Australian Renewable Energy Agency financing, and other measures
5.1
A large number of submissions received by the committee related to the
re-profiling of ARENA's finances, as set out in schedule 5 to the bill. This
chapter provides a brief overview of some the key issues raised in these
submissions.
5.2
This chapter also considers the following measures in the bill:
-
changes to the rates of the R&D tax offset (schedule 22);
-
the introduction of single touch payroll reporting (schedule 23);
and
-
the introduction of a single appeal path under the Military
Rehabilitation and Compensation Act.
Schedule 5: Australian Renewable Energy Agency's (ARENA) finances
5.3
As noted in the previous chapter, the bill reduces the funding available
to ARENA so that it is consistent with the 2016–17 Budget.
5.4
Funding available for ARENA for each year from 2013–14 to 2021–22 is set
out in subsection 64(1) of the Australian Renewable Energy Agency Act 2011
(ARENA Act). ARENA accesses these amounts through requests for payment under
section 65. Payments to ARENA are then appropriated from the Consolidated Revenue
Fund under section 66. Any unrequested amount may be carried over to future
financial years under subsection 64(2).[1]
5.5
Schedule 5 amends the table in subsection 64(1) of the ARENA Act to
bring funding available for the years 2017–18 onwards into line with revised
funding amounts contained in the 2016–17 Budget. Table 2 provides a comparison
of the funding currently available to ARENA and the new amounts as set out in
schedule 5.
5.6
The revised funding as set out in schedule 5 applies to the years
2017–18 to 2021–22, the final year funded through subsection 64(1). Whereas the
Explanatory Memorandum refers to the financial impact of the measure over
the forward estimates (and including 2015–16), it also reflects the fact that
the bill has no impact on ARENA's funding for 2015–16 and 2016–17.[2]
5.7
The measure will result in financial savings of $1.01 billion over
the forward estimates period (through the period to 2019–20), and
$1.26 billion for the period through to 2021–22 (the period for which
funding is currently provided for in subsection 64(1) of the ARENA Act). The
savings are set out below in Table 2.
Table 2: Changes in ARENA's
funding in schedule 5 ($m)
Year |
Current
funding |
Revised
funding |
Savings |
2017–18
|
499.9
|
107.9
|
392
|
2018–19
|
237
|
67.3
|
169.7
|
2019–20
|
468.3
|
19.7
|
448.6
|
2020–21
|
135
|
12
|
123
|
2021–22
|
135
|
7.5
|
127.5
|
Total
|
|
|
1,260.8
|
Source: Current funding is set
out in subsection 64(1) of the ARENA Act. Revised funding is set out in
schedule 5 to the bill.
Background to the measure
5.8
ARENA is an independent Australian Government authority within the
Environment and Energy portfolio. It was established in July 2012, with the
dual purpose of improving the affordability of renewable energy and increasing
the supply of renewable energy in Australia. As the Explanatory Memorandum
notes, its legislated functions, as provided in section 8 of the ARENA Act, are
'primarily to provide financial assistance for research into, and development
and deployment of, renewable energy technologies, and to engage in knowledge
sharing in relation to the same'.[3]
As ARENA notes in its submission, it has primarily achieved its objectives 'by
providing grant support to innovative Australian renewable energy projects,
helping accelerate these technologies on the path to commerciality'.[4]
5.9
The funding available to ARENA, as originally set out in 2012 in the
ARENA Act, was re-profiled by the Clean Energy Legislation (Carbon Tax
Repeal) Act 2014, which received assent on 17 July 2014. This legislation
brought into effect two measures:
-
a re-profiling of $370 million in funding over the forward
estimates (2014–15 to 2016–17) into later years (2019–2020 to 2020–21); and
-
a reduction in funding for ARENA by $434.9 million over the
forward estimates.[5]
5.10
The government moved to abolish ARENA in 2014, with the anticipated
savings factored into the 2014–15 Budget. The Senate Economics Legislation
Committee reported on the provisions of the Australian Renewable Energy Agency
(Repeal) Bill 2014 in September 2014, and recommended that the bill be passed.[6]
However, the bill failed to pass the Senate.
