Monthly Archives: August 2016

Turnbull’s R&D cuts will flatten the ideas boom

Our newly re-elected government is engaging in the most creative innovation ever: doublespeak.

On one hand, new Minister for Industry, Innovation and Science, Greg Hunt, is telling us he’s focused on the second and third wave of the National Innovation and Science Agenda. On the other hand, re-elected Prime Minister, Malcolm Turnbull, is cutting nearly $1 billion to R&D incentives. Is anyone confused?

Over the last few months, and during the election period, we’ve been reminded of the importance of Australia becoming an innovative country. Innovation, affecting all parts of our economy, is meant to ensure job security of Australians as we transition to a value-adding, knowledge-based economy.

Since his appointment as Minister for Industry, Innovation and Science, Mr Hunt has hit the ground running, giving a series of keynote speeches outlining his portfolio’s top priorities.

His first speech focused on the importance of science and research within our national peak bodies; his second speech focused on industry and the need for micro economic reform; his third speech focused on previewing the second and third waves of the National Innovation and Science Agenda.

In FY17, the government is budgeted to support R&D to the tune of $10.1 billion. Mr Hunt has also reminded us innovation matters because it drives 60 per cent of our national productivity.

But all this talk of R&D and its impact on national productivity and economic development has been undermined by Mr Hunt’s boss, Mr Turnbull.

The day before Mr Hunt gave his keynote trumpeting the above figures at The Australian Financial Review Innovation Summit, Mr Turnbull announced his intention to push through an “omnibus” bill containing almost $6.5 billion in spending cuts over the four-year forward estimates period spread over a raft of portfolios.

Buried in the detail is a cut of $990 million to the R&D Tax Incentive. This will be achieved by reducing the rates of the refunding and non-refundable tax offsets available under the scheme.

Counter productive

Given the R&D Tax Incentive has been a major contributor to the number of Australian businesses being involved in innovation, a severe cut to its eligibility and size of rebate could do the very opposite of Mr Hunt’s wishes.

The government is still sitting on a review it commissioned this year of the R&D Tax Incentive, which was meant to identify ways to improve its effectiveness. Many reviews of the past have been used to justify a reduction in the size of such programs.

As I’ve said before, we need to have a sustainable and long-term approach to innovation policy.

Instead of the endless tinkering of R&D programs, our government should be expanding its remit, especially for younger firms and cash-strapped innovators.

In the last year, Australia slipped from 17th to 19th in the Global Innovation Index, which ranks the world’s countries and economies through innovation measures, environments and outputs.

Australia is being pulled down by its knowledge and technology outputs, business sophistication and creative outputs.

 In short, we haven’t commercialised or exported enough of our innovations, our ecosystems don’t actively encourage cross industry and sector linkages, and we haven’t been truly creative.

New ideas

As Mr Hunt puts the finishing touches on the second wave of the National Innovation and Science Agenda, it’s important he reviews the programmes of the past.

We’ve had a tonne of schemes including the Pooled Development Funds (PDF) of the 1990s, the Industry Innovation Funds (IIF) of the 1990s and 2000s, and the Building on IT Strengths (BITS) programme of the 2000s.

 The development of a new government-matched debt- or equity-funding scheme for companies valued at $20 million to $200 million needs to ensure that deserving companies with credible management teams and market prospects receive such funds.

If we wish to lift our rankings on the Global Innovation Index we must back companies who commercialise and export our innovations.

As Mr Hunt finalises the third wave, which is meant to increase the ease with which business interacts with government, he must have a strong word to government departments and his state government counterparts.

We’ve been promised a reduction in government red tape for years but it hasn’t yet happened.

I know of fintech businesses waiting for close to a year to get regulatory approval from the Australian Securities and Investments Commission because of government cutbacks.

Some state governments still charge stamp duties on marketable securities, a tax that was meant to have been abolished with the introduction of the GST in 2000.

Better still, why doesn’t he tackle the age-old employment drag of payroll taxes?

Finally, Mr Hunt needs to have a strong word with his Prime Minister and Treasurer. How can we have a thriving innovation economy in light of a $1 billion cut to R&D?

This post was originally published on Financial Review, a leading Australian online news site that reports the latest from business, finance, investment and politics, updated in real time.

