IAN MACDONALD —As industry policy, I assume it would be your department’s role to try to lessen the regulations and the paperwork, not the safety standards. In industries across the board your department’s role is to try to make things easier to do business more efficiently and with more productivity; would that be right?

Mr Chesworth —That is correct, but that is probably a priority for a few departments at the moment. Issues of paperwork and compliance burden probably fall predominantly to the Department of Finance and Deregulation.

Senator IAN MACDONALD —I am told that this new MOU signed between one part of the industry and the government applies extraordinary administrative burdens on non-signatories—that is, the 50 or 60 per cent that are not part of the MOU. The MOU with, let us say, 50 per cent of the industry imposes burdens on the other 50 per cent that were not consulted. In relation to disclosure price, which applies currently to 160 items, I am told that this MOU extends the policy to 1,600 items, a tenfold increase, and that the majority of these new administrative burdens will actually fall upon that section of the industry that is not part of the MOU. Is that something your department would be concerned about?

Mr Chesworth —The issue might be slightly more complex than that. There are a number of what we would regard as originator companies which also make generic medicines. As a result, for all elements of the pharmaceutical sector, both originators and generics—to the extent that they believe it imposes significant paperwork or compliance burdens on them price disclosure would apply to all of them rather than to one part of the industry over another.

Senator IAN MACDONALD —You have always been aware of the same concerns that have been raised with me; they have been raised with you and with others. Without going into the advice you are going to give them, what are the processes from hereon for your department as the industry department, not as the health department, in investigating those concerns with what I again emphasise we have established is Australia’s biggest manufacturing export industry?

Senator Carr —I would like to correct one thing. I am advised that Medicines Australia represents 50 member companies that account for 85 per cent of the total cost of the PBS medicines and nearly 60 per cent of the sales of off-patent medicines annually.

Senator BARNETT —That is a very high figure.

Senator Carr —I am just indicating to you that the figures that have been quoted here, I am advised, are not accurate.

Senator HEFFERNAN —Isn’t it 30 per cent of the post-patent?

Senator Carr —I am advised that it is 50 member companies that account for 85 per cent of the total cost of PBS medicines and nearly 60 per cent of sales of off-patent medicines annually.

Senator BARNETT —They are very high percentages indeed.

Senator HEFFERNAN —One in five prescriptions is written to one company that has not been consulted.

Senator Carr —In terms of the MOU, it is clearly a matter for the health department. If you are challenging those figures, I suggest that you take it up with the officers responsible for the PBS.

Senator IAN MACDONALD —Thanks for that information. I can only pass on what people say to me. I guess, if you got the different sectors in, they would have an all-in barney on who has got what but that is not the point of the—

Senator Carr —We have already indicated to you that we were not involved in the MOU.

Senator IAN MACDONALD —That has never been the point of my questioning. I have acknowledged that about five times. I am not asking about the health aspects; I am asking about the industry aspects that could have a substantial part of the biggest manufactured goods industry in Australia going overseas. If it happened in the car industry, you would rightly be on your feet shouting about it. Good on you; so you should. I am relieved now to know that the industry department is on the case, whether what I have said is 100 per cent truthful or not. I am just putting these things to you. I am really asking, now that you are aware of it because I have raised it with you and others might raise it with you, what the process is from here for your department on these issues?

Senator Carr —Officers have already indicated that they have had a meeting with the generics industry and that there are formal processes which the health minister and I are represented on. We will have an opportunity to discuss this with the full industry present. We will do what we can to implement budget decisions of the government.

Senator IAN MACDONALD —There are no tricks in this and not much politics. What I am just asking now is: what is the process going forward? You just mentioned that you have regular meetings with the health minister on these issues.

Senator Carr —On PIWG, which is an organisation that meets three or four times a year. We meet on several occasions with the health minister and the whole industry present to discuss matters of mutual concern. Presumably that will be a forum in which these questions will be pursued, as I would expect.

Senator IAN MACDONALD —That is what I was after. What is the process? It will go to this ministerial group that meets—

Senator Carr —The process for these industry groups is that the government has agenda items and the industry has agenda items. People who are present at the meetings will raise whatever issues they feel appropriate. Clearly the officers will be meeting and discussing these questions.

Senator IAN MACDONALD —Has the next meeting date been determined yet for this group?

Mr Pettifer —There is no date set for the next one.

Senator IAN MACDONALD —When would you expect it? I think the minister said four times a year.

Senator Carr —I may have been a little extravagant in that claim. There will be another meeting in the second part of this year.

Senator HEFFERNAN —Is GMiA on there?

Mr Chesworth —Yes, they are one of the members.

Senator HEFFERNAN —Minister, would you be supportive of this going to a Senate legislation committee with the—

Senator Carr —I am supportive of the government decision.

Senator HEFFERNAN —So we could examine this in the Senate inquiry on this legislation.

Senator Carr —I am supportive of the government decision. That is all I can say to you.

Senator BARNETT —Your department and the minister were not briefed with respect to the MOU signed with Medicines Australia and the health department. Is that correct? Mr Pettifer, you are nodding your head. Is that a yes from your perspective?

Mr Pettifer —We were not briefed on the MOU.

Senator BARNETT —Minister, do you want to add to that?

Senator Carr —I think officers have spelt out what the department’s position was.

Senator BARNETT —So we know that the GMiA was not briefed in any way, shape or form or consulted prior to that MOU being—

Senator Carr —We are not responsible for the MOU. It is not up to us to—

Senator BARNETT —Let me just finish the question. I am advised that the GMiA was not consulted, briefed or discussed in any way, shape or form prior to that MOU being announced on budget night. With that in mind—

Mr Chesworth —You will have to raise that with the department of health.

Senator BARNETT —Of course we will. That is my understanding and I am sharing it with you. If you have a different view, please advise. We have got a major portion of the industry—and the minister has indicated their significance to the Australian economy: 5,000 employees and $470 million in exports providing affordable medicines around Australia—that were not consulted prior to that decision. That is the advice that we have received. You have been briefed by the GMiA and you have had a discussion with the GMiA since the budget decision, but only one meeting with them. Is that correct?

Mr Chesworth —I will have to check my records. I think I have had two meetings with the GMiA.

Senator BARNETT —Could you please take that on notice, and advise us of the dates of those meetings and the thrust of those discussions. Do you consider this as in any way similar to the consultations with the mining industry prior to the mining industry tax being introduced on Wednesday?

Mr Paterson —Senator, you know we will not be responding to that.

Senator BARNETT —It sort of has a similar ring to it. That is my final question on that matter.

Senator IAN MACDONALD —I was talking about this cabinet decision on books before, Minister, and you were uncertain about it.

Senator Carr —I was not uncertain about the cabinet decision. You wanted to know whether or not you had asked any questions about it. I thought you would be more certain than perhaps I was about the questions you asked.

Senator IAN MACDONALD —You were widely reported—and I  know you do not comment on cabinet decisions—as having overruled your colleague the small business minister on the basis that you wanted jobs in the book industry to stay onshore rather than being exported. I am only raising that in the context of the current decision, which could have the same impact on the pharmaceutical industry. I  am saying to you, in a policy sense and not to your officers, would that be of concern to you as it was in the book industry if jobs in this industry were exported overseas because of decisions made by government?

Senator Carr —As I have indicated to you, we take an interest in the health of all industries.

Senator IAN MACDONALD —If what we are saying turns out to be correct—that is, that this new MOU leads to the loss of jobs offshore, as would have been the case, according to you, in the book decision had it gone ahead as proposed by the relevant minister—then that would be of concern to you.

Senator Carr —You are now moving from the point where you are reporting comments to the claims of supporting those comments. Is that proposition?

Senator IAN MACDONALD —No. Our role here is only to ask questions. We never make a political statement; we know you do not, either.

Senator Carr —I am sorry; I cannot add anything further to what has already been said.

Senator IAN MACDONALD —Okay. That is all I have.

Senator COLBECK —I have some questions in relation to grants from Commercialisation Australia, in particular, one that was made to allhomes.com.au. The basis of the question goes to what role the department plays in following up the activities of grant recipients. In this circumstance there have been allegations of infringement of copyright that come directly from the allocation of this grant. Is the department doing anything down the track with respect to that, and what might the follow-up be?

Mr Peel —In relation to grants generally, grants of the sort that have been approved for allhomes are funded on a milestone basis. They are not all paid upfront; they depend on the receipients reaching certain points in their projects. We monitor how those projects are proceeding through the term of the grant contract. We authorise payments as appropriate, should the company be meeting the milestones.

Senator COLBECK —What would those milestones include?

Mr Peel —They would be different for each grant. The grant is for a particular project. In this case allhomes wants to expand the current business it has in the ACT to other areas of Australia, and it is starting off in Tasmania.

Senator COLBECK —Does the department look at any of the practices that are observed by the grant recipients as part of that process? Would that be something that was part of the consideration at each of the various milestones?

Mr Peel —Certainly, if any allegations are made about inappropriate behaviour by a grant recipient, we would have a look at it but, generally speaking, we monitor how they are going in achieving their project milestones and if they achieve those milestones—

Senator COLBECK —So your concern is generally more about whether or not they are achieving the aims that they set out in the application for the growth of their business which is what?

Mr Peel —For the grant project.

Senator COLBECK —That the grant project is allocated to, so it would not necessarily look at issues of business practice within that specific process?

Mr Peel —But, as I say, if someone made complaints to us or made allegations to us, we would be obliged to follow them up.

Senator COLBECK —Have you had any specific complaints with respect to this particular grant?

Mr Peel —Not to my knowledge.

Senator COLBECK —You have not had any direct approaches?

Mr Peel —Not to my knowledge. I have read press articles I think in the Launceston Examiner.

Senator BARNETT —And many others.

Senator COLBECK —There are a number of them about in several publications that I am aware of. The Launceston Examiner is one, there is the Business Spectator, the Sydney Morning Herald, the Age—there are a number of them floating around. What process would someone who felt aggrieved by such a circumstance go through to make a representation to the department?

Mr Peel —As I understand it, in this case, the Real Estate Institute of Tasmania has an issue with allhomes. One would have thought that they would at first try to sort that out between them. If there were some allegations of the misuse of grant funds then whoever had a complaint about that should approach AusIndustry and we would have a look at it.

Senator COLBECK —Okay.

Mr Paterson —When it is about the ownership of intellectual property there are other means of people enforcing their rights in relation to ownership of intellectual property. If it is asserted that there is a breach of ownership of intellectual property then there are other mechanisms to be able to prosecute. This would not be the first case where allegations of breach of intellectual property have been made. It is not an uncommon thing for people to assert that. It is another thing for them to be willing to prosecute those assertions and to support their own intellectual property ownership if that is the case.

Senator COLBECK —Okay.

Senator BARNETT —On that point I have read through the guidelines for applicants for these grants and under the access to intellectual property section 2.3 it specifically states that an applicant must be able to demonstrate that it owns or has access to or beneficial use of any existing IP needed to carry out and all commercialise the project. Applicants are not eligible for assistance if the IP is in dispute or ownership has not been clearly established. We could only assume that the department would have done due diligence to ensure that they were satisfied that that was the case. Is that correct?

Mr Paterson —You could expect that we would have made the assessment of the application against the guidelines. There is an element of the question about the extent of due diligence that can be undertaken in relation to any grant application. If there is an implication in your question do we follow all the entrails in relation to intellectual policy ownership in relation to every grant application we receive then I would probably say no. If your question is: do we satisfy ourselves that the guidelines that are published in relation to these guidelines and the application adequately deals with that matter and satisfies us on the basis of the application that they have the intellectual property ownership of the matters that they wish to exploit then the answer is yes.

Senator BARNETT —The criteria say that the individual must be able to demonstrate that they have necessary rights to the IP. That is part of the criteria. It is normally expected that, if the project succeeds, the participant will own any IP resulting from the project.

Senator COLBECK —This particular project is about expanding its website nationally and access to information. As I recall the documentation that approved the grant, the project is about an innovative new way to harness information. Surely that is a key criterion given what it was talking about, because the implications and the impact of that, particularly as put to me by some players in the real estate industry, are that if the information harvested is not updated it could very well provide a circumstance where it is misleading customers as to certain conditions with respect to a certain property sale. In this particular circumstance, the issue of the ownership of the IP, given what the planned project was doing, was very fundamental to the application.

Mr Peel —We are satisfied that allhomes owns the intellectual property connected with this project, which is essentially an extension of its current website throughout Australia. The allegation, as I understand it, that has been made by the Real Estate Institute of Tasmania is that, by putting on that website properties for sale, for example, that have been advertised for sale by a particular real estate agent in Tasmania, that is somehow in breach of copyright for those real estate agents. I am also aware that allhomes has written to the real estate agent community in Tasmania and has said that it believes that the allegations that have been made are incorrect and misleading and that it has a claim for damages against the Real Estate Institute of Tasmania for breaches of the Trade Practices Act and the Fair Trading Act. This is clearly an issue between the Real Estate Institute of Tasmania and allhomes. As far as we are concerned the project that we funded, the intellectual property underpinning that project, is owned by allhomes.

Senator COLBECK —Intellectual property in that circumstance being the IT required to harvest the data that it then displays on the website?

Mr Peel —Correct.

Senator COLBECK —So in fact the allegation that IP, intellectual property, is being breached is a secondary element to that process. I will give you an example from the real estate agent that I spoke to and that had contacted allhomes demanding that their information be removed. It was not removed immediately, but once there had been legal communication it was. That is an individual circumstances where, as Mr Paterson said, an outcome was achieved between two individuals as part of this process. But it does fly in the face a little bit of an assertion by allhomes. They can make all the assertions that they like, and I understand that.

Mr Peel —With respect, the real estate people in Tasmania are making assertions.

Senator COLBECK —I was in fact about to say exactly the same thing. There will be arguments on each side of the equation and, as Mr Paterson said, there are processes to deal with that. What Senator Barnett and I were trying to get to the bottom of were issues of IP in respect to the application process. You are clarifying that to us by saying, as far as you are concerned in this circumstance, the IP in relation to the application is the IT that harvests the information that they then display on their website.

Mr Peel —Correct. And I think what is being suggested is that putting advertisements on that site for properties in Tasmania that have been advertised by real estate agents in Tasmania is a breach of their copyright. That is an issue that needs to be resolved between allhomes and the Real Estate Institute of Tasmania.

Senator BARNETT —You do not see that as an issue for the department?

Mr Peel —Obviously we will monitor what happens.

Senator BARNETT —Even though your criteria say that if it is in dispute—

Mr Peel —We have not had any approach.

Senator BARNETT —I am just looking at your criteria that say if the IP is in dispute or ownership has not been clearly established then—

Mr Peel —The IP for the project we do not believe is in dispute. The issue that is in dispute is putting the advertisements on the site, and that is really a matter between the Real Estate Institute of Tasmania and allhomes to resolve. Allhomes has one view—it believes that that information is in the public domain and therefore there is not a breach of copyright. But I am not a lawyer, and no doubt allhomes has its lawyers and the Real Estate Institute of Tasmania has its lawyers and that is that.

Senator BARNETT —And you do not have an opinion?

Mr Peel —I do not have an opinion.

Mr Paterson —And if we had an opinion we would not express it. The minister might be asked to say something but the department necessarily could not.

Senator Carr —You cannot ask the officers for an opinion; you know the standing orders.

Senator COLBECK —We can ask you for an opinion but we cannot ask the officers—

Senator Carr —The officers have expressed the situation very clearly. These were not issues at the time at which the grant arose. They are not issues concerning the grant per se. This is not a matter for the department, as I understand what they are saying.

Senator COLBECK —Perhaps it is a consequential one but, as the officers have said, it is not a direct one in relation to the way they have assessed the application.

