The way intellectual property (IP) is taxed must change if Australia wants to stop losing significant business activity and revenue offshore, the AAMC has said ahead of Tuesday’s federal budget.
“The AAMC is keen to see a greater focus on research and development in this Budget – and a recognition that this country’s future competitiveness depends on higher value and knowledge-rich industries,” the Chairman of the AAMC, Mr John Pollaers, said.
“Research and development activities – and the manufacturing and consequent employment and wealth creation that is associated with this – are being lost to other advanced economies,” Mr Pollaers said.
“Our submission to the Government advocates an “innovation incentive” to stem the loss of IP offshore.
“We need to also strengthen our world-class industry-focused research, and ensure our tax treatment of R & D expenditures reflects a 21st century understanding of global business,” he said.
The AAMC’s submission to the 2015-16 Budget says the recent decision to place a $100 million cap on the claimable R & D expenditures of companies – coupled with suggestions that further cuts are imminent – “must be regarded as a significant backward step.”
“Australia is not competitive globally when it comes to the treatment of IP,” Mr Pollaers said. “This must be addressed.”
“Companies are not being offered appropriate incentives to licence their IP here. As a result, a number are choosing to locate their IP offshore, with the manufacturing – and the research and development associated with it – inevitably going the same way.
“The tax regime in Australia must be designed to attract and encourage advanced industries, rather than acting as a disincentive for the maintenance of these industries,” Mr Pollaers said.
The AAMC argues that tax reform in Australia needs to take into account globalisation, trade liberalisation and highly competitive global supply chains.
“Other advanced countries are attributing a higher value to knowledge industries than Australia. The opportunity cost is significant – and growing,” Mr Pollaers said.
• The AAMC submission calls on the Government to 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.
The submission also says:
• The government’s recent decision to place a $100 million cap on the R&D expenditure that companies can claim as a tax deduction – coupled with suggestions of further cuts – is a significant backward step.
• IP should be recognised as a depreciable asset, whether it is developed internally or acquired. Goodwill and trademarks should be included in these definitions, in line with a majority of OECD countries.
Education and Skills
• STEM (Science, Technology, Engineering and Mathematics) skills should be enhanced by greater collaborations between government and industry.
• The AAMC urges the government to enhance and incentivise public private partnerships between employers, business associations, and TAFE colleges and other not-for-profit training institutions.
• Aligned with this is the necessity to improve the image of apprenticeships to encourage high quality candidates to seek employment in manufacturing.
• The AAMC strongly supports the Government’s Industry Growth Centre (IGC) program and urges it to re-direct a portion of ARC funds to the IGCs to ensure their success.
• According to the submission: “No new money is needed, but a re-ordering of research priorities is urgently required.”
• The CSIRO has contributed strongly to Australia’s economic well-being for almost a century, and has been at the forefront of a number of major discoveries and successful company spin-offs.
• CSIRO has undergone a series of highly disruptive restructures in recent times. The AAMC strongly urges that CSIRO’s budget, at the very least, be maintained at current levels.
Government processes/ cutting red tape
• The AAMC welcomes significant advances in cutting red tape and has urged the Government to decrease the regulatory burden further, particularly in the areas of Privacy Law and reporting obligations.
Read the full AAMC Federal Budget submission here