The Australian Advanced Manufacturing Council (AAMC) is calling on the Productivity Commission to undertake a comprehensive analysis of Australia’s global competitiveness in attracting and maintaining advanced manufacturing.
In releasing the AAMC response to the Federal Government’s tax review, AAMC Chairman, Mr John Pollaers, said Australia’s tax regime needs redesign with the industries of the future in mind.
“It needs to attract and encourage advanced industries, rather than act as a disincentive for the establishment and maintenance of these industries,” he said.
“Advanced manufacturing relies on intellectual property (IP) as its key asset and yet the tax system is still designed around the assets of old manufacturing – plant and machinery.
“In our estimation, a significant amount of tax revenue is being lost through IP that is developed by Australian individuals and companies moving offshore.
These are IP investments that could very easily have been located here,” he said.
“We must know exactly where Australia stands in comparison to the world, in terms of encouraging and maintaining new investments in knowledge-rich industries,” he said.
“The key driver for both growth and productivity in the manufacturing sector is innovation,’ Mr Pollaers said.
“The Productivity Commission therefore needs to look closely at all the elements of the innovation “ecosystem” and understand how Australia compares to the rest of the world – and what must be adjusted to provide us with comparative advantages.
“Global competition for IP is robust, to say the least,” Mr Pollaers said.
The AAMC submission highlights that Australia is comparatively unattractive in terms of research and development (R & D) tax concessions and innovation incentives.
Several competitor countries in the Asian region, namely, Japan, New Zealand, Singapore and South Korea. are aggressively expanding their R & D incentive schemes, while Australia has to date failed to do so.
“The moment we accept that IP ownership and licensing control of our best research efforts is expendable, we lose the most valuable aspect of our creations,” the submissions states.
“We lose jobs and business opportunities for suppliers. We also create the perfect conditions for tax leakage,” the submission states.
“Policies must provide strong impetus for business R&D, particularly collaborative R&D, to bring the best of the national innovation system together to address productivity challenges.”
Among its recommendations, the AAMC calls on the Government to double the R & D tax incentive for R & D conducted with an approved research institution.
Current measures for collaboration are not driving the right behaviors and outcomes, the submission states.
A doubling of the R & D tax concession would aim “to effect a step change in collaboration between business and publicly funded researchers”.
The submission also calls for an innovation incentive which would effectively provide a reduced corporate tax rate on incremental income from qualifying activities, as a way of extending Australia’s value proposition to knowledge-rich business. Companies would need to submit detailed plans for expanding advanced manufacturing activities in Australia.
SUMMARY OF AAMC RECOMMENDATIONS
1. Encourage industry-research collaboration through tax reform
In order to effect a step change in collaboration between business and publicly funded researchers, double the R & D tax incentive for R & D that is done in collaboration with an approved Australian Research Institute or university.
2. Support mechanisms that encourage more R & D
Immediately remove the $100 million cap on the R & D expenditures that companies can claim as tax deductions, and immediately withdraw proposals to reduce R & D tax offsets.
3. Stem the loss of Australian innovation and IP overseas
Introduce an Innovation incentive scheme to attract and maintain high value manufacturing in Australia.
This innovation incentive would effectively provide a reduced corporate tax rate on incremental income from qualifying activities. Applicants would be required to submit plans for substantive commitments in manufacturing or for expanding knowledge-rich activities or capabilities in Australia.
4. Encourage investment in new plant and equipment
Expand the application of Federal Government rules of accelerated depreciation. Give a taxpayer the option of claiming accelerated allowances as an alternative form of tax depreciation, as follows:
1. Allow all plant and machinery, except motorcycles, cars and light goods vehicles (weighing 3 tons or less), to be written off at 33.3 per cent over three years.
2. Grant a 100 per cent accelerated depreciation allowance in the first year for capital expenditure incurred on the following:
– the purchase of selected new machines, equipment or systems that demonstrably improve productivity and efficiency than similar ones currently used
– the installation of engineering control measures for existing machines, equipment or processes, with the primary objective to improve productivity and efficiency
– the purchase of selected new equipment or systems that do not pose a significant chemical or environmental risk
– the installation of engineering control measures for existing machines, equipment or processes to minimise chemical and environmental risk
– certified energy saving or energy efficient equipment
– efficient pollution control equipment or device
– computers, robots, computer-aided machines and most other electronic equipment
Caps to be determined through consultation with industry. Current anti-avoidance provisions within the Act are considered adequate.
5. Follow international accounting practice for IP tax treatment
Recognise Intellectual Property as a depreciable asset, whether it is developed internally or acquired. Include goodwill and trademarks in these definitions. Adopt international accounting practice and allow IP amortisation expenses for tax purposes.
- When it comes to converting research dollars into innovation and commercial success, Australia ranks poorly – coming in at 116th out of 142 countries
- Australia ranks last place out of 33 countries in the OECD for collaboration (OECD, 2013)
- At the same time, Australians rank highly as “problem-solvers”. The OECD Skills Outlook report in 2013 rated Australia equal first with Norway and ahead of Japan, Germany, the UK, the USA and South Korea on complex problem solving measures.