Senator Carr —I cannot see any problem with what they have said.

Mr Peel —As I said earlier, we have not been approached by the Real Estate Institute of Tasmania or anyone else. All we have done is read articles—

Senator COLBECK —You might like to add the Real Estate Institute of Victoria to the list as well. There is a bit of a pool growing. Anyway, that is fine.

Senator BARNETT —The criteria are set out in the document that the minister released when he announced the 21 recipients.

Senator Carr —It is not for the government to respond to speculation on allegations of all potential legal actions. That is not our role.

Senator BARNETT —Indeed. But you have criteria and you want to make sure that they are properly kept and met.

Senator Carr —No-one has suggested to me that there has been a problem on that front.

Senator BARNETT —That is why I am asking the question about whether you are satisfied—

Senator Carr —I have no reason to doubt.

Senator BARNETT —that the criteria have been met. I have mentioned the IP but there are also eligibility criteria under point 2. If you are saying that they have been met, then that is something that obviously will need to be reviewed and assessed by those concerned.

Mr Peel —It was properly assessed and recommended for approval against the criteria that apply to the grant program.

Senator BARNETT —You have the funding application and the funding agreement between your department and—

Mr Peel —Yes, we execute contractual agreements.

Senator BARNETT —Do you have a standard agreement that you can make available to the committee?

Mr Peel —It is probably available on the website—

Senator BARNETT —Could you forward that to the committee.

Mr Peel —but we could provide you with a copy of a standard agreement.

Senator BARNETT —Thank you.

Senator COLBECK —I want to go to some questions in relation to—and I do not think these are necessarily for the officers; I think they are more for you, Minister—some concerns regarding delays in awarding tenders to supply Defence clothing. I understand that there is an interaction with another agency here, and there will be some questions going to Defence. What I want to try to concentrate on here are the impacts from a manufacturing perspective in Australia, rather than necessarily the issues between Defence and the industry. There are some linkages, so if you could allow me a little forbearance I will try not to stray too much into the other portfolio. It goes to government responding formally to the Lewincamp report, the impact that that is having on innovation here in the country and your interaction with that. Specifically, Minister, are you aware that several Australian textile manufacturers have notified the Defence Materiel Organisation of potential job losses and delays in awarding tenders? Have you had any conversations with industry about issues surrounding this?

Senator Carr —I do not recall any conversations specifically along the lines you have suggested.

Senator COLBECK —So your department has not been engaged at all by textile—

Senator Carr —The department is in conversations with textile manufacturers on a regular basis. Have you asked a specific question in terms of what the department has done?

Senator COLBECK —There is a concern being expressed to us. I want to know whether that concern is being expressed to you, what your interactions are in moving this issue forward and the potential impacts on manufacturing in Australia.

Senator Carr —I understand your point. I do not have a direct role in clothing tenders for the defence department.

Senator COLBECK —I understand. We hope you have some influence.

Senator Carr —We always have an interest in the health of industries. I have indicated to you that textiles is an area in which we have a special interest. From time to time people will canvass with me matters relating to the general state of the industry. But I do not know if anyone has canvassed specifically the matters that you have put to the committee this afternoon.

Mr Lawson —A few weeks ago Defence run a public session in Melbourne for the TCF sector. In advance of that meeting the Head of Industry Division in DMO spoke to me, and they have a regular process of engagement with the industry. People within my TCF sections deal on a regular basis with companies, but I have not received specific concerns along those lines. There is always the general issue of timing of tenders and things like that. We are always hearings issues about timing of tenders, but I have not had something specific on that.

Senator COLBECK —Okay.

Senator Carr —Are you referring to today’s press, which reports that the minister for defence materiel, Minister Combet, has indicated:

… all the uniforms—

will be—

manufactured in Australia, by Australians and using Australian fabric.

A $30 million contract was signed yesterday. Are you familiar with that material?

Senator COLBECK —I have not been provided with that information and I am not sure whether these questions predate or postdate that. This is the information that has been given to me this morning.

Senator Carr —There was some public comment about questions of contracts going offshore.

Senator COLBECK —Yes, we discussed that last time.

Senator Carr —I can recall there were front-page articles in some tabloids on this matter. Could you at least have a look at this material? I am sure that we are being monitored, so if there is any information that can clarify that—

Senator Carr —I am just wondering if your questions predate this material.

Senator COLBECK —I will have to check that. I am happy to look at something else for a moment while those who are monitoring us check that. If that is the case, we can potentially move on. There might be some other issues that we come back to in relation to that. So we will just put that aside for the moment and get back to it before we finish. I would like to move on to the Green Car Innovation Fund. To go over a little history, the initial Green Car Innovation Fund was $500 million, and then it was increased to $1.3 billion, as announced in November 2008.

Senator Carr —Sorry?

Senator COLBECK —The initial Green Car Innovation Fund was half a billion dollars, $500 million, and increased to $1.3 billion as announced in November 2008?

Senator Carr —There were comments made in the period prior to the last election that we would establish a green car innovation fund. The figure of $500 million was mentioned in the early stages. As a part of our New Car Plan for a Greener Future there was a commitment to $1.3 billion.

Senator COLBECK —Okay. I just wanted to make sure I had my history correct. The government has announced in the current budget a reduction in that fund of $200 million.

Senator Carr —Yes.

Senator COLBECK —I just want to get a sense of how that changes the nature of funding through the scheme—what the impact is on the scheme.

Senator Carr —What it means is that there is $790 million available over the remaining nine years. It is a 10-year program. The reprofiling of the fund is such that I am confident we can meet the demands on the fund over the forward estimates period.

Senator COLBECK —Okay. How does that impact on the two streams in the fund?

Senator Carr —It does not affect the guidelines. What it means is that over the 10 years—or 11 years of the program in total—it moves from $1.3 billion to $1.1 billion, so there is $790 million left and grant funding is available for the remaining nine years of the program.

Senator COLBECK —Okay, so how does the government allocate that to the various streams of the fund?

Senator Carr —It is the same basis as the guidelines have indicated.

Mr Peel —It is not an actual allocation to each stream of the fund. There is a limit on grants that members of each stream can get. Under stream A there is a limit of a cumulative $300 million, and under stream B there is a cumulative limit of $100 million. But there is not an actual amount set aside for each stream of the fund.

Senator COLBECK —So any applicant under stream A can make as many claims as they like up to that $300 million over that period of time?

Mr Peel —Yes, subject to available funds.

Senator COLBECK —And under stream B it is $100 million. But there is no balancing or specific allocation to either of the streams. That will depend on applications and grants approved.

Mr Peel —Correct.

Senator COLBECK —How many contracts under the fund do you currently have signed?

Mr Peel —Five.

Senator COLBECK —Can you give me the dates for each of those?

Mr Peel —I cannot give you an exact date for when the contracts were signed, but I can give you the dates when the grants were announced. There was a grant announced at Toyota on 10 June 2008, a grant to Holden on 22 December 2008, a grant to Ford on 24 July 2009, a grant to Orbital on 11 March 2010, and a grant agreement was executed with SMR Automotive on 23 April 2010.

Senator COLBECK —Can you quickly run down the values of each of those, please?

Mr Peel —Yes. The grant to GM Holden $149 million. Ford is $42 million. Toyota is $35 million, Orbital Corporation is $440,413, and SMR Automotive is $2,422,190.

Senator Carr —Perhaps I could help you here, because I know where this is going. The reduction the coalition has announced would reduce the remaining funds by $35 million. The effect of that would be to reduce the funds available by 50 per cent for the next four financial years. No new grants would be available should that proposition come into effect. In fact, we could not meet existing commitments under the terms of the contracts that we have already issued.

Senator COLBECK —I was just about to get to—

Senator Carr —I just thought I would help you out there with that.

Senator COLBECK —That is all right. It is good to see that you are anticipating where we are going and are aware of what is happening around the place. Can you give us a schedule of the annual payments for each of those grants?

Mr Peel —I can give you a total. I cannot give it to you for each group.

Senator COLBECK —Yes. I understand that there may be some commercial-in-confidence issues in relation to that as well. I am looking for the tail on each of those.

Mr Paterson —I think Mr Peel has indicated that we can give you a total for each of those years but not broken down grant by grant over each of those years.

Senator COLBECK —As I said, I accept that there may be some commercial-in-confidence reasons for doing so. I understand that. So it is the annual figures that I am happy to get.

Mr Peel —Starting in 2010-11—is that what you are after?

Senator COLBECK —Yes, please.

Mr Peel —The total current commitments of those grants that I have mentioned—and I should say that there are some in the pipeline; I cannot count those—

Senator COLBECK —We will come to those.

Mr Peel —As at 30 April, it was: $61,620,184 in 2010-11; $45,493,591 in 2011-12; and $619,499 in 2012-13.

Senator COLBECK —Six hundred and nineteen? Is that thousands? It was $61 million, $45 million and the last one was $619,000?

Mr Peel —I think it is thousands. I might have to check that on notice. Hopefully someone has not left off three zeros!

Senator COLBECK —If you can advise us of that, it might help us all out and keep us all out of trouble!

Mr Peel —That is it. Those are the current commitments for those grants I have mentioned.

Senator COLBECK —So how many contracts are you currently negotiating?

Mr Peel —We have one a grant that is still going through the process.

Senator COLBECK —Only one grant is currently under negotiation?

Mr Peel —That is right.

Senator COLBECK —That makes my next question a bit difficult because if there had been a number of grants I could have asked for a total allocation without breaching any potential announcements the minister might like to have made. So that is the only project that you currently have on the books?

Mr Peel —That is right. It is the only one currently not announced. It is being finalised.

Senator Carr —I think that is a question of grant applications received. We cannot go into the detail obviously, but there are a number of others which different sections of the department have commenced conversations about.

Senator COLBECK —I understand you do not necessarily want to make your announcements about all these things here in this process, but what level of commitment does the government have in respect of the discussions that it is currently having?

Senator Carr —What I have indicated to you is that the forward profile is sufficient to cover our anticipated level of demand.

Senator COLBECK —Didn’t you say it was $10 million short?

Senator Carr —No, in terms of the current year’s allocation it is nearly $11 million. That is for 2010-11.

Senator COLBECK —That is for this year?

Senator Carr —That is what I am saying to you. If we were to take into account the proposed opposition cuts, which are $52 million, we would be nearly $11 million short on contracts already entered into.

Senator COLBECK —For 2010-11?

Senator Carr —Yes.

Senator COLBECK —So what is the impact in 2011-12?

Mr Peel —As the minister mentioned, as at 30 April the shortfall for 2010-11 is $10,878,568.

Senator COLBECK —Okay. So that would take into account the SMR grant which was announced on the 23rd.

Senator Carr —Because this has engaged a political debate concerning a stated policy position of the opposition, it is only reasonable that I answer questions.

Senator COLBECK —That is fine.

Senator Carr —I do not think it is fair to have the officers deal directly with those questions. I have asserted the position that based on what the opposition have said the opposition’s proposed reduction of $52 million this financial year would leave a shortfall. If that were implemented, the department would not be able to implement their existing contracts to the tune of $10.8 million.

Senator COLBECK —So is there a shortfall the following financial year?

Senator Carr —Because there are a series of other matters—as we have already canvassed, there are a range of applications in various stages of the process—we cannot say that at this stage. What we can say is that in the financial year 2010-11 the shortfall, if this were ever implemented—and you understand I would be doing all I could to make sure it never were—on the basis of what your party has indicated, would be $10.8 million. I claimed, therefore, that you would not be able to fulfil contracts.

Senator COLBECK —I understand. And you have one contract still in the process, which you obviously cannot tell me—

Senator Carr —I am saying there are a number of applications in various stages of the processes. There is a formal application that is received and processed by the department, but there are other processes in terms of discussions with officers before that occurs. That is why I can say to you that the current profile—

Senator COLBECK —As signed commitments sit at the moment there is a shortfall in 2010-11 but you can meet commitments from there out based on contracts signed?

Senator Carr —No, I am saying to you that on our profile we can meet all contractual commitments. However, you cannot afford to take another $52 million out.

Senator COLBECK —The question is what a contractual commitment is as of today. At the moment you have five contracts.

Senator Carr —That is why I can say to you that as of today, based on signed contracts, if you were to implement the opposition’s policy of taking a further $52 million out of the fund there would be a shortfall of $10.8 million. Contracts could not be honoured on the basis on which they have been signed.

Senator COLBECK —Okay, I think we are on the same page on that. So on the basis of signed contracts for 2010-11 your claim is that there is a shortfall of $10.8 million.

Senator Carr —If your policy was ever implemented.

Senator COLBECK —Okay, we are cool with that. And you cannot say anything on the out years because there are not signed contracts at the moment. You are privy to information that I am not privy to, obviously, and you will make your arguments at an appropriate time about that.

Senator Carr —That is right.

Senator COLBECK —But, apart from 2010-11, based on current contracts there are not issues in the two years 2011-12 and 2012-13.

Senator Carr —I can assure you that by the time we get there there will be new applications and new processes.

Senator COLBECK —You will do your spending and your allocations in that period of time, and then we will have to deal with those issues in that time frame.

Senator Carr —From what we know now, on the basis of signed contracts in 2010-11 if you were to implement the opposition cut of $52 million there would be a shortfall of nearly $11 million.

Senator COLBECK —Do you have a budgeted profile for the expenditure through this committee or is that going to be industry driven?

Senator Carr —There is a forward profile on their fund.

Mr Peel —I will give you the total administered appropriation from 2010-11 through. This is for grants. In 2009-10 there is $133,306,000. In 2010-11 it is $104,035,000. In 2011-12 it is $173,044,000. In 2012-13 it is $156, 880,000. In 2013-14 it is $121,696,000. In 2014-15 it is $177,469,000. In 2015-16 it is $105,543,000. In 2016-17 it is $38,242,000. In 2017-18 it is $10,592,000. In 2018-19 it is $391,000,000. All of the numbers I have given you include grants and operating expenses.

Senator COLBECK —What proportion is operating expenses? I did not want to have to ask the question, but I do have to!

Mr Peel —I do not have the figures here. It is a relatively small amount. I can give the figures to you for 2010-11 to 2013-14. In 2010-11 it is $544,000. In 2011-12 it is $543,867. In 2012-13 it is $843,856. In 2013-14 it is $543,222.

Senator COLBECK —Do those amounts take into account the overall reductions in funding announced to the fund?

Mr Peel —Correct.

Senator COLBECK —Are they net of the $200 million that has been removed from the fund?

Mr Peel —Yes, that is minus the $200 million.

Senator COLBECK —So at the moment the only commitments against those years go out as far as 2012-13?

Mr Peel —That is right.

Senator COLBECK —As of today, the only commitments against those funds go out to 2012-13.

Mr Peel —Yes, I gave you those figures earlier, Senator.

Senator COLBECK —With the clarification to come of whether it is $619,000 or—

Mr Peel —I think it is $699,000—

Senator COLBECK —$699,000?

Mr Peel —It is $619,499.

Senator COLBECK —Okay. Minister, do you expect to be making significant further announcements in relation to expenditure against this fund in the relatively near future? I will stick to this side of the election. We do not need to speculate on the time frame of that.

Senator Carr —We will have to wait and see. I do not know when the election is going to be.

Senator COLBECK —We do not need to go there. But you are expecting to make—

Senator Carr —This is a serious bit of work. This is about—

Senator COLBECK —And I treat it that way, and that is why I am trying to respect the government’s confidentiality in the issues it is dealing with, but I am just trying to garner some information for my own purposes.

Senator Carr —We will announce further grants upon receipt of quality applications and the due processes. I am confident that there will be further projects over the forward estimates period. I cannot say to you when they are going to be announced—

Senator COLBECK —No, I understand that.