5.11
In March 2016, the government announced its intention to retain ARENA.
The government further announced that ARENA would work with the Clean Energy
Finance Corporation (CEFC) on a proposed new Clean Energy Innovation Fund, the
funding for which would be made available from within the CEFC's existing
appropriation.[7]
The 2016–17 Budget explained that the CEFC's investment mandate would be
revised to allocate $1.0 billion in existing CEFC funding over
10 years to establish the Clean Energy Innovation Fund. The fund:
...will provide debt and equity financing to assist emerging
clean energy technologies make the leap from demonstration to commercial
deployment.[8]
5.12
Announcing the fund, a joint media release from the Prime Minister and
the Minister for the Environment indicated that the CEFC and ARENA would work
together to 'provide capital investment in Australian businesses and emerging
clean energy technologies'.[9]
5.13
The media release further indicated that ARENA would continue to manage
its existing portfolio of grants—worth approximately $1 billion—and would
deliver $100 million in new funding for large-scale solar deployment
projects. Once the large-scale solar round was completed, ARENA would 'move
from a grant based role to predominantly a debt and equity basis under the
Clean Energy Innovation Fund'.[10]
These decisions were reflected in 2016–17 Budget.[11]
5.14
The committee received a large number of submissions that addressed the proposed
changes to ARENA's funding profile. The views expressed in these submissions
are outlined below.
Views on schedule 5
ARENA's shift from a grant-based
role
5.15
As noted above, the bill will see ARENA move away from its current
grant-based role. A number of submissions expressed reservations about this
shift. ARENA itself emphasised the value of its grant funding in supporting
early-stage renewable energy projects:
ARENA’s grant funding, and scope to invest in projects until
2022, reduces the investment risk of renewable energy projects, thereby giving
the private sector the confidence it needs to invest in such projects. This, in
turn, creates local jobs, expertise, supply chains and exports. It also leads
to projects that can be commercially financed, including by the Clean Energy
Finance Corporation and the Clean Energy Innovation Fund.[12]
5.16
ARENA also submitted that the loss of approximately $1.3 billion in
long-term grant funding 'would remove a primary way of attracting private
investment to the projects that will deliver affordable and reliable
electricity to Australians while cutting carbon emissions'.[13]
5.17
Similarly, the Australian PV Institute emphasised the importance of
competitive grant funding in the development of the renewable energy sector,
arguing that grants are 'a highly effective method of supporting R&D and
early stage commercialisation and an essential component of technology
innovation'.[14]
5.18
The North Queensland Conservation Council argued that ARENA funding
helped drive investment in the renewable energy sector, reducing investment
risk and accelerating 'innovation to make the transition to renewable energy
faster, cheaper and easier'. It added that public investment provided support
to 'cutting-edge' projects that would 'otherwise be too risky for commercial
lending'.[15]
Geodynamics made a similar point, arguing that ARENA funding helped to
establish and demonstrate the commercial viability of renewable energy
technologies to the point they might attract commercial equity and debt
financing.[16]
5.19
Similarly, Relectrify, a company that is commercialising advanced
battery control technology, argued that ARENA funding was particularly
important given the challenges in Australia of raising private funding 'in
capital intense sectors that offer slow but highly socially and economically
valuable returns such as cleantech'.[17]
Carnegie Wave Energy, a wave energy technology company in Western Australia,
also argued that the:
...commercialisation of new innovation technologies in the
energy sector is often both capital intensive and takes place over long time
frames, meaning the investments required often exceed the risk appetite of the
private sector.[18]
5.20
Another company operating in the renewable energy sector, Energus,
informed the committee that it is currently commercialising in Australia a new
form of solar panel, and is seeking ARENA funding 'to help us take this
technology from working prototype to proven commercial viability'. Energus
submitted that if ARENA were defunded and the grant funding moved to CEIF or CEFC,
'our project many not be able to meet the commercial hurdles required for this
type of funding, and our project will stall'.[19]
5.21
As previously noted, the government has indicated that ARENA will move
from its current grant based role to predominantly a debt and equity basis
