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Not-so-clever country: more for massage tables, less for bright ideas

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In other words, these 360,000 firms made claims worth about $4 billion.

Small construction firms were the most likely to use the system, maybe on a new trailer to carry around their gear or for an on-site generator or for new electric saws.

Farmers were the next most likely.

Then came people in the professional and scientific space (that’s a lot of laptops and software getting written-off) then our healthcare sector.

Now that sounds pretty good bang for the buck.

But back to our massage table.

It may not be as politically sexy as our builder with their new trailer or a farmer with a small silo to hold seed for next year’s crop, but the massage table is just as much a part of this “economy enhancing” instant asset write-off.

It may not be a brand new massage table. It might be the coffee machine being used by your local barista. The fridge at the nearby sandwich shop.

In all cases, from the builder to the physio, the instant asset write-off program – as worthy as it is – has only brought forward expenditure.

That’s the entire purpose of the program. Get businesses to spend more on smallscale assets for their day-to-day operations. Absolutely nothing wrong with it.

But what if we’ve got our priorities wrong when it comes to encouraging businesses?

The government is opting to encourage business spending on items such as massage tables rather than R&D.

The government is opting to encourage business spending on items such as massage tables rather than R&D.

The Productivity Commission, in a new report into trends in our productivity, has found it is “mediocre” and slipping.

Warning that Australia is going through a period of “capital shallowing”, in which the ratio of capital to labour has fallen, the commission found a particular weak spot in research and development.

“Growth in R&D capital formation is even more subdued than capital formation generally, so that the R&D investment share of total investment has also fallen,” it found.

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“The share of businesses that are innovators — which goes beyond R&D spending — is no longer growing. There is also some evidence that investment in performance assessment within business — a key feature of good management — is also declining.”

R&D spending is actually at its lowest level since the advent of the global financial crisis when firms slashed spending across the board to stay afloat. It picked up but started falling again in 2013.

The PC’s commentary about research and development is important because without new productivity-enhancing breakthroughs the economy, and society, become stagnant.

Much is been made of the important structural reforms put in place by the Hawke-Keating government, but often ignored is the productivity enhancing advent of personal computers. Since then we’ve made computers smaller and faster while putting them into our phones but the big-bang productivity boost is now more than 30 years old.

And while the government has been finding ways to boost the number of electric saws and massage tables in the economy, it has also been looking at ways to reduce research and development funding.

It first had a go at this in the 2014 budget (that’s the budget that still keeps Tony Abbott and Joe Hockey awake at night) with a plan to reduce R&D tax incentives by 1.5 percentage points to save, it believed, more than $500 million over the forward estimates.

And then Scott Morrison, when he was treasurer, announced in the 2018-19 budget a plan couched as “better targeting” the current research and development tax concession. It was expected to save $2 billion over the forward estimates.

But a Senate committee, chaired by now government frontbencher Jane Hume, urged the government to actually ditch the proposal because of concerns it may hurt R&D and drive innovative firms – and their technology – overseas.

In his recent press conference explaining the poor national accounts, the Treasurer Josh Frydenberg referenced the instant asset write-off on four occasions.

The drop in R&D and the Productivity Commission’s warnings failed to get even a passing mention.

That’s no joke.

Shane Wright is a senior economics correspondent.

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

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