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ABC News
3 days ago
- Business
- ABC News
Tax big businesses that don't invest in new technology, science body argues
Billions of dollars in incentives to get Australian businesses to invest in innovation have not shifted a low level of research and development (R&D). Having tried a carrot, one of the nation's top scientific bodies wants to try the stick: whacking big business with a levy if they don't invest a minimum amount in R&D. 'Research and development underinvestment by both government and business had been long term and is now intolerable," said Anna-Maria Arabia, chief executive at the Australian Academy of Science. As the government searches for ideas to boost the nation's flagging productivity and economic growth, the Australian Academy of Science is calling for a rebatable levy on businesses with annual revenue of more than $100 million. The idea is to force them to spend up on R&D — say 0.25 per cent or 0.5 per cent of their revenue — or cop a levy equal to that, with the money invested by the government in innovation. The academy is arguing that a massive boost in research and development is needed to boost productivity. "It's not just me saying it, it's the Treasury, it's the Productivity Commission," said Ms Arabia, who blasted the complacency of Australian businesses. And it is not just them either. The Lowy Institute's Jenny Gordon was chief economist at the Department of Foreign Affairs and Trade (DFAT) and supports the push to fund R&D more effectively. "I don't know whether I'd call it a stick, I mean, you could also call it an incentive scheme," she said. "This is an alternative way to say, 'Well, we need to raise funding, reliable funding for R&D'. So that is not at the whim of government and whatever the budget decides to allocate. Australia spends vastly less than similar nations on R&D. In 2023, the Productivity Commission wrote that Australian businesses were not "keeping pace" with innovation. Prior to the pandemic, the Harvard Growth Lab Atlas of Economic Complexity ranked Australia 93rd in terms of the complexity of its economy. At the time that was lagging Kazakhstan, Uganda and Senegal, and only just ahead of Pakistan and Mali. The academy, an organisation representing Australia's top research scientists, argues sustained underinvestment by the business sector means there is now a gap of $32.5 billion when compared with the OCED average (we spend 0.89 per cent of GDP, less than half the OECD average of 1.99 per cent). It is proposing the levy to push business to go harder on innovation: to secure the future of Australian business. "Our back is up against a wall now," Ms Arabia said. Professor Roy Green knows about the benefits of innovation, as a special innovation advisor at the University of Technology Sydney and on the board of the Commonwealth Scientific and Industrial Research Organisation (CSIRO). He believes Australian business has been coasting on the research done by tertiary institutions and government. What that means now, he says, is that we "have very poor productivity performance that the government is now trying to address … largely because of our failing research and development support system". The amount spent on R&D has fallen in all sectors: universities, public institutions and private businesses. "Public R&D barely makes a dent," Professor Green said. "And that's combined with a massive fall in business expenditure in R&D. The only institutions that are holding it up are universities, and that's only because of increased funding from overseas students — which we've just cut." Levies to push business to take up beneficial activities — such as the training guarantee in the 1990s — show it can be done, he added. The government's looming Economic Reform Roundtable will bring together business groups, unions, community sector representatives and experts in Canberra next month. Ahead of the event, groups like the academy are making suggestions for changes they would like to see, and submissions on what they see as key issues. The submission from the Australian Chamber of Commerce and Industry (ACCI) was released before the suggestion by the academy to put a levy on business, and so does not include a response to it. What it does do is note how much we lag other nations and make suggestions for how to fix that. "This underperformance is closely tied to broader issues in the business environment, including weak private investment and an outdated tax and regulatory framework that discourages innovation," the ACCI submission noted. ACCI wants to see a long-term policy commitment and a clear strategy from Commonwealth and state governments. Among its recommendations are "refundable tax credits, direct grants, and concessional financing options" for small to medium-sized businesses and "stage-specific, low-interest government loans to support business R&D investment". Earlier this year, another business lobby group, the Australian Industry Group (Ai Group), welcomed a government discussion paper on R&D. "We must fundamentally re-imagine Australia's R&D strategy as a dynamic, responsive system that recognises industry isn't just a vehicle for commercialising R&D developed elsewhere," Ai Group chief executive Innes Willox said at the time. "To put it simply, the current system is not working in Australia's interests." The group reiterated what the paper suggested, that R&D-intensive businesses demonstrate stronger jobs growth and resilience in uncertain times. "R&D investment is not merely an academic exercise but a crucial driver of national prosperity," Mr Willox said, calling for a radical push to boost the field. "Everything must be on the table. There can be no sacred cows. "Simply calling for R&D spending to reach 3 per cent of GDP [gross domestic product] isn't enough. As a start, we must address fundamental issues around commercialising public sector research and how to strengthen industry-research collaboration." As the roundtable approaches and more big ideas are thrown out, the future structure of R&D could be undergoing development of its own.
