Moves to axe R&D fund matching

It’s understood the Finance Department has mooted the cut during early, high level discussions around next year’s budgeting process as a means of finding cost savings, to offset proposed spending measures.

If the proposal remains an option, it could go before the government’s Expenditure Review Committee or “Razor Gang” further into pre-budget talks next year, involving the Prime Minister, Finance Minister, Treasurer and National Party leader.

Release of the government’s Mid-Year Economic and Fiscal Outlook also revealed the federal budget remains under intense pressure with a $2.3 billion deficit increase from the May budget putting the total forecast at $37.4b for 2015-16.

Federal Treasurer Scott Morrison attributed the budget blow-out to reduced income receipts - especially from falling commodity prices - and the government being forced to deal with new expenditure decisions, since the May budget.

Some rural Liberal MPs have expressed sympathy for cutting the R&D contribution to find savings - but it would be seen as a die in the ditch issue for the National Party’s members, led by Agriculture and Water Resources Minister Barnaby Joyce.

One Liberal MP said if the government was looking to find budget savings measures, the matching R&D funding program was an obvious option given the amount of wasted spending by rural research agencies.

But a spokesperson for Mr Joyce said the Coalition had always backed the matching R&D system and would maintain its strong stance.

“R&D has been a key element of successive election policies and we have no plans to change that,” the spokesperson said.

“This is in stark contrast to the former Labor government who in 2011, after a Productivity Commission review, looked to halve government funding to our RDCs.

“It was only pressure from industry and the Coalition that forced the government to maintain matching funding.”

The spokesperson said the government provided $250m per annum to the Rural Development Corporations (RDCs) to match industry levies and was committed to providing about $5.5 billion in the next 10 years through the RDC system.

But the proposal to cut the co-funding program is a perennial issue that was seriously pushed via the Commission of Audit, released ahead of the Coalition’s controversial 2014 budget, shortly after coming into office.

The comprehensive audit of government spending measures recommended reducing the Commonwealth’s dollar-for-dollar matching funds for rural RDC’s by 50 per cent, across a 10-year period.

But the proposed axing was heavily criticised and opposed by leading farm stakeholders who said the spending cut ignored significant productivity gains and subsequent income generation for the nation.

At the time, Cotton Australia chief executive Adam Kay said implementing the audit’s recommendation would be a “severe blow to Australia’s cotton industry and the wider agricultural industry”.

“For every dollar invested in the CRDC’s research and development program, $7 is returned to growers and $14 to society in general,” he said.

“Over 24 years of CRDC’s operations, that represents a benefit of $1.4b to growers and $2.8b to Australia as a whole.”

Treasury’s latest push has also cited the 2011 PC report which analysed the RDC model extensively and found that it had “significant shortcomings” but overall should be retained.

The review called for the government’s matching contribution to be halved across a 10-year period and immediately introduce a new uncapped “subsidy” of 20 cents in the dollar for industry contributions, above the matching contribution.

“These new arrangements would result in a modest reduction in total government funding for the RDC model - though with a similarly modest increase in private contributions, the overall amount of funding available to the RDCs could increase,” the report said.

“More importantly, the redistribution of some public money to broader research would deliver better value for the community from its investment in the model.”

The then Labor government said it would not adopt the PC report’s recommendation to reduce the value of matching funding to RDCs.

Instead, it recommended statutory RDCs be allowed to undertake marketing activities, where requested by industry, and passed legislation to support those changes.

Council of Rural RDCs chairman Selwyn Snell said his group had not been informed of any proposals by the government to change the joint-funding model but he understood the program was revisited from time to time.

But Mr Snell said reducing or changing the funding arrangements that underpinned long-term improvements and growth for rural industries “would appear to be counter to everything else the government says it is trying to achieve”.

“This is an important and exciting time for our agricultural industries,” he said.

“The council applauds the work the government has done to set an agenda for the sector through the Agricultural Competitiveness White Paper and create opportunities by signing onto multiple free trade agreements.

“Last week the government laid down another plank through the National Innovation and Science Agenda and then the Prime Minister launched the NFF’s digital transformation plan stating ‘The agenda of innovation is absolutely critical to every industry’.

“We couldn’t agree more and understand that strong and successful innovation needs strong science and research.”