Opinion: Kim Carr on the opposition’s ‘half truths, exaggerations and blatant misrepresentations’ on R&D tax reform

It appears the Government and Opposition agree. Research and development (R&D) is fundamental to business growth and to Australia’s long term prosperity. Agreement ends at this point. We disagree on how we can get the ‘biggest bang’ out of the $1.6 billion the Government invests every year to enhance Australia’s productivity through the existing R&D tax concession. The Opposition are saying that things are working just fine. They say there is no need for change and that the Government’s plans will lead to the sky falling in. They are defending the status quo but doing it by frantically chipping away at the Government’s reform agenda with half truths, exaggerations and blatant misrepresentations. For some arguments they are relying on an earlier draft of the legislation; at worst, they are being deliberately obstructionist. The Government wants to encourage R&D and believes the current arrangements can – and should – be improved. We want a better return on the public’s investment in R&D. We want to encourage more R&D and we want to encourage R&D that is genuine. To do this we want to make the R&D tax incentive available to more firms – especially small and medium sized firms (SMEs) who face greater capital constraints and who are more responsive to fiscal incentives. At present there are two million businesses in Australia, but only 8,500 benefit from the existing R&D concession. And of these, just 100 firms take more than 60 per cent of the benefit. This hardly constitutes across the board take up. Claims that the proposed changes will concentrate support to an even smaller number of firms are mischievous and wrong. They will do the opposite. Let’s sort out the facts from the fiction. There are two key components to the R&D Tax Credit: • Small and medium enterprises (companies with an aggregated turnover of less than $20 million) will receive a 45 per cent refundable credit. “Refundable” means that where a company is in a tax loss situation, it can receive a cash refund. • All other firms will receive a 40 per cent non-refundable tax credit. Companies accessing the non-refundable tax credit can carry forward any unused offset amounts to reduce future tax liabilities. The 45 per cent refundable tax credit doubles the base rate available to SMEs under the existing R&D Tax Concession. And the 40 per cent non-refundable tax credit raises the base R&D tax incentive for larger firms by a third. It is imperative that we eliminate the incidence of inappropriate R&D claims and put the emphasis back on supporting genuine R&D. This focus on genuine R&D is something even some in the Opposition concede is long overdue. The current definition permits some companies to use taxpayer dollars to subsidise business-as-usual activities rather than genuine R&D. Unworthy claims undermine the entire system. Not to act would be irresponsible. So, in order to better target R&D support and deliver value for money for taxpayers we have strengthened the definitions used. The new eligible core R&D activities will include those that experiment with applying existing knowledge to the creation of new or improved materials, products, devices, processes or services. And the new definitions include both research and development. Suggestions that development will be excluded are simply incorrect. ‘Factory floor’ R&D is included in the definition of R&D. The notion that production trials will be excluded is a blatant distortion. What the new definitions do is exclude normal production activities that should never have been eligible. In addition to clarifying what constitutes R&D these measures will add clarity and actually reduce – not increase - compliance costs. As for the suggestion that business does not like the changes – I can only say that we have consulted widely and we have responded to concerns. There is no business revolt. Inevitably, all reforms will encounter some resistance from vested and powerful interests. But what we are doing makes sense, it is in the national interest and we are not about to lose our nerve. R&D is critical to Australia’s future. Everyone agrees on that. We need to take our ideas, our enthusiasm and our expertise and convert them into commercial products that generate national income and raise our standard of living.

All Australians have an interest in having the best possible arrangements in place to foster R&D and hence improve our productivity.

To achieve this, the Government wants to provide more support to more firms, especially SMEs, and we want to put the focus back on genuine R&D.

This will result in more and better R&D. It will deliver a bigger bang for the taxpayers’ buck. And this will be good for business and good for Australia.

To some it might appear to be smart politics to constantly obstruct the Government’s plans – but it certainly isn’t good policy or good for the country.

By Senator Kim Carr, Federal Minister for Innovation, Industry, Science and Research