under the Clean Energy Innovation Fund, which it will jointly manage with the
CEFC. ARENA acknowledged that the establishment of the Clean Energy Innovation
Fund was a welcome development 'that will lead to innovative, later-stage technology
projects receiving low-cost debt and/or equity support'.[20]
However, ARENA maintained that 'commercial equity and debt are not substitutes
for ARENA's grant funding support and the impact this support has in
accelerating renewables innovation'.[21]
It noted, in this regard, that only a small number of projects in its current
portfolio would have met the criteria for funding under the new Clean Energy
Innovation Fund:
ARENA’s provision of grant support for projects is not an
ongoing subsidy; the support bridges an otherwise insurmountable gap in the
technology innovation chain, providing funding for projects that are not yet
attractive to private sector investors due to the timeframes being too long,
capital required too high, or the rate of return too low.[22]
5.22
The Australian Conservation Foundation (ACF) also argued that because of
its grant making function for early-stage renewable energy projects and
innovation ARENA had a 'unique role' in supporting the growth of the sector:
ARENA investment spans the commercialisation pathway and
assists all of these pre-commercial stages. It is virtually impossible for
these early stages to be financed on a commercial basis from debt and equity
providers. The assistance needed to bridge this gap should be seen as an essential
role of government.[23]
5.23
The ACF further submitted that the Clean Energy Innovation Fund would
play a different role by supporting businesses using technology that had
already 'passed beyond the research and development stages'.[24]
5.24
Similarly, the Clean Energy Council suggested that the role of ARENA was
unique: the Renewable Energy Target (RET), incentivises commercial renewable
energy projects; the CEFC provides debt and financing solutions; and the Clean
Energy Innovation Fund would provide targeted equity. However, none of these
policy measures 'can drive early-stage innovation in the way that ARENA has and
should continue to'.[25]
ARENA's work supporting jobs,
research and the effort to address climate change
5.25
A number of submitters suggested ARENA's work aligned closely with the
government's innovation agenda,[26]
or highlighted current and potential jobs growth in the renewable energy
sector.[27]
Many submissions also expressed concern that the funding changes would result
in job losses for scientists and researchers who rely on ARENA funding.[28]
5.26
Professor Andrew Blakers and Dr Richard Corkish argued that ARENA
provided critical funding continuity for renewable energy research. The loss of
this funding, they contended, would risk Australia's research leadership in
areas such as solar cell research.[29]
Echoing this argument, Associate Professor Kylie Catchpole argued that
Australia's 'leading position in solar energy research' would be threatened by
cuts to ARENA's funding.[30]
5.27
Submissions also pointed to the contribution of ARENA's work in helping
Australia meet its international commitments to reduce carbon emissions,
including the commitments made at the 2015 UN Climate Change Conference in
Paris (COP21), and in aiding the broader effort to tackle climate change.[31]
Schedule 22: Rates of R&D tax offset
5.28
As noted in chapter 1, schedule 22 to the bill reduces the rates of the
tax offset available under the R&D tax incentive. The government introduced
a bill proposing to reduce the rates of tax offsets available under the R&D
tax incentive in September 2014. The Senate referred the bill to the
Senate Economics Legislation Committee for inquiry and report, and a report was
tabled on 28 October 2014.[32]
5.29
Subsequent to the committee report, the measure to reduce the rates of
R&D tax offset was removed from the bill by Senate amendment, and the
amended bill was passed by both houses of the Parliament. The R&D tax
offset measure was re-introduced in in May 2015 as part of the Tax and
Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015, which lapsed
with the prorogation of the 44th Parliament in April 2016. The proposal to
reduce the rates of the R&D tax incentive in schedule 22 is the same as the
measure contained the lapsed bill except for the commencement date for the proposed
changes, which will apply in respect of income years commencing on or after 1
July 2016 (the commencement date in the lapsed bill was 1 July 2014).[33]
5.30
The Explanatory Memorandum notes that 'targeted confidential
consultation was undertaken on the exposure draft legislation with affected
stakeholder bodies'. According to the Explanatory Memorandum, no concerns were
raised in this consultation.[34]
The Explanatory Memorandum further suggested that following the change, the
R&D tax incentive 'will continue to provide a significant incentive for
