You’d think the Federal Government would pull out all stops to promote research and development (R&D) in Australia.
For starters, the nation’s productivity levels are at record lows.
As Treasury’s 2010 Intergenerational Report notes, Australia’s productivity performance has slowed to 1.4 percent in the past decade compared with 2.1 percent in the 1990s.
Then there’s the looming ‘baby bust’ that will soon see more Baby Boomers leaving the workforce than Gen Ys entering the labour market. It’s sobering to note that in just five years, Australia’s natural net population growth will peak – coffins will outnumber cradles. This will place huge pressure on the labour force to work smarter.
With dependency ratios (the number of taxpayers to retirees) rising sharply due to a 43 percent decline in net labour market growth rates, it’s crucial the nation lifts its productivity.
A rational R&D framework, along with sensible immigration levels, higher participation rates, skills development and a more robust retirement savings regime are all critical.
The Federal Government has responded by acting on the recommendations of the Cutler report, Venturous Australia – building strength in innovation. Many of the proposed changes are well targeted and positive.
However, they also contain a bitter pill.
Legislation currently before the Senate looks like blocking the property sector from utilising R&D tax concessions to improve construction sector productivity.
The Government swears black and blue that the Property Council and its advisors have got it wrong.
Kim Carr, the Industry Minister, has provided multiple assurances that the R&D incentive will still apply to the development sector in the same manner as in the past.
The CFMEU has also gone into bat and received similar assurances.
However, the legislation is crystal clear. Under the new rules, the building exclusion denies incentives for (at ss 355-225(1)):
(a) Expenditure incurred to acquire or construct:
(i) a building or a part of a building; or
(ii) an extension, alteration or improvement to a
building.
The Assistant Treasurer’s second reading speech says that:
“Companies experimenting with innovative construction techniques in the course of actual construction will continue to be eligible for non-building R&D activities such as research, consulting, conceptual design and other testing not physically incorporated into the final building.”
Weirdly, this means a property developer can conduct legitimate offsite R&D on (say) a building’s superstructure and receive the incentive, but the incentive will be denied if the R&D is conducted on-site as a part of the building’s construction.
In other words, developers can claim construction R&D as long as they don’t install or utilise that innovative technology.
The Bill’s explanatory memorandum provides examples that show R&D can be claimed on path-breaking, in situ bridge construction techniques, so why not building technologies? Why the discrimination?
The Property Council understands that the R&D allowance should not be claimed for mainstream construction – the so called ‘dominant purpose test’.
We get that the incentive should only apply to investment in experimental technological solutions and practices. Nevertheless, unlike a widget, innovative design, manufacturing and construction techniques require real world in situ stress testing to prove utility and safety. It make no sense to dismantle a structure that works in order to qualify for the incentive.
The irony is that rapid adoption of innovative practices is one of the great challenges of R&D regimes. Yet the property sector gets pinged when its technological breakthroughs prove their worth. Several of Australia’s most iconic (and greenest) buildings have been designed and erected with vital on-site construction R&D.
At 92 storeys and 300 metres, Melbourne’s Eureka Tower is one of Australia’s tallest. It could not have been built without on-site R&D to develop and test super strong concrete and unique liquid damper tanks that stop the building swaying and collapsing under its own weight.
The Soleil Tower in Brisbane is one of the world’s most slender buildings. With a 1500sqm base and 77 storeys, it is the architectural equivalent of standing a pencil on its end. The existing R&D regime allowed this multi-unit residential project (with an aspect ratio of 14:1 versus the more typical 8:1) to develop and test an ultra-strong superstructure to withstand wind loads.
The design concept for Melbourne’s Rectangular Stadium is a brilliant example of Australian innovation.
The bio-frame roof is designed to provide more interior space while using significantly less materials, which ensures better sun and airflow than conventional designs. The bio-frame could not be built without significant on-site R&D to develop and test a lightweight structure that uses half the steel of a typical roof.
Melbourne’s carbon neutral Pixel building is a textbook example of world-class R&D. Indeed, Pixel scored the highest environmental rating ever given by the Green Building Council.
However, the incentive to proceed with these exemplars of technological innovation would not be possible under the new R&D rules.
The Property Council has given the Government legislative solutions that will totally preserve the integrity of its new R&D rules, while fostering bona fide innovation in the property sector.
The Coalition supports our proposals. As with so many issues, unless the Federal Government’s position shifts, The Greens will decide the fate of this measure post July 1.
Peter Verwer |
Friday, 1 July 2011 9:32 AM |
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