The government’s new patent box scheme risks being a “knee-jerk reaction to embrace a new concept” that provides a tax break to big firms and little benefit to the wider society, according to shadow industry minister Ed Husic.
In a speech in the Federation Chamber on Tuesday evening, Mr Husic also blasted the government’s $1.5 billion Modern Manufacturing Strategy as a “complete mess” with no central theme or long-term plan.
In the May federal budget, the government unveiled plans for a limited patent box scheme, to be launched from the next financial year. The scheme will provide tax breaks for medical and biotech innovations, at a cost of $100 million annually.
Under the patent box program, corporate income derived from these patents would be taxed at an effective corporate tax rate of 17 per cent, down from 30 per cent for large businesses and 25 per cent for SMEs.
The Coalition has been considering such a scheme since 2015, when it tasked the Chief Economist with investigating it. The final report back to government was lukewarm on the scheme though, finding it would lead to a large decrease in tax revenues and not a corresponding increase in incentive to invest in research.
Treasurer Josh Frydenberg then again floated the scheme in 2019, before announcing a restricted version of it last month.
“We want to see more innovation commercialised in Australia. Australia’s effective management of COVID makes us an even more attractive place for the best and brightest from around the world,” Mr Frydenberg said in his budget night speech.
Speaking in Parliament, Mr Husic pointed to this timeline, and said that patent box schemes have been in place around the world since the early 1970s.
“These patent boxes are not an idea that the government has come up with on its own. The big innovators have come up with stealing someone else’s idea,” Mr Husic said.
Mr Husic said that evidence of the effectiveness of patent boxes across the world is chequered, and there’s no guarantee it would foster innovation in Australia.
A European Commission report in 2015 on the impact of patent boxes on 2000 companies in 12 countries from 2000 to 2011 found that the scheme benefitted these companies financially but had a limited effect on improving local R&D capability.
“So would it run any differently in Australia? We’ll wait and see what the government says, but so far it looks like the patent box is a great innovation for company products and does not do very much in terms of innovative output. We have to see what’s going to happen there,” Mr Husic said.
The long road to launching a patent box scheme is the “speed of action by the Coalition” in terms of innovation policies, Mr Husic said.
“Like bowerbirds they collect an idea here and there. Then they just put it all together and think it’s all going to work. Mash it all together and somehow it will deliver for the country. That is not the way that legitimate innovation policy should run,” he said.
“It shouldn’t be that the latest shiny thing is the thing you put on top of the pile. They should have a way in which they will genuinely work it through, because the jury is still out on the validity of these as a concept. I have a genuinely open mind. If there is a benefit out of this we should look at it.”
It is crucial that the patent box provides substantial benefit to the wider Australian economy and its R&D outputs, rather than just reducing tax bills for corporations, he said.
“This cannot simply be a method to reduce a tax bill. It is to have legitimate R&D outcomes that benefit the country. The Coalition does not have an organised approach to innovation in this country,” Mr Husic said.
“It basically runs from idea to idea and then drops the last one that didn’t work. I don’t have a problem if ideas don’t work and you want to find something to improve, but there is no coherent thread through the work they do.”
Mr Husic pointed to recent funding uncertainty around the industry growth centres, and said this would be a better use of the Commonwealth funds.
“This is the type of stuff we should be seeing money go into, rather than a quick knee-jerk reaction to embrace a new concept that is just basically – for example, patent boxes on the face of it look like a way to reduce someone’s tax bill rather than create longer-term, value-added innovation activity and we’re not seeing it,” he said.
The shadow industry minister also said the government’s flagship $1.5 billion modern manufacturing plan is a “mess of a strategy”.
“It’s a complete mess. It is only designed for them to be able to say that they’re doing something about manufacturing…There is nothing at the core of this government that talks about what they will do to genuinely establish manufacturing in this country in terms of its renaissance and its longer-term variability,” Mr Husic said.
“They believe in manufacturing as a prop, as a slogan or as something to get them out of trouble, but they don’t believe in it genuinely. Their heart is not in it.”
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