Australia is a nation of pioneers. We should feel proud of inventions like spray-on skin and the electronic pacemaker and we need to continue to encourage innovation.
Nearly one million Australians are employed in manufacturing, contributing more than $106 billion to the economy annually. Indeed, manufacturing is one of the main sources of innovation in Australia and is responsible for a quarter of all investment in R&D.
Patent development and manufacturing are different sides of the same coin. A constant push-pull operates, whereby innovation in product design (R&D) encourages innovation in manufacturing processes, and innovation in manufacturing processes encourages innovation in product design.
We know that manufacturing is essential to any economy and the vital role it plays in innovation is a key driver of global competition. However, over the past six years we have seen more than 100,000 Australian manufacturing job losses and a further 85,660 are forecasted to go before 2018. The recent announcements relating to the closures of Holden and Ford’s manufacturing plants are a warning sign that something needs to be done to protect the future of Australian manufacturing so it has a sustainable future.
Whilst the current R&D Tax Incentive promotes the development of local IP, it does little to encourage the capitalisation of IP through the commercialisation and manufacturing processes. In Australia, the company tax rate is 30%, making it one of the highest in the developed world. This, along with increasing labour costs and the loss of some of the best talent to overseas markets has significantly impacted Australian manufacturing and industry.
The risk we face is that once manufacturing is sent offshore, company engineers and scientists no longer engage with the process, nor are they on the ground when processes change. As a result, they are unable to improve designs accordingly. What Australia needs is a policy framework that retains our talent for innovation and advanced manufacturing on-shore and in doing so reaps the rewards of higher employment, lower welfare costs and increased investment from overseas.
I believe that the implementation of an Australian Innovation & Manufacturing (AIM) Incentive is the logical next step to maintaining Australia’s competitiveness and cultivating innovation. Targeted tax relief delivered through the AIM Incentive would not only help Australian manufacturers with a hand-up, rather than a hand out, it would also alleviate financial pressures on the Government by reducing the need for direct subsidies.
The AIM Incentive would see the Government provide tax relief based on the retention of IP and manufacturing in Australia. It would require no upfront Government outlay. It is designed to stem the flow of manufacturing off-shore whilst providing future jobs for Australians and a competitive advantage for Australian manufacturers.
The AIM Incentive is calculated on the qualifying IP profits generated from sources both inside and outside of Australia. Companies can pay a tax rate of 10% of their total qualifying IP profit derived from sources against the total amount of company tax payable for that particular financial year.
The criteria for qualifying IP is extended to patents, copyright, registered designs, licenses and “know-how”. Also included in the qualifying IP criteria would be companies that manufacture products offshore, provided that Australia will derive a significant net benefit from its sale overseas. Qualifying IP can either be developed in Australia or in-sourced from outside of Australia.
Recently, Australian manufacturing has gained a lot of negative attention in light of the mentioned job losses and factory closures, as well as continued requests for corporate financial support to remain viable. However, the implementation of the AIM Incentive could transform this. The Federal Budget is fast approaching and there is an opportunity for the Government to consider this tax policy framework, which is a positive long term solution for Australian manufacturing and industry.
Manufacturing has always been a consistent performer for Australian industry and it is imperative that it continues to be so. We have a collective responsibility to protect future industry jobs and opportunities for Australians for generations to come. Australia has such potential to innovate and manufacture and with the right policy framework in place, our full capabilities can be realised – an exciting prospect for all of us.
[Barry Thomas is the Vice President and APAC Managing Director of Cook Medical Australia. Barry has more than two decades of international leadership and expertise in the pharmaceutical and medical device industries and he currently spearheads the world’s fastest growing region for Cook Medical. His current position sees him working to expand the opportunities for people in Asia to access Cook Medical’s advanced and minimally invasive medical devices.]