Now is not the time to pull back

Federal Industry and Innovation Minister Kim Carr is still trying to get his R&D tax credit scheme through Parliament, almost two years after the initiative was announced in May 2009.

Carr has now taken to describing the current R&D scheme as “unsustainable” and effectively warned the private sector that the Government will need to look hard at spending on innovation programs.

“At a time when the Government is looking at fiscal consolidation, we are maintaining expenditure on R&D spending, but we can’t sustain that unless there is reform of the system for genuine research and development,” Carr told the Australian Financial Review.

While industry claims that the new R&D tax credit scheme is too narrow, Carr has consistently argued that too many big companies are using R&D money for things they would do in the ordinary course of business.

Now he’s adding a further warning – the Government is going to have to look seriously at other innovation programs too.

“This is dilemma that all ministers are facing: how do you find the room for new activity at the same time as reducing old activity?…We now are at that point where there are very serious decisions that have to be made about further reductions.”

This is symptomatic of the Government’s short term view. Yes, there are pressures on the budget due to the floods, but the need for “fiscal consolidation” is overstated.

The main reason the Government wants to cut spending is to ensure its meets its budget surplus promise for the 2012-13 year – despite the fact that there would be absolutely no harm in staying in small deficit for another year or so.

We need to stop looking so short-term, especially with things as important as innovation.