Senator Carr —This is a fund that is specifically aimed at the transformation of the industry and it is seen as part of a broader package of measures which we have announced which provides support in excess of $6 billion. The total impact is to see an industry that is sustainable and able to develop new products and new jobs for Australian workers. Now, I am very confident that we can deliver on all of those.

Senator COLBECK —I am trying to frame some questions in a way that I can garner some information. You are happy to talk to journos in the background about this, and that is part of the process—

Senator Carr —No, I said this on the record. I was very, very clear. I have made it very clear that I think the changes that you propose will see us not being able to meet our contractual obligations.

Senator COLBECK —Yes, for 2010-11, and we are not arguing about that.

Senator Carr —I think they were hastily put together and did not reflect an understanding of how the program operates. I have said that on the record. I am not trying to hide from that; I am more than happy to argue that case out, as to why I think that. I am also saying to you that this program will provide a further $790 million in grant funding over the next nine years and I expect that to produce a very, very big results for the Australian automotive industry.

Senator COLBECK —Okay. You have indicated that the $200 million reduction in the fund was due to the fact that it had attracted lower than expected interest.

Senator Carr —It was effectively due to the fact that we have a general belt-tightening across the government.

Senator COLBECK —So it is not necessarily due to external factors but to internal government issues?

Senator Carr —Clearly, there are, in part, questions about the take-up as a result of the global financial crisis. This is an international industry, after all, and an industry that has seen the worst crisis that it has faced in 70-odd years—some would say, since its creation. I think we have done remarkably well in weathering that storm. There is no doubt, however, that there has been a huge squeeze on liquidity—a huge squeeze—and, because we run, on a pro-rata basis with the industry, a co-investment scheme, that has restricted the opportunities that some people would have had to participate in the program. Now, that is starting to ease, and I am expecting quality applications to come forward. But there is no doubt, equally, that the changes that we had to make to the fund are part of the general budgetary position the government is pursuing.

Senator COLBECK —Moving on to the Automotive Industry Structural Adjustment Fund, you announced in November 08 that you had $116.3 million allocated to that. Can you tell us how much has been spent and/or committed to that program?

Mr Durrant —While $116 million is the total under the scheme, it is broken into two elements. The structural adjustment element, which is administered by the department, is $78 million. There is a $36 million section which is administered by the department of employment and that relates to assisting employees who have lost their jobs as a consequence of structural adjustment. In relation to the $78 million, the 2008-09 allocation has been expended. In relation to the 2009-10 allocation, the balance of the remains at this stage is $7.523 million.

Senator COLBECK —Are there any further allocations in the out years?

Mr Durrant —Yes, there is one further allocation, of $43.75 million. There are no commitments against that at this stage.

Senator COLBECK —That is just a block amount not necessarily allocated to years at this stage?

Mr Durrant —That is allocated to financial year 2010-11.

Senator COLBECK —The 09-10 allocation: is that an unallocated amount at this stage? Is that a remaining sum or is it the allocation for the year?

Mr Durrant —At this stage the $7.523 million is unallocated.

Senator COLBECK —How much is being spent this year on the program?

Mr Durrant —This year $18.863 million has been agreed or committed or paid.

Senator COLBECK —And the amount spent in 08-09?

Mr Durrant —In 08-09, agreed, committed and paid, $7.88 million.

Senator COLBECK —Are there any further expected allocations in relation to the 09-10 sum, that 7.523?

Mr Durrant —That is possible.

Senator COLBECK —Any specific contract negotiations in relation to that?

Mr Durrant —No, not contract negotiations.

Senator COLBECK —So potential applications have been discussed, but not necessarily contract negotiations as yet. Okay. As part of the launch of its new car plan in November 2008, the government announced it had allocated 6.3 to the automotive market access plan. Figures in the budget suggest less than that is being devoted to the program between 09-10 and 11-12, and there is no allocation out beyond that. Is there another appropriation for that program?

Mr Durrant —It was a three-year program. Of the 6.3, $3.7 million over the three years—09-10, 10-11 and 11-12—was allocated to Austrade. That was to expand their adviser network in China, India, Korea and Thailand. So the money available under the program for this department for administration is $750,000 for the automotive envoys and $1.5 million for the Team Australia Automotive initiative. That in total, as reflected in the budget statements, is $750,000 for the next three years.

Senator COLBECK —Can you give us the program for the automotive envoys—what will they be doing?

Mr Durrant —Certainly. I can run through Mr Conomos’ program. He has had four overseas visits so far this financial year. In October he was up in Japan speaking to the Australia-Japan Joint Business Conference. Later in November he visited Thailand with an industry delegation. In February this calendar year he also visited India and Malaysia with a delegation, and he is currently in China with a delegation. He returns home on 3 June. Mr Bracks led an industry delegation over to the United States in October. In addition to that, Mr Bracks has been active in a number of domestic initiatives, including working with the Australian banking community to help finance the automotive industry.

Senator COLBECK —Which industry?

Mr Durrant —The automotive industry. He has been working with the banking industry.

Senator COLBECK —Okay. This is to deal with some of the finance issues within the sector?

Mr Durrant —Correct.

Senator COLBECK —Do we have any specific outcomes to date that we can proudly display from those overseas activities?

Mr Durrant —I can just comment that the trip to India was rather productive, however I think there are some negotiations happening between Australian and Indian firms at the moment and to comment on them might just pre-empt those.

Senator COLBECK —Can you explain the significant tapering off in the LPG scheme figures beyond 2010-11 in the forward estimates?

Mr Peel —I think that was a question asked earlier today. There are a few reasons for the tapering off. One is that there was a high level of demand at the beginning of the LPG program, which meant that we brought moneys forward to earlier years from later years. Also, the level of the grant provided for LPG decreases as we go forward. They are the essential reasons.

Senator COLBECK —So is demand capped on the program as it stands now? I understand you are tapering off the amount that is available. Is there a cap on the annual expenditure as far as the number of grants?

Mr Peel —The program has been funded out till 2013-14 and then it finishes. It is not an ongoing program.

Senator COLBECK —Yes, but on an annual basis if you turn up to get a—

Mr Peel —No, it is not capped each year.

Senator COLBECK —So it is demand driven and if the demand is higher the government is either going to have to bring forward funds or find the additional funds to cover it.

Mr Peel —That is exactly what happened in the early years of the program. So we are actually quite a bit ahead of the original estimates of the number of grants that would be paid under the program.

Senator COLBECK —So it is a combination of factors?

Mr Peel —That is right.

Senator COLBECK —And it ends in 2012-13?

Mr Peel —2013-14.

Senator COLBECK —Can you give us a sense of the work you are doing on demand management strategies in working towards making the industry greener—for example, assisting users to reduce private transport fuel use? I suppose that comes to some of the smaller vehicles that you are assisting through the Green Car Innovation Fund but is there anything outside of that?

Mr Peel —Not that AusIndustry administers directly.

Senator COLBECK —There is nothing else that the government is doing to reduce private transport fuel use apart from the work that is being done with smaller and more fuel-efficient vehicles?

Mr Durrant —One of the initiatives in the Department of Infrastructure, Transport, Regional Development and Local Government, the Green Vehicle Guide, provides information to consumers about the fuel emissions and fuel efficiencies of motor vehicles. That is an educative campaign available on the website.

Senator COLBECK —I will leave that at that. What discussions has the department had with the industry in respect of phase-in of Euro 5 and 6 emissions standards? Where are we at with that?

Senator Carr —We have had quite a lot of discussion with industry about these issues, however Minister Albanese has primary carriage of this matter.

Senator COLBECK —So what impacts will that have on this portfolio and the manufacturers?

Senator Carr —There has been no decision taken yet, so it is a bit hard to judge.

Senator COLBECK —There are no decisions at this stage at a whole-of-government level, so the potential impacts of those—

Senator CARR —Who is on the IDC?

Mr Durrant —That is right. For that initiative a regulatory impact statement has been published. Comments have been made to that. The government would like a decision based on that and other issues.

Senator COLBECK —Is any work going on in relation to electric cars?

Senator CARR —What do you mean by ‘any work going on’?

Senator COLBECK —Within the department applications.

Senator Carr —We cannot comment on the applications but I can say to you that we have some real strengths in battery technology in this country. In terms of the road map that has been prepared through the innovation council, it is one of the issues that we are pursuing.

Senator COLBECK —I move on to the Green Building Fund. As I understand it, we are close to expending the full amount allocated under the Green Building Fund—is that correct?

Mr Peel —We have recently closed applications for what we think will be the final round of the Green Building Fund.

Senator COLBECK —That was round 6?

Mr Peel —Yes.

Senator COLBECK —Do we expect expenditure to go out to the full extent of the program which was initially announced at 2012-13?

Mr Peel —It will be. I think it was announced at $90 million.

Senator COLBECK —Yes. How much have we spent so far?

Mr Peel —It was originally announced at $90 million. There was a reduction in 2008-09 of $2.827 million so it is now $87.173 million. To date we have funding commitments of $34,586,000 and we have paid out $19,703,000, which leaves us with close to $33 million that we have not yet committed to grants, which will be looked at in round 6.

Mr Sexton —Those commitments of $32 million not yet entered into do not take into account round 5, which was recently announced, about a week or so ago. There is about $16 million or $17 million of that which has been allocated. So in effect we are down to about $16 million left in the scheme.

Senator COLBECK —So there is about $16 million left for round 6.

Mr Sexton —Yes.

Senator COLBECK —So effectively spent is somewhere in the order of $70 million so far, committed.

Mr Peel —Committed and spent.

Senator COLBECK —So effectively about $70 million.

Mr Peel —Yes, about $71 million.

Senator COLBECK —That is fine. The program was initially set up around grants of about a half million dollars. We talked a little bit about that at the last estimates. Grants are between $50,000 and half a million dollars. Can I get a sense of what was gone through to allocate some significantly larger grants as part of that process?

Mr Sexton —There are only two grants that have received in excess of $500,000. They are special projects within the merit criteria. There are a number of criteria—

Senator COLBECK —Can you repeat that last bit. I missed it, sorry.

Mr Sexton —Within the merit criteria.

Senator COLBECK —Within the merit criteria. Okay.

Mr Sexton —There is the possibility of supporting projects above $500,000 if they satisfy additional requirements—in other words, that they are world’s best practice in what is trying to be achieved and that they relate to buildings larger than 5,000 square metres.

Senator COLBECK —So the $3.042 million grant paid to Commonwealth Managed Investments met that criteria, as did the one for $2.318 million to LIF Pty Ltd. Can you give us a sense of what those particular projects were?

Mr Sexton —The details are on the AusIndustry website.

Mr Peel —The Commonwealth Managed Investments Ltd project is a wind array scheme. The description on the web states:

Installation of vertical axis wind turbines on the roof of the building to supply carbon free energy to the base building. The array will reduce base building CO2 emissions and improve the energy efficiency of the building.

The description of the one in North Sydney, LIF Pty Ltd project states: ‘The project will see the implementation of Australian technology, including the Shaw Method of Air Conditioning and Bennett Clayton engine technology as part of significant upgrades of the HVAC and trigeneration systems. The project aims to achieve post-project greenhouse gas emissions almost 70 per cent lower than that required to achieve a 5 star office building rating.’

Senator COLBECK —These are all effectively retrofitting projects?

Mr Sexton —These are all for existing buildings.

Senator COLBECK —The Commonwealth Managed Investments project was to provide the Wind array Scheme. It is a series of vertical access wind turbines.

Mr Sexton —That was only one aspect of the overall project but it did include those.

Senator COLBECK —Can you give me some more detail to that. The project description which I have from the website basically talks about that. What else was special about the project?

Mr Sexton —I will have to take that on notice. I do not have the full description.

Mr Peel —We have only got descriptions from the web. So we can take that on notice and let you know.

Senator COLBECK —Can you give me any description of the Shaw Method of Air Conditioning and the Bennett Clayton engine technology.

Mr Peel —Yes, we will get that for you.

Mr Sexton —We will take them both on notice.

Senator COLBECK —Are those projects completed or are they underway.

Mr Sexton —They are both underway.

Senator COLBECK —What audit processes and project review processes do you undertake to verify that they are achieving what they are going to achieve?

Mr Sexton —The milestone payments are structured so that there is an amount paid upfront, there is an amount paid on conclusion of the project and then there is a final amount paid 12 months after the project is completed on the provision of a NABERS report, which is intended to demonstrate the savings actually achieved.

Senator COLBECK —A neighbour’s report?

Mr Peel —It stands for National Australian Built Environment Rating System.

Senator COLBECK —I had nasty visions of you going to ask the next-door neighbours just to see whether it was working.

Mr Peel —Actually, at the last estimates, in the Hansard initially, that is how it was spelt.

Senator COLBECK —I am not on my own then, am I—that is good! I had some frightening visions of some nasty planning issues. Is there a scale to those payments, or are they based on an analysis of each individual project?

Mr Peel —There is basically a payment regime that applies to all projects: it is 20 per cent on execution of the contract, 60 per cent once we receive a satisfactory final report that the project has been implemented and then 20 per cent one year later, provided we get this NABERS assessment to say that the project has achieved the environmental target that was set for it.

Senator COLBECK —Do we get any sense of CO2 emissions saved, for example? Is there any measurement of that as part of this process, or is there—

Mr Peel —Yes, we do. So far—I am not sure that this includes round 5—the figure that I have are about 158 kilotons per annum.

Senator COLBECK —Is that a claimed amount, or is it a measured amount?

Mr Sexton —That is a projected amount, and that is what we measure to see whether or not it has been achieved when we get the NABERS report 12 months after the project has been completed.

Senator COLBECK —Do they have to make restitution of that amount as part of the process? Or is there another scale within? I still have visions of the neighbours coming around with a few cartons to check out the project—sorry!

Mr Sexton —Achievement of the projected outcome is not necessarily a requirement for the amount to be paid. The amount of money that is withheld—20 per cent—is to ensure that we do get that report in order to enable us evaluate the program at its conclusion. There will be cases where they do not achieve those particular projections for all sorts of reasons, including technology and so on.

Senator COLBECK —What action do we take at that point?

Mr Sexton —If they have completed the project successfully at that point, and they have provided the report, the final 20 per cent will be paid.

Senator COLBECK —Can you say that again? Sorry.

Mr Sexton —If the project has been completed, and they then have provided their NABERS report 12 months after the completion, the final amount will be paid.

Senator COLBECK —Regardless of whether they meet their commitment for whatever reason?

Mr Sexton —It is not necessarily a commitment; it is a projection based on an independent rating system where if you were to undertake this level of investment, you should be able to achieve the following savings in CO2 emissions or equivalent.

Mr Peel —If we were satisfied that they did all the diligent things that they could do to prosecute the project to its conclusion, and it achieved a rating of less than what was originally proposed, then we would make the payment. It would only be in those cases where we determined that they had not properly prosecuted the project.

Senator COLBECK —Effectively, they provide you with a plan up-front, they say, ‘We are going to replace our lighting, we are going to double glaze windows, we are going to insulate certain elements of the structure, we are going to reduce draught access,’ and all of those sorts of things. You would go through all of those things, do an assessment against a matrix and say, ‘Okay, we expect that you will achieve a certain saving’. Then you will assess that they have done those things. You might make an assessment against the technology and receive the report for the final payment.

Mr Sexton —The NABERS rating system is independent. It is that report which determines, or projects, what the savings might be.

Senator COLBECK —Are the initial applications assessed against that?

Mr Peel —Yes.

Mr Sexton —The initial application is assessed against that.

Senator COLBECK —You do an initial, and then a final assessment against the same criteria?

Mr Peel —That is right.

Senator COLBECK —Then the final payment is at the end of that process.

