Beverley Head
June 6, 2018

ACCI: Tax cuts drive innovation

The Establishment

ACCI: Tax cuts drive innovation

James Pearson: Proposed tax cuts will improve innovation outcomes in Australia

The most effective way to stimulate innovation investment is through corporate tax cuts according to Australian Chamber of Commerce and Industry chief executive, James Pearson.

“We need to be sending a signal to business through the tax system that it is welcome here to invest and take risks,” says Mr Pearson.

“It’s why we are such strong supporters of a cut in the business tax rate across the board. We see that as letting companies keep more of the money they make, and let them rather than government make the decisions about where to invest that money, including on innovation.”

The Business Council of Australia has also been a strong supporter of business tax cuts, although its lobbying focus is on behalf of the big end of town.

The BCA argued that a tax cut would allow business to pay workers more, which in turn would fuel consumption and national economic growth. This is despite its own polling showing that fewer than one in five of its members would actually use the tax cuts to increase wages.

So how confident is Mr Pearson that innovation would really be an investment focus for the 300,000 businesses his organisation champions, if corporate tax cuts are delivered? What would stop businesses from pocketing the cash?

“We are great believers in the market being as open as possible and the economy being as open as possible to allow individual firms to make those decisions themselves, including where best to invest in innovation,” says Mr Pearson.

“I’m confident individual businesses will make a decision in the best interest of keeping their firms competitive or making their firms more competitive and in many cases that will mean putting money into innovation.”

He’s less confident that business can rely on the R&D tax incentive as an innovation spur, saying that the government’s innovation report card is “mixed”.

“On the one hand policy makers understand the need to encourage and stimulate research and development, and so the investment that government makes available for R&D is welcome,” Mr Pearson said.

“On the other hand, in the most recent budget, the government approach on R&D grants seemed to be as much about stamping out tax rorts as about sending a bright green light for people to invest more money in R&D.”

He also stresses the “need to recognise that innovation comes in many forms. We think about startups and software and bright shiny technologies with venture capital in the mix. But often innovation is a day to day thing and happening in a lot of areas - becoming more innovative in management of your people, more innovative in financing.”

Big companies can also “literally purchase innovation by buying smaller companies that have invented a new product, invented a new technology or way of doing things.

“They buy them out to buy their IP (intellectual property) and people and seek to monetise it on a much bigger scale that smaller business might have been able to do.”

While Mr Pearson is clear that he wants the corporate tax cuts introduced, he’s quite comfortable with the Government going after technology giants which it believes are paying too little tax.

“The Australian Chamber has long called for a wholesale review of the tax and transfer system. This includes assessing the tax criteria for offshore service and product suppliers, and their compliance.

“Every international and local business that operates in Australia, just like every individual tax payer, should meet their tax obligations.”

ACCI is the peak body for the Chambers of Commerce in every state and territory, as well as 70 industry associations across the country specific to industry sectors and the waterfront.

“We are very much about influencing governments at the national level, parliamentarians and cross bench senators to get policy settings right to encourage innovation.

“We concentrate very much on trying to make Australia the best place in the world to do business and that’s going to be the best place in the world for business to innovate as well as hire the people it needs and compete and be agile,” says Mr Pearson.

“What our members are telling us is that increasingly, no matter what industry they are in, they are facing more direct competition from overseas. The Internet is a wonderful invention that has brought the world to our door, which is a great thing but a scary thing too.

“Local businesses are now competing with overseas providers in a way they never have before and if they don’t innovate they will struggle to survive let alone thrive.”

Besides its push for lower corporate taxes and cheaper energy as a business input, ACCI is concerned about skills and training.

According to Mr Pearson; “The evidence is that progressive Australian governments have actually presided over a very steep decline in the number of apprentices – these are the skilled young Australians and later career people that with that training are coming up with the new and innovative ways of doing things that we need in order to ride the next wave of innovation.

“And if we are not training them locally, then we need to bring them in from overseas.

“When we make it harder to bring in smart people – and that’s a path we are resisting from some parts of the trade union movement for example – then we are basically saying we don’t want the very best people.

“[We are saying that] we are prepared to let that brain power stay in another country where it will come up with innovative ideas and solutions that may well spell the end of an Australian business, even an industry.”

And he believes there is an urgent need for rapid reform.

“Australia used to be in the top ten of the world’s most competitive economies. Now we have fallen to around 22nd and we are heading in the wrong direction.

“If we can lift that, we will attract more capital and talent from overseas and bring that together with our people and talent. That’s where you get ideas, where you get innovation.”

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