Tax break with big benefits

By SIMON COLLINS

Australia is expecting increased investment from multinational companies after last week's decision to offer a 175 per cent tax break for new research and development.

Professor Ron Johnston, the executive director of the Australian Centre for Innovation and International Competitiveness, based at Sydney University, said yesterday that the new tax break had huge psychological value, even though it was so hedged around with conditions that it is not expected to cost the Australian Government much money.

"I think the 175 per cent might work well to attract foreign firms. It will increase the level of R&D," he said.

"Part of the global competition is to attract major multinationals to put some of their R&D there ... We think we are competing against Singapore in our region for research dollars."

Professor Johnston, who is in Wellington as a keynote speaker at the world research and development management conference, said New Zealand would not necessarily have to spend a lot of money to change attitudes at home and internationally.

Australia's 175 per cent tax concession is available only for the labour content of R&D that is additional to average spending over the previous five years.

It will cost the Government an extra $A30 million ($37 million) by 2005-06, on top of the $A553 million cost of the existing 125 per cent concession for all R&D, which will continue.

"What is significant is that Government and Opposition have now introduced into the political language 'innovation' and 'research and technology' being crucial to the economy," Professor Johnston said.

"That sort of understanding is now entering into public thinking.

"It has been a whole-of-government approach as well as being driven by the Prime Minister. That strong signal from the Government, and building much stronger cooperation, may produce the biggest returns - and dollars sweeten it."

Professor Johnston said Australia's complete $A3 billion 'innovation package' would add only 13 per cent to existing Government innovation spending by 2005-06. In the first year the increase was only 3.5 per cent.

A former head of the NZ Foundation for Research, Science and Technology who now manages a high-tech incubator in Brisbane, Dr Laurie Hammond, estimated that the package would eventually increase public-sector R&D spending by about 0.1 per cent of gross domestic product, and could stimulate a 0.2 per cent increase in the share of private-sector research in GDP.

Professor Johnston said the innovation package would keep highly qualified workers in Australia.

"What we are seeing now increasingly is that positioning in this research and technology market is generating higher returns ... To be a player in the knowledge economy, and to get benefit from it, you need to have a substantial level of capability.

"One argument is that, given the competition is for bright people, creating the research in which people will want to stay and work in Australia provides enormous returns to the economy - just as the Australian economy benefits enormously from the New Zealanders who want to come and work there."