Mr Sexton —The main criterion by which these applications are assessed is the amount of CO2 projected to be reduced. It accounts for some 60 per cent of the assessment that we undertake. The important thing is that it is independent. It is not provided by the applicant.

Senator COLBECK —What different state variances, in recognition of different elements of the building envelope and how they might apply—for example, emissions from lighting and things of that nature—are taken into account?

Mr Sexton —The NABERS rating system takes that into account.

Senator COLBECK —So that balances for the different state variations?

Mr Sexton —It balances out and takes into account the source of energy in the particular state.

Senator COLBECK —What is your assessment of the demand for the program and its take-up application rate versus successful applications? Are you being oversubscribed in each round?

Mr Sexton —We have been oversubscribed and. Indicative of that is the last round where we received 197 applications for round 6, which is more than double what we would have received on average for the previous rounds.

Senator COLBECK —What is your sense of the impact of this program on general building value? Is it making the buildings that are being modified more marketable, more valuable, in the open market? Is it creating a demand for these types of buildings that have been modified?

Mr Sexton —The objectives of the program were to do two things: one, reduce emissions—

Senator COLBECK —I understand that.

Mr Sexton —from the commercial office sector; at the same time, to provide a demonstration effect. One of the criteria that was used to assess that is the demonstration effect that might have flowed. In other words, if this particular building were to achieve this level of savings there is a demonstration effect to other property owners that this can be achieved.

Senator COLBECK —Are we at the stage of the program where enough projects have been completed that we are actually getting that demonstrated effect?

Mr Sexton —Not as yet. We are not yet at the stage where we have the 12 months NABERS report. That is some time off.

Senator COLBECK —So we do not have the final report yet for any project?

Mr Sexton —No, we do not.

Senator COLBECK —How far away is that?

Mr Sexton —We are several years away from getting that, to be able to fully evaluate the success of the program.

Senator COLBECK —Do we have any projects that are at completion stage yet?

Mr Sexton —We have some projects for which the investment has been completed, but we still await the 12 months NABERS report.

Senator COLBECK —So we are within 12 months of getting that explanation.

Mr Sexton —On some projects—yes.

Senator COLBECK —What proportion?

Mr Sexton —I do not have that figure in front of me. It would be from probably the first and second rounds, which were in early 2009, when these plans were announced.

Senator COLBECK —The first round was allocated in early 2009. So we are a bit over 12 months into the project—

Mr Sexton —We have got some way to go.

Senator COLBECK —I can understand that a large proportion of projects may not be completed yet.

Mr Sexton —That is correct.

Senator COLBECK —Is there an average time frame on the projects? Some of the bigger ones, obviously—the $2 million and $3 million ones—might have a longer time to go. Do you have any stats on how long the projects might run? There are the retrofit projects.

Mr Sexton —I do not have any stats, but some of these projects are running several years. Some of what we are funding are part of a much bigger refurbishment of the activity we are not supporting.

Senator COLBECK —So they are making a contribution to a much larger fit-out—

Mr Sexton —In some cases—yes.

Senator COLBECK —or refit of a project.

Mr Sexton —Not an internal fit-out but a refurbishment of the building fabric.

Senator COLBECK —Lighting could certainly be part of that process.

Mr Sexton —Lighting in common areas, yes, but not tenant lighting.

Senator COLBECK —That level of detail does not fall within the scope of the project?

Mr Sexton —No.

Senator COLBECK —It is effectively the—

Mr Sexton —It is the base building activity.

Senator COLBECK —Without internal fit-outs to—

Mr Sexton —The expenditure is very much directed to things like the heating, ventilation and air-conditioning systems upgrade, and so on.

Senator COLBECK —Going on to a couple of the clean business programs: Climate Ready—how much has been paid out or has been committed for that?

Mr Sexton —The program has been fully committed. There are no more rounds under Climate Ready.

Senator COLBECK —What about Retooling for Climate Change?

Mr Sexton —The expenditure in that program to date is 4,799,000. Commitments are 8,247,000. That program when it was announced was a $75 million program. In the last budget 19 million was removed and so it is a $56 million program.

Senator COLBECK —What are the allocations on a year by year basis in the out years for that?

Mr Sexton —In 2010-11 it is 24,045,000 million, in 2011-12 it is 15.856 million.

Senator COLBECK —The program is terminating under current allocations in 2011-12. Okay. We have some clarification on Army stuff, so we can go back to our military questions. I can say that we appreciate the announcement from Minister Combet in relation to camouflage issues. That is fine. We are talking about undergarments just to complicate things a little bit further.

Senator Carr —Do you want to be a more specific!

Senator COLBECK —That is the extent of the detail that I have at this stage. My instruction is to go back to my original question so let’s work our way through them.

Mr Lawson —The Defence Force publishes an ADF Clothing and Personal Equipment Procurement Plan. I think the current one is the 2010-14 one. That was the one that did have those other elements. It does not have undergarments on it but that is a publicly available document.

Senator COLBECK —Could we go back to—and perhaps you can clarify for me so that it helps us all through the process—the impact of the Lewincamp report in this process. I understand that it is a report to Minister Combet, I am just trying to clarify something in my mind so that I can try to take this forward.

Senator Carr —Could you just be a little bit more precise. If it is about body armour then it is a different question from jocks.

Senator COLBECK —I am not sure that it actually gets down to that level, Minister. The information that I have is that it relates to undergarments and I do not know at what level of cladding.

Senator Carr —I do think this is a matter for the Defence—

Senator COLBECK —We will be putting some stuff to Defence.

Senator Carr —We will not be able to help you with that. It would be better to go to Defence direct.

Senator COLBECK —It relates to some wool-blended products, particularly in relation to a flame-retardant wool blend. Does that ring any bells with you?

Senator Carr —Is it with Bruck Textiles?

Senator COLBECK —I have a suspicion that it may be.

Senator Carr —I have enormous suspicions that it is. But, again, I think you are going to have to take this to Defence; DMO might be the place to put those questions.

CHAIR —Loath though we are to leave that topic!

Senator COLBECK —It appears that there are some concerns about the technology involved—potentially, the exportation of the technology.

Senator Carr —Yes. I think these questions are quite old.

Senator COLBECK —It does go back a little way, but there are some current issues in relation to that, including some issues of delivery of the product being late and impacting on other things.

Senator Carr —Again—

Senator COLBECK —Let us ask a simple question, Minister. You are obviously aware of this issue?

Senator Carr —I have had a conversation with the company some time ago, but I think you will find that your shadow minister has also had some conversation with—

Senator COLBECK —There is a fair possibility.

Senator Carr —If that is the issue—

Senator COLBECK —Are there any concerns that you have in relation to where this particular matter is at, at this point in time?

Senator Carr —All I can say is—

Senator COLBECK —I am asking you rather than the agency because I do not think it is fair to ask them the questions.

Senator Carr —I understand. In the light of developments concerning the announcements yesterday—

Senator COLBECK —Which relate to uniforms, not these particular products, as I understand it and as has been clarified to me.

Senator Carr —This is not an announcement that this department has made or I have made, so I cannot go to the detail. What I would suggest is that these questions go directly to the DMO or to Mr Combet.

Senator COLBECK —So are you aware of the contracts that the DMO awarded earlier this year for the supply of this fabric?

Senator Carr —I am aware of the issue. However, it is a question that, in general terms, I do believe is more appropriately handled by the officers with direct responsibility for it.

Senator COLBECK —Then I will try one final question. Are there any concerns out of this department that the specifications for the material, that were developed by the Australian company, were supplied in the tender documentation?

Senator Carr —Perhaps I will ask the secretary to answer.

Mr Paterson —I do have a recollection of the interchange that went on in relation to this, and it does go back some time. But, to the best of my recollection, there were some accusations of that nature made and they were emphatically rejected at the time. So it was a DMO issue at the time. But, as I said, to the best of my recollection, it was emphatically rejected that there had been any breach.

Senator COLBECK —If there is anything else that I can bring out of that I will put those questions on notice so that we can deal with them through that process.

Mr Paterson —On a clear understanding, Senator, that we still think all of these issues are associated with DMO. I do not want us to get them on notice when they are DMO questions.

Senator COLBECK —I am sure that they are going to get a visit from one of my colleagues.

Senator Carr —The officers here can only refer them to DMO. So, if they are lodged with this committee, that is what we will have to do, because we do not have responsibility for them.

Senator COLBECK —I will not lodge anything with this committee that can be dealt with or should be dealt with in DMO. If there is anything that relates specifically to this portfolio—

Senator Carr —We will be happy to answer them to the best of our ability.

Senator COLBECK —you can be sure that they will come your way. I want to ask some questions in relation to the Insulation Industry Assistance Package and what elements of that are being dealt with within the department. What allocation has been made to this department to deal with issues arising from the closure and the tail of the insulation scheme?

Mr Peel —There is no specific allocation to this department. The government has identified $15 million as being available for this program which is within the appropriation of the department of climate change, not this portfolio.

Senator COLBECK —What authority does this department have in relation to management of issues that arise? What role does this department have?

Mr Peel —The department of climate change has asked us to deliver the program on their behalf. When we need to make payments we have the authority to exercise drawing rights on that appropriation within the department of climate change.

Senator COLBECK —What is the specific name of the program we are looking at?

Mr Peel —It is called the Insulation Industry Assistance Package or program.

Senator COLBECK —What is the process by which contractors engage to access the program and what are the parameters of the program as you understand them—or as you are administering them, I suppose, is more to the point.

Mr Sexton —The program is open to manufacturers, distributors, importers and installers of eligible insulation product, those who had product at 30 April this year and are incurring costs on holding that product. They are able to make an application to us in relation to the value of that product and the entitlement relates to 15 per cent of the value of the product that they are holding. There are a number of eligibility requirements that they are required to satisfy.

Senator COLBECK —So manufacturers, wholesalers, suppliers—

Mr Sexton —Manufacturers, importers, distributors and installers.

Senator COLBECK —How was the 15 per cent value determined? Was that something that you were given as a number or one that you determined as a number?

Mr Sexton —The 15 per cent is a generally accepted view of the holding cost of insulation products.

Senator COLBECK —Is that the holding cost of insulation or the holding cost of any product?

Mr Sexton —The holding cost of insulation.

Senator COLBECK —That figure was given to you by or determined by? You say it is a generally accepted figure.

Mr Sexton —Conversations with industry.

Senator COLBECK —So that was an agreed figure, effectively, by discussion with industry on what the holding cost of the product was?

Mr Peel —Actually it came from the department of climate change. We are administering the program on their behalf. If you want to go into detail on that you would have to ask them.

Senator COLBECK —They have designed it; you are administering it, effectively.

Mr Peel —That is correct. We are delivering it.

Senator COLBECK —It is a once-off payment of 15 per cent?

Mr Sexton —It is once-off assistance payment, yes.

Mr Peel —It is a maximum grant of $500,000 and a minimum of $750.

Senator COLBECK —How much have you spent, and with how many?

Mr Sexton —The program has only been open for three weeks and as of last Friday we had received 150 applications. We have completed the assessment, as of last Friday, on only 28 of those. We have assessed 17 of those as eligible and we have committed to payments of $1.3 million in respect of those 17.

Senator COLBECK —Based on your knowledge of the industry, do you have any assessment as to what the reach of that is to this stage?

Mr Sexton —Our planning for this program was around 2,000 to 3,000 applications. With most programs of this nature, the great proportion of applications usually come in in the last few days.

Senator COLBECK —When is D-day?

Mr Sexton —The program concludes for applications next Friday, 4 June.

Senator COLBECK —When was it announced?

Mr Peel —On 6 May.

Senator COLBECK —So four weeks is the application period. That was designed by the department of climate change?

Mr Sexton —Yes, Senator.

Senator COLBECK —What resources have you had to allocate to the program? What is your team?

Mr Sexton —With the agreement of the department of finance we have estimated that the resources required to deliver this program will be just over $1 million over two years; this financial year and next financial year. That amount of money will be drawn down from the Department of Climate Change and Energy Efficiency. It is not appropriated to us.

Senator COLBECK —On top of the $15 million?

Mr Sexton —On top of the $15 million.

Senator COLBECK —Why over two years?

Mr Sexton —We do not believe we can make all payments this financial year.

Senator COLBECK —You are going to have a physical restraint in actually assessing the claims that are going to come in. It is just a physical constraint of actually getting through all the applications.

Mr Peel —It closes on 4 June. Last Friday we had 150 applications and, as Mr Sexton said, we might get between 2,000 and 3,000.

Senator COLBECK —I was counting the potential other than 1,850 to 2,850 that might be coming down the track.

Mr Peel —If they all come in on 4 June, which quite often happens with programs, we will need a bit of time to assess them. It could well go over into next year.

Senator COLBECK —Is your department responsible for the advertising program?

Mr Peel —We have advertised it.

Mr Sexton —There was general daily media advertising on 8 May. That was followed up again with media advertising on 22 May.

Senator COLBECK —Was there anything direct to registered participants in the scheme? I assume there is a fairly significant database.

Mr Sexton —All installers who were registered with the previous householder insulation program were sent a text message on 6 May advising of the scheme. AusIndustry separately emailed known manufacturers and known importers. And we have had some press coverage in relation to non-English-speaking newspapers.

Senator COLBECK —What was your total communications budget?

Mr Peel —The advertising we have done has cost $109,195.01.

Mr Sexton —On top of that is the advertising in multicultural magazines et cetera of $24,000. You asked why expenditure is into the next financial year. Once we have made the payments, and that is not the end of it, we will then be undertaking compliance activities on those payments.

Senator COLBECK —There is a process of follow-up.

Mr Sexton —There are a number of controls we have in place, which are prepayment, but we will also be putting in place a number of follow-up compliance activities following payment, which will include actual site visits.

Senator COLBECK —You may not have this information but you talk about a 15 per cent value of product as an agreed holding cost, is that over a particular cycle or time frame? Obviously that is something you are going to have to assess as part of your follow-up, is it? Are there any inventory requirements?

18:09:50

Mr Sexton —Applicants are asked to identify the stock holding as at 30 April and we will reimburse, up to $500,000, 15 per cent of that value.

Senator COLBECK —What are the following requirements of that? You are going to have site visits and things of that nature. Is that part of the compliance?

Mr Sexton —We will be examining the documentation which enabled them to arrive at those figures.

Senator COLBECK —But wouldn’t that be something they would need to supply as part of the application?

Mr Sexton —No, we are not asking them to provide all that documentation. They are required to keep them as part of their records for tax purposes and other reasons and we will be undertaking compliance checks on those records at that time. In order to avoid having to receive all that documentation, we are asking for an independent accountant’s verification of the figures they supply us.

Senator COLBECK —So there is a process by which you are seeking information to verify the claim at the outset?

Mr Sexton —Yes.

Senator COLBECK —Then there is a spot audit or sampling audit?

Mr Sexton —We will be checking all manufacturers’ claims and we will be checking about eight per cent of all other claims, which is a risk management figure we have agreed with the Department of Finance and Deregulation.

Senator COLBECK —Okay. That is fine. What work are you doing on how the particular businesses manage down their stocks—or is that something that you might have to look at again down the track?

Mr Peel —That is not our responsibility.

Senator COLBECK —So 15 per cent up to 500k, minimum of $750, and that is basically it as far as you are concerned?

Mr Peel —That is right. Once we have done that and undertaken the compliance activities that Mr Sexton mentioned our role is complete.

Senator COLBECK —And that, potentially, you say, could take two years?

Mr Sexton —No, we would expect that this activity that we are involved in would be finished this calendar year.

Senator COLBECK —What activities are you talking about?