The Diplomat
4 days ago
- Business
- The Diplomat
Trump's Trade Deal With Indonesia, Explained
Indonesian exports to the U.S. will be subject to a 19 percent tariff – for now – but otherwise there is a lot that could change. Last week, after threatening Indonesia with a 32 percent tariff, U.S. President Donald Trump announced that he had spoken directly with Indonesian President Prabowo Subianto and that they agreed on the basic outline of a trade deal. This week the United States and Indonesia released a joint statement providing a bit more detail, although we should keep in mind these terms may very well change. For now, taken at face value, it appears that Indonesian exports to the United States will be subject to a 19 percent tariff, while most U.S. exports to Indonesia will face no tariff barriers. Indonesia also committed to buying Boeing aircraft, increasing imports of U.S. agriculture and energy products, and reducing non-tariff barriers like cumbersome licensing requirements. In assessing this deal, it should be noted that the U.S. is not a huge export market for Indonesia, especially compared to other countries in the region like Vietnam. According to the Atlas of Economic Complexity, Indonesian exports totaled $287 billion in 2023 and around $22 billion, or 8 percent, of that went to the U.S. Most of this was from textiles ($8 billion), electronics ($3 billion), and palm oil ($1.5 billion). At first glance, Indonesian textile exporters look to be getting the worst of this deal. Indonesia's textile industry, especially firms with a lot of international exposure, have already been facing intense pressure thanks to weak global demand. The industry has been grappling with thousands of layoffs and at least one blockbuster bankruptcy. A 19 percent tariff on Indonesian textile exports to the U.S. is unlikely to help matters. But the long-term outlook is harder to parse. If Nike and other companies feel it makes financial sense to relocate production from Indonesia to another country, they might do so. But relocating manufacturing on that scale is both expensive and time-consuming, so companies will probably wait for a while and see if the tariff scheme changes again, or if they can carve out an exemption. This is why trade policy is usually made in a more measured and consistent way, so that firms have time to adjust and respond to clear market signals rather than ad hoc announcements. Palm oil is a bit different. Malaysia and Indonesia produce the vast majority of the world's palm oil. The U.S. can certainly tariff Indonesian palm oil if it wants to, but there aren't many other places where importers can get it. For this reason, the joint statement noted that 'certain commodities that are not naturally available or domestically produced in the United States [may be considered] for a further reduction in the reciprocal tariff rate.' This gives the U.S. wiggle room to exempt things like palm oil, for which there are limited domestic substitutes. On the flip side, Indonesia agreed to buy (or more likely lease) Boeing aircraft and import more American agriculture and energy products. We will have to see what happens, but my reading of this is that it does not represent a huge shift from the status quo and could be a net benefit to the Indonesian economy. Indonesia has a big commercial aviation market, and domestic carriers are already leasing and operating large fleets of Boeing aircraft. It is likely that Indonesian airlines, including flag carrier Garuda, which is majority owned by the state, would have added more Boeing aircraft to their fleet in the coming years simply through the normal course of business operations. Meanwhile, soybeans and petroleum products are already among the largest American exports to Indonesia, so buying more of them is also something that likely would have happened under normal business conditions. The other aspect of giving the U.S. more access to the Indonesian market is not just trade, but investment, and that's probably what the Indonesian government is really after. Reuters reported that Indonesia's new state-run investment fund is exploring an $8 billion partnership with U.S. engineering firm KBR to ramp up domestic oil refinery capacity, something that has been a major priority of the government for years. Much remains to be seen about the impact of this, and how it will play out (including what terms other countries in the region get, and whether any of this will actually last). At the end of the day, for now Indonesian exports to the U.S. will be subject to a 19 percent tariff, which is not great news especially for an already beleaguered domestic textile industry. But Indonesia is not as heavily reliant on exports as Vietnam and Thailand, so there may have been some willingness to give ground there in exchange for the promise of more U.S. investment.
