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R&D report shows Govt marking time.



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Senator Kim Carr Labor Senator for Victoria Shadow Minister for Industry, Innovation, Science and Research

11/07/07 (33/07)

R&D report shows Govt marking time

Today’s report on the evaluation of the Government’s 2001 changes to the R&D Tax Concession looks through a rear vision mirror, showing only what the Government wants Australians to see.

By having limited terms of reference, the report only focused on the six years between 1998-99 and 2003-04, ignoring the impact of the Government’s 1996 decision to halve the R&D tax concession.

The 1996 decision saw the number of companies registered for the concession drop from 3,733 in 1995-96 to 3,295 the following year and R&D expenditure fall from $4.5 billion to $4.2 billion.

For the manufacturing sector, R&D as a share of output plummeted from around 3.3 per cent in 1995-96 to only 2.8 per cent in 1999-00.

Over the full eleven years of the Howard Government, its performance on R&D has been woeful.

Average annual growth rate of real business investment in R&D fell from 11.4 per cent in the ten years to 1995-96, to only 5.1 per cent between 1995-96 and 2004-05.

The result is that Australia languishes half way down the list of OECD countries when it comes to business R&D investment, with expenditure as a proportion of GDP less than two thirds of the OECD average (see attached graph).

Yet Mr Macfarlane’s media release proposes no new reform measures, instead, it is a predictable beat-up that tells only half the story.

Reports that Mr Macfarlane couldn't even convince his Cabinet colleagues to address the $1 million cap on the Tax Offset for small business are particularly disturbing.

Either Mr Macfarlane is incapable of explaining the ongoing concerns of small business or the stale Howard Cabinet simply isn't listening.

The Evaluation's findings on the Premium concession also support Labor's concerns.

The report finds, for example, that many firms receiving the Premium tax concession "view it as an additional bonus for which they may be eligible at the end a year, not a strategic incentive they can rely on to undertake more R&D".

This confirms the finding of an earlier Department of Industry, Tourism and Resources survey, which found "the 175% Premium rate appears to have little influence on underlying levels of R&D expenditure, with 21 of the 26 claimants

indicating that they would have undertaken the R&D in the absence of the 175% Premium".

Other developed countries are taking the R&D challenge seriously:

• New Zealand has recently introduced a 15 per cent tax credit for R&D (equivalent to a 150 per cent concession under Australia’s scheme); and

• The UK's 2007 Budget increased its R&D tax credits to 175 per cent for small business and 130 per cent for large companies.

As part of Labor’s New Directions for Innovation, Competitiveness and Productivity, we will examine all R&D and innovation programs to ensure they encourage international collaboration and foreign investment in R&D in Australia.

Labor will ensure Australia’s prosperity is maintained beyond the mining boom by investing in the drivers of productivity - education and innovation.

Further information: Kim Carr 0419 563 922, Patrick Pantano 0417 142 238.

Business Expenditure on R&D as a percentage of GDP - OECD countries

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Sweden

Japan Finland Korea

Sw itzerland United States G ermany

Denmark Austria OEC D

Iceland

Luxembourg France Belgium

United Kingdom EU-27

Canada Netherlands Australia C zech Republic

Ireland Norway

Spain Italy

New Zealand

Hungary Portugal Mexico

Slovak Republic Poland Turkey

Greece

Source: OECD, Main Science and Technology Indicators, May 2007