Mr Paterson —It was just over two financial years: the current financial year and next financial year. It is not a two-year program; it is just being able to get the applications in and properly assess them in a reasonable time frame and that will cut over—

Senator COLBECK —That is a fair clarification. Is there any other business assessment that goes alongside this process?

Mr Sexton —I am not sure what you mean by ‘business assessment’.

Senator COLBECK —This whole mess has seen the rise of a number of businesses and the fall of a number of businesses. Is there an assessment of quantum that you are looking at as part of that process or it is your function purely—

Mr Peel —We purely deliver this program for Department of Climate Change and Energy Efficiency. Any other issues connected with the Home Insulation Program are matters for that department.

Senator COLBECK —How do you assess business viability issues?

Mr Sexton —We don’t. The scheme design has some fairly stringent eligibility requirements, particularly around installers. Those requirements include that (1) the business has an ABN and (2) it satisfies the eligibility requirements imposed by the Department of Climate Change and Energy Efficiency at 19 February this year for eligible installers, and they relate to their satisfying certain safety requirements, that they are actually providing approved product and that they are not subject to any investigations around safety or fraud issues.

Senator COLBECK —But what about the viability of their business?

Mr Peel —It is not an issue for us. If they met qualifications that Mr Sexton has mentioned, they can claim.

Senator COLBECK —What about the qualification of business existence?

Mr Sexton —One of the eligibility requirements is that the business has an ABN—an Australian Business Number.

Senator COLBECK —So if they are going through the process of winding up, are they eligible?

Mr Sexton —The program is predicated on the fact that businesses were holding stock when the program closed.

Senator COLBECK —I understand that.

18:15:05

Mr Sexton —And therefore the government is providing some assistance to those businesses as a result of that. They have been adversely impacted because of that closure of the scheme.

Senator COLBECK —I have had some of the conversations, so I understand that. Does the department have any assessment of the number of businesses that may close following the closure of the scheme?

Mr Sexton —No.

Mr Peel —No.

Senator COLBECK —Is anyone doing that work? Is anyone assessing that information?

Mr Paterson —We are not.

Mr Peel —We are not.

Mr Sexton —You would have to direct that question to the Department of Climate Change and Energy Efficiency. They were the ones who had information on the installers.

Senator COLBECK —I accept that that is a potential answer, that is fine. I just wanted to know whether you guys were doing anything on that. Obviously you are not.

Mr Peel —All we are doing is delivering this program.

Senator COLBECK —Is the Australian innovation system report 2010 in outcome 1 or an outcome 2?

Mr Paterson —Outcome 1.

Senator COLBECK —Can I ask some questions about the currency of the information available that went into the innovation system report and whether that is the absolute latest information that is available in providing that document. There is a lot of stuff that goes back to early 2008 and beyond. That is effectively the latest information that we have available in compiling that document?

Mr Weber —That is correct. Where possible we use the latest data available.

Senator COLBECK —So the OECD structural and demographic business stats of 2008, the ABS Australian system and national accounts 2007-08, the OECD Science, technology and industry scoreboard 2007 and the ABS Innovation in industry publication for 2003? How does that help us measure our current performance? How do those figures lead into that? How do we get a good assessment of where we are at if we are using figures that are that old?

Mr Pettifer —I think what this report is trying to do is that we have set up a framework, and that framework, set down in Powering Ideas, has a number of key themes and targets. What we have done is to report on the latest available information there, and over time, as more recent data becomes available, we will be able to get a trend on what is happening in terms of the particular targets. If you want a report on how much the government is currently spending on science, research and innovation then you would go to the budget tables that have been put out and are on the website. That gives you a snapshot of how much we are actually spending, but the report is using the latest available information and we hope that over time it will give a good time series on whether we are getting better or worse against those particular indicators.

Senator COLBECK —So it is effectively a baseline mechanism upon which you can build to measure over time, even if it is at some delay, the impact of various measures.

Mr Pettifer —Yes, that is right.

Senator COLBECK —What is the cycle that the report is intended to be updated to, and on what cycle do you include new data? Is it as it becomes available or is it an annual cycle on the report?

Mr Weber —We intend to produce the document annually and will update it with the most up-to-date information at the time when we put the publication together.

Senator COLBECK —I suppose some of those are dependent on particular collection cycles.

Mr Weber —Yes.

Senator COLBECK —So, with the ABS business publication of 2003, when that data might become available depends on what the next cycle of that data is. Do you know when that is for that particular dataset?

Mr Weber —Not off the top of my head.

Mr Pettifer —We could take that on notice.

Senator COLBECK —Okay. Some of the others are somewhat more current, but they are only just getting into the term of this particular government. You have some OECD figures from 2008 and the National accounts publication from 2007-08, but the ABS stuff seems to be fairly latent.

Mr Pettifer —It is the latest available information, and that is what we have used. As I say, as we produce this report over time and as we get more up-to-date data, that will be included in the report and will give us a trend.

Senator COLBECK —How do we line figures up and get a current balance? If we are talking about Australia’s current rate of business R&D, at 1.04 per cent of GDP, and compare it to the OECD figures, how do we do that when the two do not match up as far as currency is concerned—or are we actually aligning them?

Mr Pettifer —For those figures—the business expenditure on R&D—we have comparable figures. We can use the OECD figures and the latest Australian figures, and we are able to compare that.

Senator COLBECK —But at what time frame are we comparing them? Are we comparing them at a comparable time frame, or do we have current date figures that we are putting? The chart that I am looking at is chart 4 on page 17. I am trying to get an assessment and to match the figures up against what is on the graph.

Mr Weber —Chart 4 shows two things: it shows expenditure on research and development in dollars and it shows Australia’s BERD-to-GDP ratio and the OECD average BERD-to-GDP ratio. So the bar charts at the bottom show Australia’s BERD-to-GDP ratio and the OECD average ratio, whereas the other axis—the line—shows the expenditure on R&D in absolute dollars.

Senator COLBECK —I suppose I am directing this to you now, Minister. You said in your 2007 election policy that Australia’s current rate of business expenditure was at 1.04 per cent of GDP and remained below the average, which was 1.53. When we look at the chart, the relevant figures are 1.2 and 1.55. I am accepting that it is still below the OECD, but they do not actually reflect the figures that were being quoted. So I am just trying to get a sense of where the numbers are.

Mr Pettifer —I presume that—

Senator COLBECK —Unless we are looking at an older series of numbers from the document that is the now government’s election commitment.

Mr Pettifer —Yes, I think so.

Senator Carr —We said we would do this. It is part of the innovation review findings, if I recall rightly. We have to start somewhere, so we started with this as the baseline. It is not without risk for a government, but our intention is to publish this on an annual basis and that will provide, for all who are interested, an opportunity to assess performance. As far as I am concerned, one of the ways we can encourage people to reassess what they are doing in this country is to actually get some facts on the table. As you have indicated, by international standards our performance on BERD is below par.

Senator COLBECK —But increasing and increasing even over the cycle that you were talking about.

Senator Carr —I have acknowledged that there are a whole series of ways of looking at the figures. The fact is that it is below par and we have got to lift it if we want to maintain living standards. That is our policy intent and I trust you will be able to measure that performance over time. We have put a lot of money into the system—the biggest increase in the better part of a generation. We will measure the performance of the system as that money starts to cut in.

Mr Weber —There is one other point I would make. When you have a BERD to GDP ratio, you have to two figures changing there. You have the BERD number that changes and the GDP number that changes. So that is why those numbers move around so markedly every time it updates and that is why it changes for different figures at different points in time.

Senator COLBECK —I understand what you are saying. I think the minister got my point and has responded appropriately. I am not going to argue about the fact that we need to continue to lift our game and I appreciate the fact that we have a measurement process and a benchmark in place. My point was that there was a process of improvement in place when we were in government. We can have a political discussion on the rate of that, but the point has been made. With respect to the gathering of the research and the data, acknowledging everybody’s frustration in relation to that, is there any work being done to try and make sure that we can access data more quickly? Are we having any discussions or are we effectively captive to the data collection agencies and have to wait for that to arrive?

Mr Weber —We work with the ABS to get the most up-to-date data we can. We work with them to actually identify what data is the most important for our work. We prioritise the collection and we also sponsor innovation data collections across the ABS. Yes, we do work with them, but at the end of the day we are limited by their capacities.

Senator COLBECK —I note that some of them are actually international organisations, so we are actually captive to their reporting processes as far as that is concerned. I will move now to industry innovation councils. Do we have eight councils now?

Mr Payne —Yes, the government has announced eight.

Senator COLBECK —Can you just quickly run through them for me.

Dr Green —There is an automotive council, a built environment council, a future manufacturing council, an information technology council, a pulp and paper council, a space council, a steel council and a textiles, clothing and footwear council.

Senator COLBECK —I recognise that some of them, for example, the pulp and paper one, is a fairly recent announcement in response to the report that was released during April, I think it was. Are we at the stage of actually having any specific recommendations or outcomes coming from the councils?

Dr Green —As you point out, there are various stages of development, some councils being relatively new and some being more established, although they have all been established only in the last couple of years. Those that have been established for a reasonable period of time have generally got various priorities that they have identified for their councils and are working on a range of initiatives to progress those. Many of them have undertaken projects to pursue those and have provided advice on a range of initiatives that government has been undertaking. Those include things like the design of Commercialisation Australia, R&D tax credits, and related initiatives that have been the subject of public policy in the time that they have been established.

Senator COLBECK —You mentioned one thing I was going to come to. They were established, as I understand it, to provide specific advice on innovation to you, Minister—

Senator Carr —They serve a number of purposes, Senator. They provide direct advice to government on specific questions. But they also provide an opportunity for the industry—in some cases for the first time ever—to be able to sit down and work out what their agenda is to be. So there is an ongoing developmental role for them to perform as well as a specific role with regard to special projects. In automotive, for instance, there is the development of the technological road map. I understand that in a number of areas that is the type of activity we are now seeing emerging from these councils. This is a chance for the industry to identify the capabilities where there are particular strengths in this country, and which areas need to be developed further, and the ways in which the industry can move together to address those concerns. It is about people taking responsibility for their own future and as well as being able to have the capacity to work directly with government and to work across the supply chain so that both unions and companies are able to sort out some longer term structural adjustment questions.

Senator COLBECK —You mentioned the R&D tax credits—that was specifically referred across to the innovation councils?

Dr Green —It was not specifically referred to them, but a number of the councils obviously had an interest in the proposals and in that range of reforms and did some thinking about the issues that are involved in that area. They were provided along with a range of other advice through the process that the innovation division has run, and the minister has undertaken with the Treasurer to provide that advice through the consultation process that you have been asking a range of questions about this afternoon.

Senator COLBECK —I am trying to get a sense of how the interaction backwards and forwards works. With those sorts of organisations and the representation that they have around the table, wouldn’t you have a referral mechanism for issues of that nature or magnitude? Take, for example, the R&D tax credit. They knew about it so they said something about it. Wouldn’t there be a process whereby you refer that sort of information back to them given the role that the minister has just described that they are doing?

Senator Carr —They have the council to initiate their own projects as well as to undertake—

Senator COLBECK —I accept that.

Senator Carr —work specified—

Senator COLBECK —But where the government is undertaking fairly specific significant reform processes, having the resource there of those sorts of organisations across a range of sectors, I would have thought, would have been useful. It would have been of value to say to them, ‘Here is something that we are looking at. What is your view?’ I ask the question in the context of something that I might do in the fortunate circumstance that I was sitting in your chair, Minister.

Senator Carr —Yes, but on occasion we have asked specifically for project costs.

Senator COLBECK —That is why asked about the R&D—because of its significance as a reform, as you have expressed it yourself.

Senator Carr —Sure, but on the question of the R&D, we did not have to ask them; they were very keen to participate, which we welcome. On other matters, for instance, trying to build collaborations between industry and the research sector, that is an ongoing policy objective that we have. We have on all of these councils representatives from research sectors and we do expect there to be a continual engagement on those matters. But we do not sit down and say, ‘This is the agenda for the next meeting.’ I do not have to sign off on the agendas, nor does the department; it is up to the participants. These are the decision makers in the industry—that is the whole point of this exercise—and they will not actually go to meetings if they do not perceive that there is an ongoing value.

Senator COLBECK —I would have thought a real ongoing value would be government coming to them as industry leaders and decision makers and saying, ‘Here’s something that we’re going to put on the table; give us your view.’

Senator Carr —That happens.

Senator COLBECK —Okay, so R&D was not. Give the committee some examples of issues that have been put forward in that process.

Dr Green —We have engaged with the councils collectively on a number of occasions, including with all of the chairs of councils that were appointed at the time we had these meetings. We have provided briefings to them on matters of general interest, including the R&D tax concession, and they have been sounded out in that kind of context about those issues which we know are of interest to them generally.

Senator COLBECK —Okay. What is the general resourcing that has been provided to the councils so far?

Dr Green —I think the total expenditure estimate for 2009-10 for the industry innovation councils is $3,562,000.

Senator Colbeck —Is there a specific allocation to each one? Can they access funding on a project basis? What is the allocation that is provided to each of the councils?

Dr Green —I can tell you what the actuals are that we expect from each of the councils for the period ended 18 May 2009-10. The Automotive Industry Innovation Council has spent $397,434. The Built Environment Industry Innovation Council has spent $236,254. The Future Manufacturing Industry Innovation Council has spent $181,026. The IT Industry Innovation Council has spent $260,894. The Pulp and Paper Industry Innovation Council, which was only recently established, has spent $10,478. The Space Industry Innovation Council has spent $98,080. The Steel Industry Innovation Council has spent $378,453. The Textile, Clothing and Footwear Industry Innovation Council has spent $154,072. Some $397,513 has been spent centrally across the various initiatives. That is a total of $2,114,204.

Senator COLBECK —What activities would they generally undertake in expending those resources?

Senator Carr —There are whole series of activities. I should indicate that I have met with, I think, all of them.

Senator COLBECK —That is good news.

Senator Carr —As well as participation in the councils, they have worked on a number of conferences across the portfolio, so there have been a range of activities for each of those councils throughout the period since their establishment.

Dr Green —Typically the expenditure is in a couple of different categories. One is the costs of the staff that support the work of the councils. Another is the costs of the members’ reasonable travel expenses to participate in the process, and the other category of expenditure is on projects that are undertaken in support of the work of the councils.

Senator COLBECK —What is the particular criteria for invitation to membership?

Dr Green —There is a commitment to have a broad range of people from business, from the research community, from unions and from government. That would be key decision makers from those sectors. We undertake a process of gathering evidence about appropriate people and provide that advice to the minister for his agreement and decision.

Senator COLBECK —So the department makes recommendations to the minister in respect of all those things. So Paul Howse, who is a member of three of those committees, would have had expertise or interactions across three of those particular areas of—

0Senator Cameron interjecting

Dr Green —I personally have responsibility for the future manufacturing council, and I am aware of him being a member there. Obviously his union is involved in a range of activities across the councils, which are largely focused on manufacturing industries.

Senator COLBECK —Could you tell us why—perhaps, Minister, you could do that, if the officials do not have any information—Mr Howse resigned from the Automotive Industry Innovation Council? Too busy, do you reckon, Doug?

Senator CAMERON —No, I didn’t say that.

Senator COLBECK —So you’ve judged me prematurely.

Senator CAMERON —No, I know what you are up to.

Senator COLBECK —So you do not know why Mr Howse resigned from the Automotive Industry Innovation Council?

Mr Payne —It was because of the commitments. He made a judgment that he could not give sufficient time to the range of commitments, so he asked the minister if he could leave the automotive council.

Senator COLBECK —And there has been a replacement appointed—

Mr Payne —That is correct.

Senator COLBECK —I presume from the same union—

Senator Carr —The AWU is a significant player in the automotive industry.