research and development in Australia'.[35]
Views on the measure
5.31
AusBiotech submitted that reducing the available R&D tax offset
would disproportionately disadvantage 'small, pre-revenue and start-up
companies'.[36]
It further submitted that the measure would:
...have a direct negative impact on an area of national
competitive advantage, which has responded recently with growth, in large part
due the effect of the R&D Tax Incentive.[37]
5.32
Similarly, Research Australia contended that the measure:
...will reduce an important form of Australian Government
support for the industry led R&D that is essential to commercialising
Australia’s investment in research and developing Australia’s high value
manufacturing sector.[38]
5.33
The Australian Private Equity & Venture Capital Association Limited
(AVCAL) cautioned against the erosion of the R&D tax incentive, and
highlighted the importance of certainty, stability and consistency in the
R&D system.[39]
5.34
RSM Australia questioned the potential budget savings from this measure,
and provided a detailed analysis in support of its argument that the budget
cost of R&D tax offset had been overstated.[40]
Schedule 23: Single touch payroll reporting
5.35
Single Touch Payroll (STP) reporting is designed to reduce the compliance
costs for employers meeting their Pay as you go (PAYG) withholding obligations
by using Standard Business Reporting (SBR) enabled software to automatically
report employee salary or wage information to the Commissioner of Taxation at
the time these amounts are paid. The use of SBR-enabled software presents an
opportunity to automate and better align reporting to business processes. STP reporting
will also allow the Australian Taxation Office to monitor employee-level
superannuation contribution information and take early intervention and
compliance action if required.[41]
Views on the measure
5.36
CPA Australia supported the introduction of STP reporting from July
2017, noting that:
If properly implemented, this will be good for business as it
promises to reduce compliance costs and the number of times business need to
handle payroll transactions.[42]
Schedule 24: Single appeal path under the Military Rehabilitation and
Compensation Act
5.37
The Military Rehabilitation and Compensation Act 2004 (MRCA)
provides compensation and other benefits for current and former members of the
Defence Force who suffer a service injury or disease. The MRCA also provides
compensation and other benefits for the dependents of some deceased members.
Schedule 24 implements a recommendation from the Review of Military
Compensation Arrangements that the MRCA appeal process be refined into a single
appeal path for clients.
5.38
The government introduced a bill, the Veterans’ Affairs Legislation
Amendment (Single Appeal Path) Bill 2016, to create a single appeal path
for clients in February 2016. This bill lapsed with the prorogation of the 44th
Parliament.
5.39
No submissions addressed this schedule of the bill but the Minister, in
his second reading speech when introducing the original bill, noted that:
I want to acknowledge the very strong support for these
changes from the veteran and ex-services community and the support in writing
from the RSL [Returned Services League] and ADSO, the Alliance of Defence
Service Organisations.[43]
Committee view
5.40
The committee acknowledges concerns raised about the ARENA's future role
and financial support available to support emerging renewable energy
technologies. However, the committee notes that the government announced in
March 2016 that it was creating a $1 billion Clean Energy Innovation Fund
to 'support emerging technologies make the leap from demonstration to
commercial deployment'.[44]
The committee further notes that CEFC and ARENA will be jointly responsible for
the management of the Clean Energy Innovation Fund. In the committee's view,
this represents a substantial ongoing commitment by the government to
supporting renewable energy jobs and innovation in Australia.
5.41
The committee notes that some submitters raised concerns regarding the
reduction in the R&D tax offset. However, the committee considers that the
R&D tax offset, as amended, will continue to provide a significant
incentive for research and development in Australia.
5.42
The committee considers that the introduction of STP reporting will
deliver both budget savings and wider economic benefits by streamlining
administrative processes for substantial employers and reducing compliance
costs.
5.43
The committee considers that the proposed reform to simplify and
streamline the military compensation appeal process will help ensure the right
decision is made at the earliest possible time and at the lowest appeal level.
Recommendation 1
5.44
The committee recommends that the bill be passed.
Senator Jane Hume
Chair
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