HANSARD EXTRACT
| Tax Laws
Amendment (2007 Measures No.2) Bill 2007: Second Reading |
| 9th May
2007 |
Mr HAYES
(Werriwa) (10.30 a.m.)—I know
we are coming back from a break, Mr Deputy Speaker, and we are all
refreshed, but this week seems to be a week of amendments. In
addition to the
Tax Laws Amendment (2007 Measures No. 2) Bill
2007 that we have in front of us—not an uncommon form of
legislative amendment, when it comes to this government—amendments
are to come before the House in the form of the
Building and Construction Industry Improvement
Amendment (OHS) Bill 2007. That is set down for debate
tomorrow, I think. We also have the mother of all amendments—which
the Prime Minister has told us for the last year would not happen,
out of fear that it would destroy the economy as we now know it—the
amendments proposed to Work Choices. An effort is certainly being
made by the government to draw to a conclusion a number of things
that have been hanging around for over 12 months.
I will keep my comments brief and relevant to this tax bill. I will
limit my comments to the issues of research and development.
Research and development expenditure is critical for the performance
and advancement of the economy. Certainly it is critical to
improving the competitiveness of industry. Business investment in
research and development, however, is at 0.95 per cent of GDP. That
is well below the average OECD contribution to R&D, which is 1.53
per cent. As a consequence, that has this country sitting behind 14
other OECD nations. That is despite the fact that considerable
advancements were made throughout the mid-1980s and the 1990s in
industry contributions to research and development.
There must be many reasons for that performance, but the fact
remains that business spending on research and development under the
Howard government has grown at less than half the rate that it grew
at under the former Labor government. When the Prime Minister
announced in 1996 his commitment to industry, he put it in these
words:
... to improve
Australia’s
international ranking in terms of expenditure on business R&D, as a
share of GDP.
I have just cited the current figures, and the position could not be
more different from that envisaged by the Prime Minister in 1996. It
certainly has not lived up to the standard set by the former Labor
government with regard to encouraging industries to invest in
research and development in their sectors.
The Howard government’s main policy of cutting the research and
development tax concession has produced a less than stellar
performance. Policies that promote further investment in research
and development are being actively pursued by many countries but
this government only pays lip service to them. Let me take a moment
to examine the targets set by other countries when it comes to R&D.
China is committed to increasing research and development
expenditure to 2.5 per cent of GDP by the year 2020. The European
Union as a whole is targeting expenditure on R&D at three per cent
of GDP by the year 2010.
All around us, our Asian neighbours are increasing their research
and development spending at an incredibly rapid pace. As a local
member representing the seat of Werriwa, in the south-west of
Sydney—an area I am very proud of—I point to the employment
statistics for the area to demonstrate the effect research and
development will have on the development of our main industries. In
the south-west of
Sydney,
we have nearly 50,000 people employed in manufacturing. It is
welcome news that the manufacturing sector is taking seriously its
responsibility for R&D in the development of home products,
particularly in Werriwa, my area. Currently, manufacturing accounts
for 41 per cent of Australia’s research and development.
Manufacturing businesses are also the most likely to commit to
innovation and further development and to invest in their futures.
The manufacturing industry recognises the need to be the one that is
setting the pace in the world, and not having it foisted upon it,
simply being reactive to the position of other countries. We need to
stimulate growth in the manufacturing sector. We need the sector to
invest in its future. We are certainly seeing some encouraging
signs. In my backyard, in the south-west of Sydney, various
companies that I visit on a regular basis are now taking steps to
invest in their future through research and development expenditure.
The amendments contained in this bill will, I believe, help
contribute to the improvement of
Australia’s
research and development performance. They are vital and necessary.
We do need to stimulate and encourage expenditure in that area. To
that extent I support the provisions of the bill. Labor supports the
proposals in the bill, particularly the proposals relating to R&D.
In saying that, however, it would be remiss of me not to note the
time it has taken for this amendment bill to come before the House.
The amendment bill was announced at the time of the last budget. I
am talking about the budget handed down in May 2006, not last
night’s budget. It has taken more than a year for the legislation to
come before the House. Of course, this is not the longest delay that
we have seen in amendments coming before the House.
Research and development tax concessions were introduced by the
Labor government in May 1986. Quite frankly, they have had a
chequered history, particularly under the current government. In the
1992-93 budget speech of the then Labor government it was announced
that the R&D concession would continue indefinitely. There was a
commitment by a Labor government to invest in the development of
this country, particularly in manufacturing, by continuing that
concession indefinitely.
In 1996, upon the election of the Howard government, there was a
slash and burn approach to budgetary measures and that characterised
the government’s first few budgets. I am sure members will remember
the cuts that were made and the ones we are still paying for. There
are fewer doctors, certainly on the Central Coast, and dentists. The
Howard government took it upon itself, among other things, to reduce
the R&D maximum concession to 125 per cent. The government led the
charge in discouraging people from investing in their futures. That
is the legacy of this government. That is why it is scrambling now
to redress those things. That is why we are falling behind other
nations which have taken the positive approach of setting targets
for R&D into the future. That is why we need to look forward and
invest in ourselves. That is something we have advocated through
successive Labor governments. It is good to see that the Howard
government is now starting to take a leaf out of our book and at
least return it to its former position prior to 1996.
In 2001, the government backflipped on its position when it produced
a package called Backing Australia’s Ability. In that package it
introduced a premium rate of 175 per cent for additional research
and development activity and the research and development tax
concession for small companies. While I say it has taken a long
while for this amendment bill to come before the House, and I refer
to last year’s budget, the reality is that—and make no mistake about
this—we have been waiting effectively since 2001 for this
legislation to come before the House and to be implemented in a way
that will stimulate the growth of R&D within the business sector.
I know that the government is now scrambling to establish its
credentials. I accept that it is an election year and the government
has to do something about showing its sincerity in this regard. Last
night when I went back to my rooms—as no doubt most members did—I
started to go through the budget statements. Statement 1: Fiscal
strategy and budget priorities, under the heading ‘Creating
opportunities for industry’, states:
This commitment is outlined in the industry statement, Global
Integration: Changing Markets, New Opportunities, which
includes—
among other things—
$200 million over four years to expand access to the 175 per cent
research and development (R&D) tax concession, to encourage
multinational enterprises to increase the amount of R&D they perform
in Australia ...
That is welcomed, but I make the point that this highlights how the
government is now scrambling to catch up and stimulate industry to
perform R&D, with a view to generating not only productivity but
also employment in this country. One of the spin-offs of R&D is not
simply the research and development that takes place but the all
likelihood of the employment that it generates as a consequence of
undertaking R&D in this country.
There is no doubt that the provisions contained in schedule 3 of
this bill will improve the research and development tax offset,
particularly by allowing companies more time to claim the offset.
The amendment that allows all companies in a group to be covered by
the research and development tax offset provisions will be welcomed
not only by those businesses currently undertaking R&D in Australia
but also, more importantly, by those companies which are
contemplating it. Given the importance of research and development
to the longevity of a number of Australian businesses and industries
and the importance of R&D in terms of building our productive
capacity, while these changes are technical in nature, I agree they
are welcome.
The reality of our global economy is that, if we do not innovate, if
we do not invest in our future, our businesses and our industries,
we are not likely to survive in that competitive market. That is why
it is more important than ever for government to come to the table
with industry, to ensure that the arrangements in place are
sufficient to maintain Australia’s competitive position in the world
economy. While the amendments in this bill are welcome, when it
comes to R&D, one can only wonder whether they are enough.
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