Senator COLBECK —I am not disputing that, Minister, and despite what Senator Cameron might like to imply, I am not actually having a crack. I am just asking about the membership.

Senator Carr —So you welcome union involvement in the industry bodies, do you?

Senator COLBECK —I am just asking some questions about the appointments and the process and why one of the members who had extensive involvement across three might have decided to retire, and you have given me a quite credible answer. I am content with that, and you have also told me that someone else from the same union has replaced him. I am not making an issue about it; I am just asking some questions. Is there a reporting process out of the innovation councils that is available publicly rather than just to the minister?

Dr Green —Councils are, under the framework we have established, to report at least annually to the minister. Generally they provide some advice to the minister after each meeting, but there is an expectation that they would report at least annually, and that is a report to the minister.

Senator COLBECK —Is there any process for that report becoming available to broader than just the minister?

Dr Green —The council is engaged with stakeholders fairly extensively, and they have a range of material on the department’s website related to the activities. Many of them have the kinds of projects that they have commissioned and they have reports available in that medium and have a range of other information about their activities that they have on the website, so that material is already in the public domain.

Senator COLBECK —But not necessarily anything broader in respect of the reporting.

Senator Carr —Senator, they provide advice to me and I do not intend to make all advice automatically available.

Senator COLBECK —I was not expecting that you did, I just—

Senator Carr —The answer is no, on that basis.

Senator COLBECK —That is fine. That is all I was looking for. The Pulp and Paper Industry Innovation Council has an initial life of 12 months, as I understand it.

Senator Carr —Yes.

Senator COLBECK —How does that stand with respect to the other councils? Obviously you will make a decision about that particular council going forward.

Senator Carr —My view is that councils have to demonstrate that they have an ongoing role, which will be determined by whether or not the participants think it is of value. On the evidence I have seen, I am of the view that this is a useful way to gather information and to ensure that people actually discuss ways in which their industries can be more innovative. We will assess progress on a case-by-case basis from time to time as the need arises.

Senator COLBECK —Do each of the boards have an initial life?

Dr Green —All of the members that have been appointed are appointed for a particular term.

Senator COLBECK —At the moment, are all those terms like in terms of time frame, not necessarily in date—because all the boards have different birthdates, if you like? Is it a similar term for each of the board members of all of the boards?

Dr Green —They all have the members appointed to a particular date in time. It has generally been two years from establishment, but it is not fixed to be that. But they do have a particular term for their appointment. So they are appointed to a particular date.

Senator COLBECK —Depending, obviously, on the life of the boards. So you would not appoint the pulp and paper guys, for example, for a longer period than the initial life designate for the board?

Senator Carr —We are obviously still working on membership of the council. The whole point was that as an industry it had not got around a table prior to the establishment of the strategy group. We will make a judgment call on that when we have finalised the membership and we will make an assessment as to how well it is going.

Senator COLBECK —Can you give us the current life of each of the boards as it stands at the moment, or is there not one?

Dr Green —I will have to take that on notice.

Senator COLBECK —I will move on now to Enterprise Connect. I want to clarify some of the figures that you have given us in answer to question on notice No. AL41, including overall appropriations and staff numbers. The figures for the appropriations seem to differ from what appears in the budget papers. Can you give us the total overall cost for Enterprise Connect and then how that is broken down, please?

Mrs Zielke —Certainly. The confusion might be because the figures stated in the PBS vary depending on whether departmental costs are included in those figures or whether any administered are being referred to.

Senator COLBECK —So how do I work that out?

Mrs Zielke —In relation to the program, for example, for the 2009-10 financial year, the program has $26 million in administered and $33 million in departmental, which comes to $59 million in total. In 2010-11, the administered dollars are $24 million and the departmental is $26.8 million, which comes to $50.8 million. In 2011-12, the administered dollars are $24.4 million and the departmental dollars are $26.4 million, which comes to a total of $50.8 million.

Senator COLBECK —Do the departmental costs align with the staffing for costs?

Mrs Zielke —The departmental costs cover things like staffing. They also cover administrative costs, travel costs—anything that is covered in administering the program.

Senator COLBECK —Can you give me information on the breakdown of that or would you have to take that on notice?

Mrs Zielke —I would have to take that on notice.

Senator COLBECK —If you could do that for me, please, that would be good. I would like to get a precise figure for staffing costs, in particular, if I can, for each of those, particularly years 2009-10, 2010-11 and 2011-12.

Mrs Zielke —I can give you figures for staffing costs to date but departmental is a single allocation, so costs into the future would vary depending on the delivery of the program.

Senator COLBECK —Can you give me the figure on staffing to date?

Mrs Zielke —Not at the moment; I would have to take that on notice.

Senator COLBECK —Okay; fine. Can you give me a sense of the number of SMEs in the country that use Enterprise Connect services? Do you have any statistics on that?

Mrs Zielke —I can give you the number of companies that we are currently working with. As at 30 April, we had 2,706 companies approved to receive a business review through the program. We also have over 3,700 companies so far this year that have been involved in other activities such as workshops or information sessions in relation to various forms of technology et cetera that have been funded under the workshops, industry, intelligence and networking element of the program as well.

Senator COLBECK —How would you say that is in the context of the number of SMEs? In percentage terms what is the sort of connection rate?

Mrs Zielke —I could take on notice the number of firms we expect would be eligible under the program more broadly, but, in effect, any company that has a turnover of between $2 million and $100 million—that is, a manufacturing firm or a firm directly assisting manufacturing firms—would generally be eligible under the program to receive Enterprise Connect services. There are some exceptions to that, because some of our innovation centres have additional criteria in that regard, but that is generally the eligibility criteria for the program.

Senator COLBECK —So manufacturing and turnover between $2 million and $100 million—they are the parameters?

Mrs Zielke —That is correct—or those firms that directly provide services to manufacturing firms as well.

Senator COLBECK —Are there turnover parameters that apply to them as well?

Mrs Zielke —The same $2 million to $100 million turnover.

Senator COLBECK —If you could give us those you see as being eligible by state, that would be good.

Mrs Zielke —I am sorry, Senator; I do not believe I can give you that level of detail.

Senator COLBECK —So you can give me a macro number nationally but not by state.

Mrs Zielke —That is correct.

Senator COLBECK —Can you break down the two figures that you have given me—the 2,706 that have been approved for review and the 3,700 that have been approved for other activities? Can you break those down into state numbers?

—I can give you the breakdown now of the 2,706 firms that have been approved for business reviews. In the ACT, it is 35; in New South Wales, 681; in the Northern Territory, 11; in Queensland, 384; in South Australia, 253; in Tasmania, 62; in Victoria, 438; and in Western Australia, 182. I have just read to you the number of completed business reviews, which is 2,045, whereas we have 2,706 that are approved. The gap between those two figures is for companies that are yet to have their business review completed.

Senator COLBECK —Okay. How many places have been taken up through the Researchers in Business program?

Mrs Zielke —Again as at the end of April, we have 30 placements through the Researchers in Business program.

Senator COLBECK —Of the $10 million allocated to the program, how much has been spent?

Mrs Zielke —Approvals to date are $967,205.

Senator COLBECK —Does that include all the money that has been committed as well?

Mrs Zielke —That does include commitments as well as expenditure to date.

Senator COLBECK —What is the average length of time that the researchers are contracted to work in the participating businesses? Do we have any statistics on that yet?

Mrs Zielke —Researchers are contracted for up to 12 months to work with companies. However, at this stage, it is still very early days; some projects are being predicted to be completed within three months, for example. We do not have an average across the program as yet.

Senator COLBECK —So it is really business dependent and specific to each particular application?

Mrs Zielke —That is correct.

Senator COLBECK —Can you give me your expected cash flows on that through the relative financial years? You have $10 million overall.

Mrs Zielke —We do not have a set amount for each element of the program.

Senator COLBECK —So effectively it is going to be demand driven and drawn down as demand for the program develops?

Mrs Zielke —That is correct, yes.

Senator COLBECK —What is the life of the program—three years?

Mrs Zielke —RiB is an element of the program and Enterprise Connect is an ongoing program.

Senator COLBECK —So that is a subset of the overall funding?

Mrs Zielke —Yes.

CHAIR —Senator Colbeck, I have a quick question if you have finished.

Senator COLBECK —Go for your life.

CHAIR —What progress has there been on the small-scale mammalian cell production facility? Is any construction imminent? I understand from the annual report that the construction of the facility was put back a bit because one of the main tenderers was not able to proceed.

Mr Chesworth —That is correct, but a new tenderer was chosen and an announcement about the tenderer was made at Bio International Convention in Chicago on 3 May 2010 by the minister and Premier Bligh.

CHAIR —When is construction expected to take place?

Mr Chesworth —Construction is expected to commence in the next financial year and it is part of a much larger construction. The Queensland government are making a significant contribution and the mammalian cell facility is going to be adjacent to Translational Research Institute, which is a $300 million plus facility.

CHAIR —Thank you. That concludes outcome 1 discussions. We will begin after the break with the Office of the Chief Scientist and then outcome 2.

Proceedings suspended from 6.59 pm to 8 pm

CHAIR —We will resume the committee. I welcome the Chief Scientist from the Office of the Chief Scientist, Professor Sackett. Good evening, Professor Sackett. Do you have an opening statement that you would like to make?

Prof. Sackett —No. I do not have an opening statement, thank you.

CHAIR —We might start with questions.

Senator EGGLESTON —I have some questions. Professor, were you consulted by the government prior to its announcement on 27 April that it had postponed its planned introduction of an ETS?

Prof. Sackett —You are asking me if I was consulted prior to that policy decision? No, I was not.

Senator EGGLESTON —Thank you very much. In the media release you released after the announcement, you were quoted as saying the following:

Reluctance of nations around the world to implement mechanisms that recognise the cost of greenhouse gas emissions will increase the effort required to manage and adapt to the impacts of climate change, according to the country’s top independent science adviser.

Which was you. It continues:

Delays in the reduction of emissions means that the amount of CO2 in the atmosphere will continue to increase and to continue to compound the greenhouse effect. If no action is taken, this will eventually lead us to a dangerous climate change situation.

Given that that was your press release, since the government’s announcement, have you had discussions with Senator Carr or other government officials about the postponement of the introduction of the ETS?

Prof. Sackett —No, I have not.

Senator EGGLESTON —I would obviously draw from that conclusion perhaps you would be a little disappointed that that had happened, though?

Prof. Sackett —My role as Chief Scientist is to advise on the science that may underpin policy but not to have policy discussions, so I would not have expected in fact to have had a discussion around matters of policy with Minister Carr or anyone else in government.

Senator EGGLESTON —You said in your acceptance speech that you wanted to be a strong and continuous advocate of evidence based decision making. Now nearly two years into your job, I think it is, do you feel that you have been able to achieve that goal?

Prof. Sackett —I believe that the Office of the Chief Scientist—that is, me and the good people that support me—has indeed provided excellent evidence based advice to underpin policy and in other matters that relate to science and technology for the good of Australia, yes.

Senator EGGLESTON —You also said in August 2009 in your interview on 2UE that:

I have never seen a peer reviewed paper that supports the anti-global warming position.

Do you still hold that view? Have you never seen a peer reviewed paper which takes that point of view?

Prof. Sackett —I have not seen a recent peer reviewed paper in a major scientific journal that conclusively shows that the globe is not warming and that the bulk of that is not due to human activity, no.

Senator EGGLESTON —Thank you. You are very firm in your views, Professor, so we will leave it at that.

Senator COLBECK —I want to get a sense of how much in the way of government funding is allocated to your office for the overall administration.

Prof. Sackett —Thank you. I will refer that matter to the secretary of the department.

Mr Paterson —Senator, the Office of the Chief Scientist is supported by my department. The overall budget allocation for 2009-10 is $2.318 million.

Senator COLBECK —Do you have any projections out into the forward years, or do you make an annual allocation?

Mr Paterson —We make an annual allocation.

Senator COLBECK —Out of your budget when you are actually planning each year’s activities?

Mr Paterson —Correct. We have not finalised all elements of that yet, but it would be in the same ballpark in the year ahead.

Senator COLBECK —So that is 2009-10. You have not finalised your 2010-11 budget?

Mr Paterson —Not to date.

Senator COLBECK —So that is taken out of—

Mr Paterson —It is funded from the base appropriation within the department.

Senator COLBECK —So what does that provide? What is the basis of what is provided to you out of that budget?

Mr Paterson —About $1.6 million of that is in salaries. About $276,000 is the administration, travel and all other expenses associated with running PMSEIC.

Senator COLBECK —Out of running what?

Mr Paterson —PMSEIC, the Prime Minister’s Science, Engineering and Innovation Council. That is $276,000. There is $127,000 in travel and a bit over $100,000 in contractors and support services, and then there are other additional ancillary expenses—support arrangements for staff and the like.

Senator COLBECK —Can you just go back to the administration for PMSEIC. Is that $276,000 or $2.7 million?

Mr Paterson —It is $276,000.

Senator COLBECK —So what is the overall staffing of the office?

Mr Paterson —Thirteen ASL provide support to the Chief Scientist. So the Chief Scientist is not an employee but is engaged under a deed.

Senator COLBECK —I see.

Mr Paterson —Then the staff, who provide support to the Chief Scientist in the Office of the Chief Scientist—

Senator COLBECK —So is that 13 full-time equivalents?

Mr Paterson —It is 13 ASL. So it is an average staffing level of 13 over the year.

Senator COLBECK —And the Chief Scientist comes out of—

Mr Paterson —Is in addition to that.

Senator COLBECK —Is in addition to that.

Mr Paterson —The salary for the Chief Scientist is included in the remuneration number that I gave you, but the position of Chief Scientist is in addition to the ASL because it is not counted as ASL.

Senator COLBECK —So the funding is in the $1.6 million?

Mr Paterson —The salary or the payment to the Chief Scientist is within that $1.6 million figure that I mentioned.

Senator COLBECK —And a global budget of $2.318 million?

Mr Paterson —Correct.

Senator COLBECK —So are any of the other elements that are in program 2.3 as per your organisational chart—the mission based compacts, Questacon and the Square Kilometre Array—associated with the office?

Mr Paterson —No.

Senator COLBECK —So they are completely separate?

Mr Paterson —Questacon is a division of the department. The Square Kilometre Array activity is a function undertaken by the department. I do not recall the other one you mentioned, Senator.

Senator COLBECK —I just want to go back, Professor, to your response to Senator Eggleston in respect of peer reviewed journal articles supporting the anti global-warming position. I have been given some examples of articles out of journals that are ranked as asterisk A, which, as I understand it, are the top tier classification scale on the Australian Research Council’s official ranked journal list. They include ‘Heat capacity, time constraint and sensitivity of the earth’s climate system’ in the Journal of Geophysical Research, volume 112, issued 24—

Mr Paterson —Senator, could you just speak up a bit?

Senator COLBECK —Sorry. My apologies. It is by Stephen E. Schwartz. Are you familiar with that?

Prof. Sackett —There are tens of thousands of articles. I am not familiar with that particular one.

Senator COLBECK —So if we are going to get down to an argument over individual articles in individual publications there may be some that could be found that you have not seen. Do you therefore go back to your response to Senator Eggleston?

Prof. Sackett —There are certainly articles that I have not read or seen. That would be a true statement.

Senator COLBECK —So by going through this list of examples, the reality is that (1) you may not recall them and (2) you may not be aware of them?

Prof. Sackett —That is entirely possible.

