Opinion: The federal government's R&D Tax Credits bill is wrong for Australia

Australians understand that innovation is an essential driver of the country’s knowledge and growth. They also recognise that research and development (R&D) activity within Australian firms assumes a crucial place in that process – through its contribution to the generation of new information, products, services and employment opportunities.

As Shadow Minister for Innovation, I passionately share those beliefs. Like my colleagues in the Coalition, I also maintain that governments should always aim to foster conditions that encourage enterprise and stimulate new discoveries and advances.

So why is it that the Coalition disagrees with the Government’s plans to supposedly enhance the R&D tax regime in Australia?

Put simply, it’s because we believe their legislation will actually do the very opposite. Indeed, we are convinced that it will not improve the existing R&D regime. These views are also shared by the majority of the individuals and groups who have formally lodged submissions on the Government’s proposals and the majority of the witnesses who have appeared at Senate Committee hearings on the issue.

It’s also worth noting that Labor has repeatedly failed to answer our requests for modelling of the impact of their changes. Naturally, the lack of any such response has intensified a number of our concerns – including that not enough time or information about the changes has been provided to businesses. (If a Government wishes to radically overhaul arrangements that have been in operation for a quarter of a century, then in our view it must give the affected firms an appropriate opportunity to understand and adjust.)

By refusing to answer our questions, Labor has also forced us to turn to independent advice and modelling. This has repeatedly demonstrated that the legislation’s impact will be punitive and has utterly undermined the Government’s central claim that SMEs will be advantaged. Moreover, it has become abundantly clear to us that an enormous number of businesses across the economy (whether large, medium or small) actually stand to lose substantially.

Clearly, these are not outcomes that we support. And this is why we have continued to oppose changes such as the revisions to the definitions of ‘core’ and ‘supporting’ R&D; the establishment of the ‘dominant purpose’ test; the introduction of feedstock provisions that give greater reward to R&D failures than successes; and the significant increases in red tape for businesses seeking to make use of the scheme.

We also believe there are a range of unintended consequences of the legislation that are neither widely nor well understood. Just as one example, Labor’s changes will immediately halt government support for R&D activity within the Australian building sector. Plainly, this will represent a devastating blow to an industry within Australia that is already widely perceived as a world leader in R&D related to design and construction.

The new eligibility requirements will also have a crippling impact on the Australian manufacturing industry as a whole. This is a development that could hardly be more poorly timed, given the sector is already battling the combined effect of rising interest rates, a high Australian dollar, and the loss of over 73,000 jobs over the past three years. And all of this is before we even tackle the Government’s desire to make the changes retrospective – a move rarely broached, for a range of sound and practical reasons, when it comes to taxation law.

Of course, we recognise that some of Australian Life Scientist’s readers won’t agree with all of the Coalition’s assessments. And we certainly appreciate and respect life scientists’ desire to urgently receive greater public support and encouragement, especially in the wake of the Government’s track record in slashing funding for commercialisation activities for much of its time in office.

However, we take the view that any changes to R&D tax arrangements should be geared to delivering incentives that have the widest possible application. We don’t approve of an outcome that will benefit a fraction of firms at the expense of the overwhelming majority. As a basic statement of principle, it is also hard to support proposals for change where the alleged benefits across the whole economy have never been demonstrated.

Support for business R&D is too important a pillar of innovation to be substantially reduced. It’s not good enough to proclaim that the rates of assistance will be higher, while failing to acknowledge that the number of businesses who receive support will be cut.

It’s illogical to say that you’re determined to keep building on the marked increases in R&D spending in recent years, but then seek to radically dismantle the structure that helped lead to those advances.

It's contradictory to talk about introducing a simpler and more predictable scheme while imposing unnecessary administrative and compliance costs and failing to adequately educate businesses about the changes. And, while it’s important to acknowledge the merit in encouraging more blue sky research, this can’t be done at the expense of wiping out support for other forms of R&D overnight.

Increased innovation is clearly crucial to Australia’s future economic success. However, it won’t be achieved by cannibalising a support mechanism that is integral in assisting a diversity of companies to improve their business operations.

Instead, we must ensure that our laws encourage the most effective distribution and uptake of incentives for investment in innovation. Ultimately, this is the best and most logical way to guarantee that the benefits can be passed on not only to life scientists, but also to your colleagues in a variety of other industries.

By Sophie Mirabella, Shadow Minister for Innovation, Industry, Science and Research.