Labor's plan to save $1b in doubt
THE Gillard government's innovation and jobs package was launched this week despite warnings from the Industry Department and the Tax Office that the $1 billion saving at the heart of the policy might never eventuate.
The revelation comes as Prime Minister Julia Gillard and Treasurer Wayne Swan are still reeling from an all-out assault on their fiscal credentials by the opposition over the failure of the mining tax to raise anywhere near the expected revenue of $2 billion this financial year. In six months, it has raised only $126 million.
With the government languishing in the polls, its ''plan for Australian jobs'' - including the creation of innovation precincts, new incentives for companies to use local goods and services and extra funding for start-up firms - was designed to position Labor as the party of the blue-collar worker.
It was funded by the axing of accelerated research and development tax breaks for about 20 mining, financial services and retail companies with turnovers above $20 billion, a move forecast to raise $1 billion over four years.
But late last year, in cabinet-in-confidence advice, Industry Minister Greg Combet's department argued vehemently against that plan, which had the strong backing of Treasury.
In advice canvassed with other departments and a government taskforce advising on the policy, the Industry Department warned that Treasury's $1 billion option would encourage the big companies to find ways to rearrange their financial relationships with related overseas entities and buyers in order to reduce their Australian turnover to below the $20 billion threshold.
The advice also said the Australian Taxation Office had warned it could be difficult to legislate to prevent companies from legally circumventing the policy.
If companies do avoid the government's attempt to deny them the generous tax break, it will pose another big problem for the stretched federal budget, because the government has promised to spend $400 million of the estimated $1 billion in savings on other job-creating programs and is understood to be keeping the other $600 million to help pay for its education and disability programs in the May 14 budget.
The Industry Department said axing the accelerated tax break for big companies could also have a negative impact on research in mining, manufacturing and financial services.
It recommended an alternative policy: capping research and development payments to $100 million for companies with turnover of more than $15 billion.
It said this option had received more backing during the deliberations of the business tax working group and was more in line with overseas practice.
It is believed that Mr Combet did not take his department's preferred option to cabinet, possibly because it was clear it would not be supported.
Coalition industry spokeswoman Sophie Mirabella called for the government to release any modelling behind its $1 billion revenue estimate.
She said that since the government did not yet know the impact of separate recent changes that aimed to restrict tax concessions to the same big companies, the $1 billion estimate seemed ''rushed and speculative''.
"They are either making up the figures or are making assumptions based on the old R&D regime, which casts doubt on the accuracy of their figures,'' Ms Mirabella said.
''We need to see the modelling to understand whether their savings estimates are accurate,'' she said.