Senator COLBECK —I will go through a couple and I will not go through the lot for the sake of the exercise. There is another one here that was issued again in December 2007 entitled ‘Quantifying the influence of anthropogenic surface processes and inhomogeneities on gridded global climate data’. It is in the Journal of Geophysical Research, volume 112. The authors are Ross R. McKitrick and Patrick J. Michaels. Are you aware of those documents? There is ‘Very high-elevation Mont Blanc glaciated areas not affected by the 20th century climate change’ in the Journal of Geophysical Research, volume 112, dated 9 May 2007 by C. Vincent, E. Le Meur, D. Six, M. Funk, M. Hoelzle and S. Preunkert.

Prof. Sackett —I am sorry. Was there a question to which I need—

Senator COLBECK —Well, are you aware of that paper?

Prof. Sackett —No, I am not aware of these individual papers. I am certainly aware of the journal in which they were published.

Senator COLBECK —You are obviously quite emphatic in your response to that. You made a comment on 2UE that you have not seen a peer-reviewed paper that supports the anti global warming position. That may very well be the case, but you may not have seen papers in peer-reviewed documents that actually do support that case?

Prof. Sackett —That is entirely possible. Certainly when I have conversations with climate scientists I ask them to tell me what they feel is the weight of the evidence on all sides of the argument, and I have not heard from anyone a convincing argument that is backed by peer-reviewed literature against the evidence that the globe is warming.

Senator COLBECK —I am not going to make that one way or the other. I am just trying to assess. So you asked people who you know work in that space?

Prof. Sackett —There are many ways I take advice. That is one way. I read consolidated reports that are put together. I take advice from the CSIRO and the Bureau of Meteorology.

Senator COLBECK —So, unless someone who has an opinion of a document refers you to a document, you may not necessarily see that or become aware of that document?

Prof. Sackett —It is entirely possible. But the way the scientific literature works is that when one puts forward a view one is generally expected to also indicate other evidence that may align or not align with that particular view. So the scientific publication process itself actually references not only work that may support it but work that may not in the peer-reviewed literature. So I am saying that over time it becomes a coherent body of knowledge, which is not to say that there may not be an article that I am not aware of. I would never make the claim that I am aware of every article. But the bulk of the evidence through the peer-review system is very clear in this regard. If there is a particular article that you are concerned about, I would be glad to take it on notice.

Senator COLBECK —I am happy to provide you with this list so you can let us know. We will pass that over to you on notice.

Prof. Sackett —Lovely.

Senator COLBECK —If you could let us know about that.

Prof. Sackett —I would be happy to do that.

Senator PRATT —Professor Sackett, I want to ask you about the preparing a learning society for the future working group that I believe you have been involved in. I want to know the significance of the science of learning, including brain function, motivation and the practice of teaching.

Prof. Sackett —So you are asking about—

Senator PRATT —About this particular idea and program.

Prof. Sackett —I believe the thing you are referring to is a report that was delivered to the Prime Minister at the last Prime Minister’s Science, Engineering and Innovation Council meeting. It was prepared by a group of experts—scientists in the fields of brain function and cognitive psychology as well as practitioners in education. This very diverse group of people spent some many months preparing a report for the Prime Minister that indicated, first of all, I suppose, the good news that we as a society of scientists have learned quite a bit about how learning proceeds—how it depends, for example, on executive function in the brain; how it depends on attention span; how it depends on factors in the environment; and how it depends on neural mirroring between the learner and the teacher. That is good news. The thing that is perhaps most compelling is that this knowledge is not in all cases making it into the classroom. It is not a program; it is simply a recommendation. These bodies are advisory bodies.

The recommendation that was put forward was to consider the creation of science of learning centres in Australia that would bring scientists together with the practitioners of learning to speed that knowledge getting into the classroom. Furthermore, the practitioners would be able to communicate to the research scientists difficulties and patterns that they see as they teach that then could form the basis of further study and understanding from the scientific researchers themselves. So that is the essence of a much fuller report that was presented to the Prime Minister.

Senator PRATT —Good. I will have to look into it. That would coalesce with other research that has been done about early childhood and brain development and all that kind of research that is also happening?

Prof. Sackett —Absolutely. In fact, we had an expert on the group who was in early childhood development, working even with children as small as a few months old. So the expert working group spanned people who work in the science of learning all the way from newborns really to adult learning and training on the job.

Senator PRATT —On a slightly different topic but still, I suppose, on the same train, I am interested in knowing what research you might be aware of that looks into the psychological reasons as to why people are either cynical or supportive of certain scientific theories, be they climate change, or evolution versus intelligent design or our society’s capacity to engage with scientific ideas and whether people are engaging in a way that is underpinned by real science or not.

Prof. Sackett —I am aware that there are those who are discussing such research. I am not aware of any particular pieces of research, which is not to say that it might not be being done somewhere. I think this relates to a larger question of, quite frankly, trust and issues of authority and so forth, which is a very rich topic in psychology and sociology.

Senator PRATT —Thank you.

Senator EGGLESTON —I would like to ask you another question, if I might.

Prof. Sackett —Surely.

Senator EGGLESTON —This is about the debate in France on the subject of climate change. I understand that at the instigation of France’s science minister, there will be a national debate in that country later this year on the subject of climate change. This follows the incredible success of a book by Claude Allegre, who is arguably France’s most celebrated scientist and a former science minister in the government, who has called the global warming theory into question and who describes the UN’s intergovernmental panel on climate change as a ‘Mafia-like system that promotes a baseless myth about climate change.’

Senator CAMERON —Did Barnaby write that one for you?

Senator EGGLESTON —Well, no, he did not, actually. But this debate is occurring. I wonder if you are following that debate. What implications do you think this French debate on this subject may have for Australia?

Prof. Sackett —I am not following the debate. I am not aware of implications that it would have for Australian science.

Senator EGGLESTON —Since you are something of an international figure, though, and are in touch with people around the world involved in the climate change debate, is it possible for you to advise us of how the outcome of the Copenhagen conference has been received around the world by persons such as yourself in positions in government as science advisers?

Prof. Sackett —The Copenhagen event was largely a meeting of governments, as you know, to discuss policy. Although individual scientists, as any individual citizen, of course, may have opinions about such things, they do not really fall in the remit of the duties of the Chief Scientist.

Senator EGGLESTON —No. Very well. I might have been asking you for a personal opinion, but there we are. There has been some discussion here today about the state of the climate report from CSIRO. Are you familiar with that document?

Prof. Sackett —Yes, although not in detail.

Senator CAMERON —I ask you for your view on some of the conclusions. In chapter 5, it says:

What it means—

And this is after the debate about increasing CO2 and temperatures warming. The conclusions are:

Australia will be hotter in coming decades.

               …              …              …

Much of Australia will be drier in coming decades.

               …              …              …

It is very likely that human activities have caused most of the global warming observed since 1950.

And—

Climate change is real.

Now, that is the CSIRO based on their analysis of the department of meteorology reports and the like. What is your view of that conclusion?

Prof. Sackett —Every one of the conclusions that you have summarised there is in accordance with the work of other large scientific organisations and individual scientists that I am aware of around the world.

Senator CAMERON —Thank you.

[8.27 pm]

CHAIR —Thank you. I believe that is the conclusion of the questions. Thank you for coming in this evening. I will now ask the outcome 2 officials of the Department of Innovation, Industry, Science and Research to come to the table. Mr Paterson, are there any opening statements for this section?

Mr Paterson —No.

CHAIR —We will go straight into questions.

Senator COLBECK —I know we are out of the area, but I received further instructions over the tea break. I just want to clarify a comment that you made, Mr Paterson, in relation to an allegation that I made and I think has been made in other circles. It relates to the inclusion of specifications for fabric in a tender document. Do not get too excited, Minister. I will try to keep this to the point that Mr Paterson made. I want to clarify your statement, which was quite emphatic, that the government denied any allegation of a breach of IP in publishing the specification for a fabric. I want to clarify whether you were talking about in that comment the camouflage material or whether you were talking about the special flame retardant wool blend fabric that we were discussing. I just want to clarify the difference between which one we were talking about. I understand there may be a couple of issues out there and I just want to make sure I am squared off.

Mr Paterson —Senator Colbeck, there may well be a couple of issues around there. I think the Hansard will show that I said I recalled that there was a public debate about this issue and there were some public accusations made. I recalled an emphatic rejection of having published any intellectual property in a tender document. I was not specific when I made that comment earlier today about whether it was the wool garment or whether it was the camouflage textile. That is because I could not tell you from my recollection whether it was one or the other. I recall the public debate at the time. I recalled a comment made to the best of my recollection from the Defence Materiel Organisation which emphatically rejected the accusations that there had been a breach of intellectual property. But I did not recall the detail and I certainly did not have a clipping or anything like that. So I was not asserting it was in relation to one or other of those textile products because I did not recall the context. As you will recall from our earlier conversation, we were moving around.

Senator COLBECK —It was free flowing.

Mr Paterson —It got into undergarments and all sorts of things, so I do not—

Senator COLBECK —Well, it is still in undergarments, because I understand the special flame-retardant base material is being used for undergarments.

Mr Paterson —Mine was a recollection. I was trying to assist. As we have said, this is not an area that we have responsibility for. The more explicit questions ought to be put to DMO.

Senator COLBECK —Thank you for that. I appreciate that. That is why I came back to ask the question. When I reflected on our conversation, I was not sure either. We can deal with the specifics of that in Defence later on, as I have promised the minister we will. But in the context of the portfolio that looks after IP, I think it is an issue that we ought to be on top of in respect of those particular issues anyway.

Mr Paterson —But it would be fair to say that whilst the portfolio is responsible both for the registering of intellectual property through IP Australia and promoting research and development and the development of intellectual property in Australia, individual enforcement issues are matters for the owners of them. We do not participate or get involved generally in those interchanges.

Senator COLBECK —Thanks. My curiosity is satisfied.

Senator EGGLESTON —These are some program 2 questions. The department recently issued a discussion paper on the proposed collaborative research networks—the CRN program—and invited submissions on the paper by 22 March. Can you give us an update on the status of the program and when you are envisaging making available further information about the specifics of how the program will work?

Ms Baly —That discussion paper you refer to elicited a number of submissions, which have been analysed. We also held face-to-face consultations on that program. We have prepared program guidelines, which we expect to be released shortly.

Senator EGGLESTON —Thank you. Can you summarise the views and concerns that were raised through the public submissions?

Ms Baly —As you would probably expect, there were a range of views that were expressed on that program from the different universities. I guess there was probably a majority view, which was that it was a targeted program and that it should remain a targeted program. It is a program that is targeted at those universities that are at the less research intensive end of the spectrum. There was support for that to be the case. That was thought to be appropriate. The broad policy parameters were largely supported in those consultations.

Senator EGGLESTON —So what you are saying, in other words, is that this program will sponsor pure research and scientific research?

Ms Baly —The program is designed to foster collaboration between universities that are less research intensive than others and to develop collaborations with more research intensive universities as a way of building research capacity and building collaborative networks. That is what the program is intended to do. It is not a competitive research grant program like the programs that the ARC runs, which do fund basic research. It is designed to foster collaboration—

Senator EGGLESTON —Between universities to—

Ms Baly —between universities—

Senator EGGLESTON —To promote pure science or—

Ms Baly —to build research capacity.

Senator EGGLESTON —But that sounds like pure science, to me, rather than applied science, does it?

Ms Baly —Well, it is both pure and applied research.

Senator EGGLESTON —Thank you very much. I also want to ask you about cooperative research centres and get some overview from you about the current evaluation process for CRCs. I understand that in Mary O’Kane’s review of the CRC program, one of the key recommendations was that the results should be innovative, of high impact and capable of being deployed rapidly by the end users to good effect. She also said that the CRCs should be of high national benefit with significant spillovers. Following on from that, I wonder if you would like to comment on what sort of benchmarking and evaluations are currently being done for the CRC program and how you go about assessing if individual CRCs have lived up to those kind of expectations.

Ms Baly —Senator, I might just point out that my other colleagues from the CRC program were here for outcome 1 and they have gone because the CRC program is actually in outcome 1. So I will do my best to answer the questions as I can, but I may need to take some on notice.

Senator EGGLESTON —I apologise. I am looking through 2.2, components. But please go ahead.

Ms Baly —As you say, the program was reviewed. Each of the CRCs that is funded enters into a contractual arrangement with the Commonwealth government. Included within that contractual agreement is a set of outcome measures. They are regularly monitored. Each CRC is required to put in an annual report and each CRC has a three-year review of its activities. So they are monitored fairly carefully.

Senator EGGLESTON —Is there still a lot of competition for CRC funding?

Ms Baly —There is a lot of competition for CRC funding.

Senator EGGLESTON —So how many have we got at the moment?

Ms Baly —There are 48 at the moment.

Senator EGGLESTON —That is a lot. I was going to ask you to go through them, but that is too many. So perhaps you could provide a list on notice for us.

Ms Baly —I could provide that for you.

Senator EGGLESTON —If you would. Are any of them in agricultural research?

Ms Baly —Yes. There are a number in agricultural research. There have been a number over the years. Are there any particular ones that you are interested in?

Senator EGGLESTON —I know that one of our colleagues, Senator Back, was quite interested in a hendra virus CRC being set up. I wonder if that has occurred.

Senator Carr —This is on another issue. Hendra virus research is conducted through the CSIRO.

Senator EGGLESTON —All right. I accept that.

Senator Carr —The funding arrangements that were announced last week were $1 million to fund CSIRO activities. It is not a CRC program.

Senator EGGLESTON —That is fine. I just mention the plan that Senator Back had a year or so ago. Thank you, Minister, for that information. You will provide that list on notice. The other program I would like to ask you about is Excellence in Research for Australia. I wonder what feedback you are getting from universities about the success or otherwise of the Excellence in Research for Australia initiative.

Senator Carr —That is an ARC program.

Senator EGGLESTON —Well, it is actually listed, I might point out to you, under 2.2 in this department, Minister.

Senator Carr —It is administered by the Australian Research Council.

Mr Paterson —I will clarify the issue, Senator. Excellence in Research for Australia is a program under the ARC. There is a small element, which is the IAP component of Excellence in Research for Australia, which is a component piece that has a couple of years of legacy history to it. But the ERA program is run by the ARC. We had questions in relation to ERA this morning with the ARC.

Senator EGGLESTON —All right. Nevertheless, it was there. I have heard that there is some disquiet in some university sectors about this program. I was going to ask some questions about that. But if this is not appropriate, I will not.

Mr Paterson —Thanks, Senator.

Senator EGGLESTON —I would like to ask a couple of other questions. The first is about Commercialisation Australia.

Mr Paterson —That is outcome 1.

Senator Carr —You are doing pretty well there, Senator.

Senator EGGLESTON —Well, these are the notes I have. Do you know whether or not a full-time chief executive has been appointed?

Senator Carr —Correct.

Mr Paterson —A full-time chief executive has been appointed and was here earlier today.

Senator EGGLESTON —What about the SKA program? Does that come under CSIRO?

Senator Carr —It would depend on what part of it.

Senator EGGLESTON —I wonder what progress is being made towards the achievement of its actualisation.

Ms Lansdown —We have responsibility for the SKA program at the moment. CSIRO, as you are probably aware, is building the ASKAP telescope, which is part of the broader SKA bid in Australia. But we are making considerable progress on the bid. As you would be aware, we are investing heavily in infrastructure to support that bid within Australia. We are very actively engaged in the international processes towards decision making with respect to the site and, in fact, the governance mechanisms for the SKA into the future. We are engaging quite actively in awareness raising campaigns with both our international colleagues and our domestic audience. So I am prepared to answer questions in more detail, but there is quite a range of activity within that SKA bid.

Senator EGGLESTON —And South Africa remains our main competitor, does it?

Ms Lansdown —There are only two candidate sites that have been put forward—ourselves and the Karoo region of South Africa, yes.

Senator EGGLESTON —Is there any indication of their relative merits and attractiveness?

