Dulux Group - a company praised for its research and development effort by industry minister Greg Hunt just two months ago - says proposed changes to the R&D; tax rules would wipe out its tax credit.
Chris Such, the paints and coatings company's chief scientist, said on Monday that the proposal to set an R&D; "intensity threshold" of 1-2 per cent of total business expenses "would drive our tax offset to zero".
He told the Science meets Business 2016 conference that the company employs 137 research chemists, pays its taxes and is spending $165 million to build a new water based paints plant north of Melbourne.
But because it is a large manufacturer, its research expenditure would not exceed even the minimum proposed threshold of 1 per cent of total business expenses, meaning it would miss out on the R&D; tax credit if the Turnbull government adopts the measure.
Mr Such said he hesitated to ask the question but "was building a facility in Victoria a good idea?"
He said the credit wasn't worth a huge amount for Dulux but it was significant. The company spends about $10 million a year, and the offset is worth about $1 million a year on top of the standard business expense tax deduction.
The Review of the R&D; Tax Incentive headed by veteran venture capitalist Bill Ferris found the system performed poorly because most of the R&D; for which companies received tax credits would have been done anyway.
It proposed the intensity threshold as a way of driving more "additionality" in R&D; expenditure. But Mr Such was unconvinced. "I don't think it's going to drive additionality. It'll be a penalty," he said.
Mr Hunt wrote in The Australian Financial Review in August that his first visit in his new role as industry minister had been to Dulux.
He said the company was "no ageing centenarian" but a 100-year-old business with "a thriving research and development centre in Melbourne" that invested in research to develop more durable paints, created manufacturing and construction jobs with was building $165 million plant.
"As a government, we are committed to creating opportunities for Australian businesses, like Dulux, to reach their full potential," Mr Hunt wrote.
A Dulux spokeswoman said the company was pleased the government was consulting on the proposals because the intensity threshold "is not well thought out and will damage local manufacturers such as DuluxGroup who are strong R&D; performers competing against global competitors".
She said manufacturers would miss out because they have much higher operating costs relative to R&D; than R&D-based; firms and start-ups, and the policy would discourage the R&D; the government wants to encourage - which increases local production and jobs.
"It is likely to significantly reduce value-generating R&D; across a significant segment of the economy."
Other speakers sided with Mr Ferris's review, which also proposed a 20 per cent premium offset for businesses that collaborate with universities and public research agencies like CSIRO on their R&D.;
Ken Boal, vice-president of Cisco Australia, said he supported the effort to drive additional R&D; and the goal of bringing industry and research agencies closer together because "we know we are big on (R&D;) inputs and weak on outcomes".
Ian Chubb, the former Chief Scientist and university vice-chancellor, said business had a problem accepting "that we do not do well enough in innovation in the broadest sense of the word and we especially do not do well in new-to-market innovation".
Andrew Cuthbertson, global research director at blood products company CSL, Katherine Woodthorpe, chair of fintech accelerator Fishburners and biotech success story Sirtex, have also pleaded with the government not to fiddle with the R&D; tax break.
