sydney

After 11 years of sustained growth, business expenditure on research and development has fallen sharply in Australia, according to two independent surveys by business and government.

The fall is being linked to the coalition government's cut in a tax concession for research and development in industry, from 150 to 125 per cent, two years ago. At the time, the government claimed it was needed to correct alleged — though never proved — abuses of the system through ‘creative accounting’ by some claimants.

An analysis by the Business Council of Australia (BCA) concludes that the concession was a “super-efficient vehicle for encouraging business expenditure on research and development, as business decision-makers tend to overestimate the benefits to their company's shareholders”.

The BCA calculates that more than A$1.5 billion (US$908 million) in research and development has been lost since 1996 by 150 businesses with a total turnover of A$125 billion; this is about one-third of the expenditure predicted if the concession had remained at the higher level. A survey by the Australian Bureau of Statistics agrees with the BCA, claiming that business investment in research declined by 7 to 8 per cent in real terms in the first year after the cut (1996-97).

The tax incentive was introduced in 1985 by a Labor government, at a rate competitive with Asian nations such as Singapore and Malaysia, to boost Australia's low level of industrial research and development. The move was followed by an immediate increase in business investment in research.

Over the five years to 1995, business investment grew by 13 per cent a year in real terms, rising from 0.5 per cent to 0.8 per cent of gross domestic product. An industry spokesman for the opposition Labor Party, Simon Crean, says the government will have cut $2 billion in incentives for research and development over the four years to 2000.

He accuses prime minister John Howard of leaving Australian industry “severely exposed in an increasingly competitive international environment”. Australia's federal science minister, John Moore, has announced amendments aimed at “streamlining” the tax concession and has agreed to the BCA's call for a “summit” on business research and development next year.

The BCA reports that the hardest hit areas are in “the more strategic and speculative research and development”. It says that nearly a third of business investment was in “research-intensive sectors, including pharmaceutical and biomedical manufacturing, electrical goods manufacturing and telecommunications”.