Ms Lansdown —There is no doubt that the Australian site offers a superior site for building the SKA telescope, but there is a process underway at the moment to look at a range of issues to assess that site. They have to look at issues such as radio quietness and the terrain—whether you would be able to configure the SKA in the area that has been chosen. There is a process for looking at the suitability of the two sites and then making scientific recommendations.

Senator EGGLESTON —When do we expect a recommendation to be made?

Ms Lansdown —The current timetable says that the site decision will be made in 2012. This is not always a linear process. There are things happening in the process that might speed that up. At the moment the scientific process is up to looking at the masks for SKA antenna configurations. That might bring a conclusion to that debate earlier or it may not.

Senator EGGLESTON —What did you say? The masks? Is that the word you used?

Ms Lansdown —There are some areas in the two sites where you cannot put antennas. That relates to populations, farms and terrain. There is a whole range of issues that mean that you cannot place an antenna in a particular place. Australia is able, with all the masking done in our prospective site, to configure the SKA antennas without any difficulty.

Senator EGGLESTON —That sounds like a positive for us.

Ms Lansdown —Yes. It is a very good story.

Senator EGGLESTON —All right. We will keep monitoring that as it develops, so thank you very much.

CHAIR —Senator Colbeck, do you have more questions?

Senator COLBECK —Yes, I do. Can you give us a sense of what we have achieved out of the International Science Linkages program since its inception, please?

Ms Lansdown —The program has been going for 10 years and has a significant number of elements, so I guess I might defer to my colleague Mary Finlay to talk about some of those elements. Some have been in place for longer than others.

Senator COLBECK —Just give us a very general indication.

Ms Lansdown —I think, if the current House of Representatives inquiry is any indication, most of the submissions to that inquiry suggest that it has been a very successful program. We have a very broad range of statistics that suggest we have a large number of citations from projects that have been funded by the ISL program. We have had large numbers of science exchanges and large numbers of research projects emanating from the initial funding that went to start exchanges with various countries. Basically we funded 600 projects. We have about 3,000 researchers involved in those projects over about 40 countries, so it is quite a broad-ranging program.

Senator COLBECK —How many researchers, did you say?

Ms Lansdown —There have been 3,000 researchers engaged in the various projects. It is a little difficult to be precise, but we know there have been over 3,000.

Senator COLBECK —We are broad brush. I understand that. The budget papers suggest there is no funding for this beyond 2010-11. This falls to you, Minister. Is there a future for this program beyond 2010-11?

Senator Carr —I have indicated on numerous occasions that I am a strong supporter of the program. I think, as has been indicated by the officers, the program has a lot to show for itself. It has been there for 10 years. But the funding does not run out until next year so the government has not made a decision about its successor.

Senator COLBECK —Okay. That is a fair answer. You mentioned the House of Representatives inquiry. Is that specifically into this program?

Ms Lansdown —No. It is into international science engagement more generally, so it is quite wide-ranging.

Senator COLBECK —But some of the elements that have been picked up by this program and potentially some of the achievements I could find by having a look through the submissions to that inquiry which would give me some indications?

Ms Lansdown —Yes.

Senator COLBECK —I think we might have been through the Science Connections Program once before. I have a nasty feeling about it. I think I am going to get the same answer from the minister. Does Questacon’s funding come out of this program?

Prof. Durant —No. Questacon was asked to take responsibility for this administered program in July last year. So we look after the program.

Senator COLBECK —Again, the budget papers do not have an allocation for this program beyond 2010-11.

Prof. Durant —That is correct. It is in a similar position to the International Science Linkages program insofar as there is another 12 months.

Senator COLBECK —So my assumption was correct, Minister?

Senator Carr —And the same answers apply, Senator. It is a very good program. It has been well evaluated. But the government is yet to make a decision about its successor.

Senator COLBECK —What about elements such as National Science Week, which are also funded out of that program?

Senator Carr —There are lots and lots of elements to it.

Senator COLBECK —I am raising one example. They fall within that program?

Prof. Durant —National Science Week is part of the Science Connections Program.

Senator COLBECK —Do the science and innovation ambassadors fall within this part of the portfolio? I just want to get some sense of the delivery of that election commitment.

Prof. Durant —The Science and Engineering Ambassadors scheme does not form part of the SCOPE program.

Senator COLBECK —What about somewhere within outcome 2 of the department? I am just going back to your election policy, Minister, which is $5 million allocated for the innovation ambassador role of the new Innovation Australia board to establish a stronger innovation ambassador program.

Mr Paterson —Outcome 1.

Senator COLBECK —It is outcome 1. So we have missed. I will put that on notice and you can provide me with all the glorious data later. Does the Cairns Institute Tropical Innovation Hub come within this element of the portfolio?

Mr Paterson —Yes, it does, Senator.

Senator COLBECK —You are providing $19.5 million over two years to James Cook University for the construction of the research facility. Minister, you made that announcement initially on 9 December last year. Has any work actually commenced on that particular project, or is it effectively all future allocation?

Ms Lansdown —Yes, it has. We have signed a contract with JCU for that core $19.5 million. Of course, James Cook University is co-investing $15.8 million themselves. There is an amount of $8.75 million which is coming through the Super Science research infrastructure funding. We are also contributing funding from our tropical marine facilities funding, our terrestrial ecosystems research network funding, our marine observing system funding and our e-research infrastructure funding. They are all going in to support JCU and the surrounding facility.

Senator COLBECK —So how much do you estimate will actually be attracted in with all of those contributions? How much is going to be attracted into that in respect of conducted research?

Ms Lansdown —It is difficult to estimate how much research it will bring in. However, what it does is co-locate a range of things that will actually enhance the possibilities for multidisciplinary and collaborative research. So it brings together JCU’s tropical science and humanities researchers. It co-locates the Reef and Rainforest Research Centre. It enhances the links between them and AIMS and CSIRO. So it brings together a range of researchers who have been in disparate locations in order to focus on issues of common interest.

Senator Carr —So there is a total investment of $44 million.

Senator COLBECK —Yes. I have that.

Senator Carr —The program itself will create some 200 jobs in its construction. It will support 125 research staff when completed. So, on top of the $44 million, you could make projections as to the future grant allocations, but it would be, I think, a fairly abstract concept at this stage. What you can say is there is $44 million. It is designed to support 200 jobs in its construction and 125 research staff when it is completed.

Senator COLBECK —So we are expecting a construction period of two years. Have we got a commencement date on that at this stage with the contract signed?

Ms Lansdown —Actually, Senator, I need to correct what I said. We have not actually signed the contract yet. We are developing the contract with JCU at the moment.

Senator COLBECK —So the next question is a bit superfluous in that context, then. The sum for the research facility is $44 million, with contributions of $19.5 million from the Commonwealth and $15 million, you said, from—

Ms Lansdown —It is $15.8 million from James Cook.

Senator Carr —And $8.75 million for the Super Science funded research infrastructure projects. The aim is to try to bring together as much as we can in the Cairns region in terms of tropical social science and humanities research and the co-location of the Reef and Rainforest Research Centre. The effort is being made there to enhance the links between AIMS, CSIRO and James Cook and facilitate the development in North Queensland of national collaborative research infrastructure investments through the Super Science initiative. So it is essentially attempting to collocate and improve the level of collaboration between existing research infrastructure in the region.

Mr Paterson —Senator Colbeck, while you are examining other issues, you asked a question in relation to the Innovation Ambassador Program.

Senator COLBECK —Yes.

Mr Paterson —That was not an election commitment of this government but a commitment made by the former Prime Minister in August 2007.

Senator COLBECK —I did not think it was one of ours.

Mr Paterson —The funding for that program disappeared, if that is the technical term, in Budget Paper No. 2 in the 2008-09 budget. It was one of the Responsible Economic Management measures that were announced at the time. So we no longer run the program. It was a commitment of the former government, and the funding was lost to us in the 2008-09 budget.

Senator COLBECK —Well, as reluctant as I may be, I am reading now from a www.kevin07.com.au document. I am not sure that it would have been put out by the coalition. It is a 2007 policy document.

Senator CAMERON —Who knows where you are going at times! We do not know who your leader is anymore.

Senator COLBECK —It is off your website.

Senator Carr —Senator Colbeck, all I can say is that I was not aware that it was one of our commitments. The secretary has advised it was the previous government’s.

Senator COLBECK —I am here to remind you and I am reading from your policy document.

Senator Carr —I had something to do with those documents and I do not recall.

Senator COLBECK —It says, ‘A Rudd Labor government’, and I doubt that John Howard would have written it.

Senator Carr —I had something to do with those commitments and I do not recall innovation ambassadors as part of our list of commitments.

Senator COLBECK —It says:

A Rudd Labor Government will make the office of the Chief Scientist a full-time position.

               …              …              …

Federal Labor will also use the $5 million currently allocated to the Innovation Ambassador role of the new Innovation Australia Board to establish a stronger Innovation Ambassadors program with a broader remit than that of the Innovation Australia Board.

I am sorry. I am reading from your document. I am happy to table it. This document has all of the identifiers of a Labor Party promise. Look, if you have decided to cut it—

Senator CAMERON —There is not a great chance that you or others have tried to—

Senator COLBECK —No. It has been nowhere near me, Senator. I invite you to come across and verify it.

Senator Carr —Senator Colbeck, all we can say is that in the 2008 budget it was taken out.

Mr Paterson —The $5 million went.

Senator COLBECK —The $5 million was taken out?

Mr Paterson —Correct.

Senator Carr —But it was not put in by us, either. That is the point.

Senator COLBECK —Well, you made the promise. I did not make the promise. I will take responsibility for my promises. I do not have a problem with that. But this is your promise, Minister. You can go back and verify it on the website and we can fight about it another day, if you like. But I did not make the promise; you did. What you do with that promise we will all be judged on.

Senator CAMERON —Can we believe anything you say? Have we got to get it in writing from you?

Senator COLBECK —I will give it to you in writing, if you like, Senator Cameron, and you can identify it.

CHAIR —We are doing quite well without this.

Senator CAMERON —I am only asking.

Senator COLBECK —It has Kevin07 written at the bottom of it. We were all supposed to believe your campaign promises. Every day we see what happens to those promises.

CHAIR —Do you have a question, Senator Colbeck?

Senator COLBECK —Yes. I will come to some more. If it is a broken promise, it is a broken promise. We can deal with it in that particular context. I am going to keep you away from the jellybeans at dinnertime next time, Senator Cameron.

I want to go back through some of the announcements that were made in the funding under the 2009-10 budget. A significant dollar amount was allocated to a number of projects. There was $906.9 million over five years to support a number of projects. I want to get a sense of where we are at in respect of the projects that fall within this part of the portfolio. As I read through them, I see that some of them actually do not fall in here. Is the national network of research data storage and collaboration part of what we are doing? There was $97 million committed to that. Can you tell me where we are at with that project?

Ms Lansdown —It actually has two elements. There is a data storage element to the value of about $50 million and a collaboration service element to the value of $47 million. We are about to sign the contract for the research collaboration service element. We actually have essentially 23 contracts that relate to that $901 million this year. We have 17 of them signed. We anticipate getting the remaining six signed by the end of the year. The data storage contract will not be signed until the next financial year because there is no funding that relates to that in this financial year. We have staged the contract so that if there is funding in this financial year they are signed first.

Senator COLBECK —So the collaboration infrastructure?

Ms Lansdown —Yes. That will be signed in the next couple of weeks.

Senator COLBECK —What collaboration infrastructure is that funding? What does the $47 million associated with that go to?

Ms Lansdown —It relates to a whole range of services that the research community uses around the country—grid infrastructure, services to help them to interoperate between each other, a whole range of services for them to access data at the desktop—it is a range of different projects. There is also some competitive element to that money which we call the NeAT projects, where individual discipline areas require research collaboration applications. They can compete for funding to develop those applications. But the overarching theme is to try to ensure that all those products and services as they are developed are interoperable and available to all the Australian research community.

Senator COLBECK —So what you are trying to do is construct one single framework that everybody can access into or network into?

Ms Lansdown —Yes. I guess at it basic level that is the objective. But there is also a range of requirements of individual discipline areas where we actually go down to a deeper layer rather than over the top. So it is a range of different things.

Senator COLBECK —Does it incorporate and bring in existing frameworks and networks so that effectively—

Ms Lansdown —Yes.

Senator COLBECK —To try to build something that is more encompassing?

Ms Lansdown —Yes. There are a number of principles that we employ that include things like open access for all researchers wherever possible but not to duplicate existing infrastructure, to take account of what exists and look at how that might be built upon and built into a system rather than overbuilding or redesigning.

Senator COLBECK —Similarly, the research data storage is providing a space for a framework where information is readily accessible and easily researched. It is trying to prevent duplications or people getting access to issues of similar interest. They can research them and define what they are doing as far as research is concerned?

Ms Lansdown —Yes. We are undertaking a process of consultation at the moment. We actually have had a discussion paper out in the sector to seek advice about how we might arrange the data storage investments. There are probably three different models you could use. We have received 22 submissions from universities and other institutions that have a strong interest in data storage. It is likely that we will go with the distributed model. Not every university needs a mega data store on site, but there are elements like proximity to high-performance computing, which is important. Where there are concentrations of researchers in a particular discipline area is another consideration. So we are working through that process at the moment. We have deliberately left that contract so we could spend a little more time doing some consultation with the sector about what the right model would be for investment.

Senator COLBECK —There are a couple of general questions, but I might put them on notice.

CHAIR —Thank you.

Senator CAMERON —Mr Paterson, can you advise me what total employment is in DIISR?

Mr Paterson —Now or going forward, Senator Cameron?

Senator CAMERON —Now.

Ms Graham —In terms of employment, the average staffing level for 2009-10 is 1,973. That is the estimated average staffing level for this financial year.

Senator CAMERON —What is the turnover in annual terms?

Mr Paterson —We anticipated that all the general corporate questions were going to be dealt with during the day and we had only the science and research elements left, Senator. The people from HR and the like who were here all day departed at dinnertime.

Senator CAMERON —I am happy for you to take these on notice, if you like.

Mr Schwager —Our separation rate is currently, based on the figures this financial year, 6.8 per cent.

Senator Carr —How many people in the department next year?

Ms Graham —We estimate the average staffing level to be 2,288.

Senator CAMERON —With that turnover, Mr Paterson, you would look at losing 100-odd employees each year? It would be about 500 to 600 employees turnover. That is 20-odd per cent. What is the figure?

Mr Paterson —It is a bit less than 120.

Senator CAMERON —We need Barnaby!

Mr Paterson —A bit less than 120 over that period.

Senator COLBECK —They are rubbery figures, I would have thought.

Senator CAMERON —They’re Barnaby’s, not mine! As you are aware, there have been some proposals for a freeze on recruitment. Given your turnover, what are the implications for a freeze on recruitment for your department?

Mr Paterson —Any savings measure that is applied to the department has a consequence, whether it is a freeze of the nature you outline or other efficiency measures. If there are savings applied to the department, we have to make choices about the activity that is undertaken and the activity we have to cease. As you are aware, our anticipated ASL going forward increases in the next financial year. That is predominantly driven off the back of us taking over, with effect from 1 July, the national trade measurement function, which is a function traditionally undertaken by the states and territories, and taking over responsibility for what will be known as the Australian Astronomical Observatory, currently known as the Anglo-Australian Observatory, at Coonabarabran. So our numbers will vary depending on the activities we undertake. But if there are savings measures applied to the department, we have to curtail activity to reflect the reduction in the available appropriation.

Senator CAMERON —Thanks.

CHAIR —There being no further questions, that will conclude today’s discussion. The committee will suspend until tomorrow morning, when we will begin with the Resources, Energy and Tourism portfolio.

Committee adjourned at 9.08 pm