Numerous billions of dollars in support to encourage Australian companies to fund innovation have failed to increase the current low level of research and development (R&D).
After sampling a carrot, one of the country’s leading scientific organizations is now considering the stick: imposing a fee on major companies if they fail to allocate a certain amount to research and development.
“Long-term underfunding of research and development by both the government and businesses has become unacceptable,” stated Anna-Maria Arabia, CEO of the Australian Academy of Science.
It’s time to take action and address the decreasing funding for business research and development. It’s time for our economy and industries to embrace greater innovation.
As the government seeks ways to enhance the country’s declining productivity and economic expansion, the Australian Academy of Science is advocating for a refundable tax on companies generating over $100 million in annual sales.
The concept is to compel them to increase their investment in research and development — for instance, 0.25 percent or 0.5 percent of their income — or face a charge equivalent to that amount, with the funds directed by the government towards innovation.
Time passing as Australia’s expenditure decreases
The institution is contending that a significant increase in research and development is required to enhance efficiency.
“It’s not only my opinion, but also that of the Treasury and the Productivity Commission,” stated Ms Arabia, who criticized the lack of urgency among Australian businesses.
And it’s not only them either.
Jenny Gordon from the Lowy Institute served as chief economist at the Department of Foreign Affairs and Trade (DFAT) and advocates for improved funding of research and development.
“I’m not sure if I’d refer to it as a stick, I mean, you could also call it a reward system,” she said.
This offers a different phrasing of, ‘Well, we need to secure consistent funding for R&D’. Therefore, it is not subject to the discretion of the government or the allocations determined by the budget.
So there is a consistent and dependable source of financial support.
Australia’s R&D investment is behind schedule
Australia allocates significantly lower funds to research and development compared to other comparable countries.
In 2023, the Productivity Commission stated that Australian companies were not “matching the rate” of innovation.
Before the pandemic, the Harvard Growth Lab Atlas of Economic Complexity placed Australia at 93rd position in terms of thecomplexity of its economy. At that time, it was behind Kazakhstan, Uganda, and Senegal, and only slightly ahead of Pakistan and Mali.
The academy, an entity that represents Australia’s leading research scientists, claims that ongoing underfunding from the business community has resulted in a $32.5 billion shortfall relative to the OECD average (Australia allocates 0.89 per cent of GDP, less than half the OECD average of 1.99 per cent).
It suggests the tax aims to encourage companies to intensify their focus on innovation: to ensure the future of Australian businesses.
“Our position is desperate now,” Ms Arabia stated.
Our existence is in a world marked by instability and high technological progress. We must utilize every possible advancement. It’s no longer a choice; the comfort we’ve enjoyed for many years isn’t something that will last forever.
System of enhancing innovation that has been depleted
Professor Roy Green is familiar with the advantages of innovation, serving as a specialist innovation advisor at the University of Technology Sydney and as a member of the board for the Commonwealth Scientific and Industrial Research Organisation (CSIRO).
He thinks Australian businesses have been benefiting from the research conducted by universities and the government.
I would go even further, as the government has not shown adequate interest in the role of research and innovation in our productivity outcomes.
What this implies, he states, is that we “are experiencing significantly low productivity levels which the government is now attempting to resolve… primarily due to our inadequate research and development support framework.”
The funding allocated for research and development has decreased across all areas: universities, government bodies, and private companies.
“Public research and development has very little impact,” said Professor Green.
And this is accompanied by a significant decrease in business spending on research and development. The only entities keeping it afloat are universities, and that’s solely due to additional funding from international students — which we have just reduced.
Taxes aimed at encouraging companies to engage in positive actions — like the training guarantee from the 1990s — demonstrate that it is achievable, he noted.
Business groups are seeking financial assistance and incentives to enhance their innovation initiatives.
The government’s looming Economic Reform Roundtablewill gather business associations, labor unions, community sector delegates, and specialists in Canberra next month.
Before the event, organizations such as the academy are proposing modifications they wish to see, along with submissions highlighting what they consider to be critical matters.
The input from the Australian Chamber of Commerce and Industry (ACCI) was published prior to the academy’s proposal to impose a charge on businesses, and therefore lacks a reaction to it.
What it does is highlight the extent to which we trail other countries and offer recommendations on how to address this issue.
“The lack of performance is strongly connected to wider problems within the business sector, such as limited private investment and an obsolete tax and regulatory system that hinders creativity,” the ACCI submission stated.
ACCI is seeking a sustained policy dedication and a well-defined plan from the federal and state governments.
Key suggestions include “refundable tax credits, direct grants, and low-cost financing alternatives” for small and medium enterprises, along with “targeted, interest-free government loans to assist with business research and development funding”.
This year, another business advocacy organization, the Australian Industry Group (Ai Group), received a government discussion paper on research and development with approval.
“We need to completely rethink Australia’s R&D approach as a flexible and adaptable system that acknowledges industry is more than just a means of turning research into commercial products,” said Innes Willox, CEO of Ai Group, at the time.
In short, the existing system is not benefiting Australia.
The group restated the paper’s findings, indicating that companies focused on research and development experience greater employment growth and stability during uncertain periods.
“Research and development funding is more than just an academic pursuit; it plays a vital role in enhancing a nation’s wealth,” Mr Willox stated, urging a significant effort to enhance this area.
Every aspect needs to be discussed openly. There should be no untouched subjects.
Merely advocating for R&D investment to hit 3 per cent of GDP is insufficient. Initially, we need to tackle core challenges related to turning public sector research into commercial products and enhancing partnerships between industry and research.
As the roundtable draws near and more significant concepts are introduced, the future framework of R&D might be experiencing its own evolution.
