Tax Laws Amendment Bill 2013


Senator Seselja:  (Australian Capital Territory) (20:44): I want to add my voice to the debate on the Tax Laws Amendment (Research and Development) Bill 2013. Australia is a country that can be proud of its heritage in research and development. Our record in innovation is strong and it is important that the government continue to invest in this field so that we can stay ahead of the curve

It is now even more important that we encourage innovation in our industry, because of some of the great advances that we have seen under this government in signing free trade agreements with China, Korea and Japan. These agreements provide excellent opportunities for our industries to expand internationally and for us to share our innovations with the region. That is why there are tax incentives for R&D, and the government supports these incentives.

 At the same time, we have the legacy of debt and deficit left by the previous Labor government. Labor's debt is already costing about $1 billion a month in net interest payments, and that is borrowed money. No country can go on paying the mortgage from the credit card. This is the cost of the former Labor government's mismanagement and waste. We all wish we had money to throw around on all sorts of things. But, thanks to Labor, we do not. So in important areas of expenditure, we need to target our spend more effectively and that is true in this space. We need to find savings where we can. This bill will amend the R&D incentive so that it still promotes innovation and rewards creativity in our industries but also ensures that these incentives go to those companies who need it. This bill will ensure the Research & Development Tax Incentive better targets small and medium-sized companies, which have been shown to respond to incentives for innovation. Originally, this bill proposed removing access to the R&D tax incentive for companies with aggregated assessable incomes of more than $20 billion for an income year. These larger companies would have been subject to normal income tax rules on their R&D expenditures, while smaller and medium-sized companies could have accessed the incentive. However, I know that crossbench senators have moved some amendments to this bill.

The Palmer United Party has proposed amendments to the bill which would delete the original measure and instead introduce a cap of $100 million on the amount of eligible R&D expenditure that companies can claim at the standard rate under the R&D tax incentive. For expenditure beyond $100 million, companies would claim a non-refundable tax offset at the corporate tax rate, which is broadly equivalent to claiming a normal deduction. Under an expenditure cap, companies—both Australian and foreign resident companies—would continue to be eligible for the R&D tax incentive and would continue to receive a substantial tax benefit. This would address crossbench concerns about the perceived discriminatory effect of the original measure on Australian resident companies. An R&D expenditure cap of $100 million would also achieve revenue gains approximately equal to the revenue gain from the original measure contained in the bill. This would ensure that the changes still play an important part in the government's budget repair job.

The crossbench amendments to the bill also include consequential amendments to the feedstock, clawback and balancing adjustment provisions. These additional amendments to the bill take account of concerns raised in consultation by the Senate Economics Legislation Committee on the Palmer United Party's draft amendments to the bill. The consequential amendments acknowledge concerns about possible unintended consequences of an R&D expenditure cap on the operation of the existing law relating to the recoupment, feedstock and balancing adjustments. In the absence of any changes to the law to address this issue, an expenditure cap could result in some companies having to adjust their previous R&D tax claims more than necessary for feedstock, recoupments or other amounts that do not qualify for a tax benefit under the R&D tax incentive. The consequential amendments therefore seek to exempt a company from a requirement to make certain adjustments to a previous R&D tax claim, where the company is affected by the expenditure cap for the income year in question.

Those amendments would also delay the start date of the measure to income years beginning on or after 1 July 2014, in order to minimise the risk of the law applying to companies retrospectively. Under the original start date of 1 July 2013, the measures would affect income years that have finished and would therefore raise the risk of companies being required to make an amended assessment. The cost to the budget of a delayed start date is $300 million over the forward estimates period in both underlying cash and fiscal balance terms. However, delaying the start date is the right course of action. If the government does not proceed with the measure, the net impact on the budget would be $1.35 billion in total over the current forward estimates. By delaying the start date, the amendments would only apply to companies lodging their tax returns from 1 July 2015 onwards. This would provide affected companies with additional time and notice to plan for the changes in the law.

The bill also makes a consequential amendment to the Industry Research and Development Act 1986, to ensure that very large companies are still able to claim their overseas R&D activities for income years in which they fall below the $20-billion threshold. This allows the tests for eligibility of R&D activities which are conducted overseas to continue to operate as intended. While it would be nice to be in a position where these amendments were not needed, the fact is that we need to have changes like this to focus our spending and to get the greatest benefit for the country from the money we are spending.

Senators on the other side of the chamber have made comments regarding this bill. They have criticised it, saying that it has only been two years since the scheme has been in place and we are making changes. But I say to that: they are changes that are effectively targeting spending, and cutting down the waste and deficit left to us by the former Labor government. We cannot sit on the sidelines and do nothing. These changes are based on targeting the spending more effectively, not only ensuring that we can continue to support research and development in Australia but also ensuring that we take account of the serious budget problems we face.

I commend the bill to the Senate.