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28 March, 2007

Productivity Commission Challenges Government on Science Funding Administration

Australia’s Productivity Commission released a report yesterday on science funding. Generally, it struck me as a fairly complacent piece of work - but who knows what constraints they are working under. The PC seems to think the paltry $6 billion we spend on science and innovation funding is adequate, mainly because it broadly matches the paltry sums spent by other OECD countries. It also seems a bit soft on the Rural R&D sectors. Of course, ‘productivity’ is all about return on investment so the PC steers clear of issues of quality and public good. In fact, it reserves its criticisms for some particular programmes and the way they are administered. So no surprises there.

One particular criticism it raised, however, did strike a chord with me. I quote from the ‘Key Points’ section:

“The net payoff from the R&D Tax Concession could be improved by allowing
only small firms access to the 125 per cent concession, changing the thresholds
for tax offsets, amending the base for the 175 per cent incremental concession
and considering a narrower, more appropriate, definition of R&D.
This should increase the amount of new R&D induced per dollar of revenue and
achieve more spillovers.” (my italics)
In other words, the system is being widely abused by industry, especially the larger corporations. From my own personal experience, I can vouch for this. I know of a major corporation where, each year, the company’s tax accountants go round and interview managers, to try to discover any work their departments may have done in the course of the year that could possibly be represented as R&D under the very broad and inclusive definition the government uses. They saw this as ‘money for nothing’. The work had been done. It would have been done anyway. But, if they could describe it in such a way as to meet the government guidelines, they could get 125% or even 175% of the cost back as a tax concession.

This was obviously ‘bending the rules’ in that it completely subverted the intention of the legislation and the tax concessions but it was also quite legal. The attitude within the company’s management was that it was up to the Tax Office to challenge the categorisation of costs as R&D spending and the accountants were quite confident that they could represent an awful lot of ordinary business expenses that way.

Sometimes I have cynically supposed that this was just another right-wing government scheme to give money to the big corporations – after all, the politicians will join their friends and relatives on their boards one day and receive their large salaries and productivity bonuses. Sometimes I even think that governments don’t care about research and innovation and are only bothered about short-term gains – preferably for themselves. After all, a 40-year concept to market cycle for ‘blue-skies’ research must have almost no meaning at all to people who think in terms of three- four- five-year terms in office, and when even a hugely successful party can expect two or three consecutive terms at most.

But that’s just me. I’m sure the government will tighten up the R&D Tax Concession rules now that the PC has raised the matter of this ongoing swindle and it has received comment from far and wide.

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