Election campaign shows why Australia won’t be an innovative country

Despite both major parties agreeing about the need for Australia to be an innovative country, neither seems seriously committed to a deep-seated and long-term plan for change.

Amidst great fanfare in December 2015, Prime Minister Malcolm Turnbull launched the National Innovation and Science Agenda, a $1.1 billion program designed to encourage innovation across all aspects of the economy.

With $28 million devoted to a government advertising campaign extolling the virtues of an “ideas boom”, you might have thought we were entering a new age of innovation around the country.

Sadly, you’d be wrong. The $1.1 billion program is only for four years.

The bulk of government funds – $459 million – is earmarked for major research infrastructure and related programs being the Australian Synchrotron (a radiation research facility), Square Kilometre Array (a radio telescope project) and National Collaborative Research Infrastructure Strategy (research infrastructure, and increased engagement between researchers and industry).

The second largest allocation of funds – $127 million – is to encourage university researchers to commercialise their technology with businesses. This just restores cuts made to university funding in previous federal budgets.

The next two largest sums are tax incentives for angel investors at $106 million, and inspiring Australians through digital literacy and STEM at $84 million.

Labor’s pitch

The opposition, which has largely supported the government’s innovation agenda, has made additional announcements.

It proposes to establish a $500 million Smart Investment Fund to provide matching funding to venture capitalists over five years, similar to the Innovation Investment Fund scheme established by the Howard government.

It also proposes to spend $133 million over four years for 25,000 teaching scholarships for recent STEM degree graduates to pursue teaching careers.

 When it comes to the differences, the government believes their tax incentives for investments made into innovation companies will be enough, while the opposition wishes to invest a further $500 million into the ecosystem.

The government plans to increase the amount of time students get exposed to STEM teaching by adjusting the curriculum and supporting coding in schools. The opposition plans to entice more STEM graduates into teaching and establish a National Coding in Schools Centre.

Lack of long term vision

While these are positive policies, where are the long-term game-changing policies that are required to cement nation’s future success?

In December 2015, the Senate Economics References Committee handed down its report on Australia’s Innovation System.

It recommended that: (1) governments commit to stable and coherent arrangements for innovation policies based on a long-term strategic framework and lift investment in R&D to 3 per cent of GDP;

(2) an independent government agency be established to administer and coordinate innovation system policies and programs across the whole of government;

(3) governments, as part of their long-term innovation strategy address structure and strategic barriers that inhibit innovation, including the free flow of knowledge between universities and business, increasing the R&D workforce and providing long-term predictable public funding;

(4) federal, state and territory governments work collaboratively to support local and regional innovation ecosystems;

(5) the education system be a central focus of the long-term innovation strategy, acknowledging the importance between STEM subjects and the humanities, social sciences and creative industries.

For the first recommendation, the government hasn’t committed to a 3 per cent of GDP R&D target but the opposition has, setting a 2020 target. Why isn’t a government that is committed to guiding the nation through a challenging period of economic change spending more on R&D?

Top rating innovative countries have historical rates of R&D in excess of our current 2 per cent spend.

What’s more, neither party has committed to a long-term strategic framework. I’m not talking about four-year programs but seven to 10-year programs that exceed the length of a single parliament.

For the second, third and fourth recommendations, there is bipartisan support. For the fifth recommendation, the opposition’s support, particularly the interplay between STEM and the humanities and social sciences, is stronger than the government’s.

If we’re serious about anticipating the changes to the long-term structure of the Australian economy, a long-term innovation policy is a must.

Policy should involve connecting and integrating all sectors of our economy, not just some.

What’s more, the implementation of good innovation policy will take time and will also cost money.

That’s why the Senate report has recommended a commitment to stable and coherent arrangements for innovation policies based on a long-term framework, one that can last many terms of parliament. The same goes for greater levels of R&D expenditure.

As a nation, we’re great at commissioning reports but not so good at heeding their advice. Given this may be the most exciting time to be an Australian, will our leaders seize the opportunity to set us up for a successful and innovative future?

This post was originally published on Financial Review, a leading Australian online news site that reports the latest from business, finance, investment and politics, updated in real time.