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Labor promises to boost R&D and foreign investment

Labor promises to boost R&D and foreign investment

Labor's GST-free tax plan was released last week, with the payoffs for the channel likely to come from R&D concessions and assistance for overseas venture capitalists. But will it be enough to attract votes at the ballot box?

According to a party statement, Labor will increase the R&D concession for IT companies with fewer than 500 employees from 125 per cent back to its previous level of 150 per cent. In addition, companies with more than 500 employees that spend at least 2.5 per cent of their turnover on R&D will also qualify for the increased concessions.

"This will make it possible for large companies in high growth sectors such as telecommunications and computer software to also benefit form the reinstated concession," the statement said. However, the concession will not be restored for syndicated R&D.

Meanwhile, Labor has also pledged to provide more incentives for overseas venture capital firms to invest in Australia, with the establishment of Approved Venture Capital Funds (AVCFs) that will be exempt from capital gains tax. In conjunction with Australian investors, overseas venture capitalists involved in the AVCFs will be required to place emphasis on start-up and early stage investment in non-listed Australian companies.

But while some initiatives have been praised by the channel, doubts about Labor's overall strategy threaten to undermine their effectiveness.

"Collectively, macroeconomic issues are going to have more impact on my business and the businesses of the people I deal with than the microeconomic reform that these initiatives are focused on," Nick Fish, Fishtech's managing director, told ARN. "It's very important what the Opposition is doing in promoting these initiatives but, by themselves, they are not as effective as an overall package.

"I've reviewed the Government's tax plan and feel more comfortable with it because the goods and services tax (GST) will be good for our industry, even though it may make it more difficult for my business, as a lot of what we sell is service-related."

Fish said the Coalition's tax package, including planned changes to fringe benefits tax, wholesale tax and reporting methodologies, encompasses the "main issues attracting my attention as a managing director rather than just 150 per cent R&D or venture capital incentives".

However, Fish was quick to add that if Australia is to achieve its ambitions of being a financial and investment base for Asia, it will need to reinstate 150 per cent R&D concessions and place a greater emphasis on venture capital.

If Labor's initiatives are implemented, Paul Green, managing director of TCG Information Systems, believes the IT industry will benefit greatly.

Benefit greatly

"If the 150 per cent R&D concessions are reintroduced, it would be absolutely wonderful," Green said.

And while TCG is "basically self-funded anyway", according to Green, the incentives for overseas venture capitalists would also assist many local companies struggling for funds.

Martin Fisk, Sentor's managing director, agrees with Green.

"Both Labor initiatives would be extremely useful for us," Fisk said. "As a software developer, we perform a lot of R&D so any increase in assistance is excellent for our company. While we haven't stopped any R&D because of the lower concessions, there's not as much money in the kitty.

"Also, were we to look for overseas funding, any assistance in the line of capital gains tax is worthwhile because at the moment there is not a level playing field for Australian incorporated companies competing with other countries to attract venture capital," he said.


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