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Encouraging R&D - forget about it!

By Mark S. Lawson - posted Monday, 27 August 2007


So how do we get a Saab or an Ericsson? The answer is with difficulty, but certainly not by forcing matters, and probably not in well established industries. Ericsson was founded not long after Alexander Graham Bell invented telephones and Saab started in the 1930s as a supplier of airplanes to the Swedish military. Australia’s own Commonwealth Aircraft Corporation started not long after Saab, incidentally, and although it made trainer aircraft in the 1940s and helicopters under licence in the 1970s, and still makes aircraft components (the company has long been foreign owned) it never kicked off in the same way as Saab.

There is no one answer as to why Saab worked and CAC did not, but Sweden already had a well established armaments industry, with designers and skilled technicians to hand, not to mention ready customers (Europe) near by. In contrast, Australia’s natural advantages, and opportunities were in mining, and farming, so that is where the capital and talent went.

Mining is no longer the brave new world that it was, and farms hardly require anyone to run them, so there is hope yet. However, AussieSaab is unlikely to mushroom out of an established company - it has to come from left field - so there would seem to be little point in boosting research through concessions given mainly to well established companies.

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This is mostly what the major, existing tax concessions for research and development do. Taxpaying companies can claim 125 per cent of money spent on R&D, with that concession representing about 60 per cent of the $420 million foregone in various tax programs designed to encourage innovation.

Another program that is unlikely to bring forth a down under Saab or Microsoft is a 175 per cent premium tax concession, granted by the Government for a company that makes a greater than usual effort in R&D. There is also a R&D tax offset for small companies and a grant program, listed along with the tax concessions, called the Commercial Ready program.

The Department of Industry Tourism and Resources recently produced a weighty report How R&D Assistance Influences Company Behaviour which found, through surveys, that the concessions helped business by permitting them to speed up product development and giving projects a larger budget.

All worthy results but, I suspect, in the end of little use. R&D is a serious business and if private companies have to be pushed into action on this front, or take tax into account in making the decision to invest in R&D, then they are probably on the way out anyway.

In any case, apart from the potentially useful tax offset and commercial ready program, the concessions simply permit established companies to avoid some of their tax. Best to give everyone a tax cut and hope that someone out there intends to start AussieSaab.

Post script. As this article was in the process of being put up on On Line Opinion's site, the Australian Bureau of Statistics released a new set of figures for private spending on research and development. These figures indicate that spending on R&D has been increasing at a rate of 12 per cent a year. That is nice but there are several possibilities. One is that the various tax concessions available have made businesses more willing to declare spending on R&D, another is that R&D spending is rising world wide, and yet another is that the structure or composition of Australian industry is changing. Or perhaps all three. The figures mean little by themselves.

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About the Author

Mark Lawson is a senior journalist at the Australian Financial Review. He has written The Zen of Being Grumpy (Connor Court).

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