Committee for Melbourne
URS Australia
Southbank, Victoria
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When the Committee for Melbourne invited me to speak to you today, they said they wanted to hear about the role innovation would play in tackling climate change, and the progress of the government’s innovation review.
The two topics are closely intertwined.
Committing to a low-carbon future now will accelerate innovation and give us a head-start in developing climate change solutions that we can use at home and sell to the world.
There are actually advantages for Australia in moving early – and disadvantages in standing back and saying to the rest of the world, “you go first”.
This point is taken up very persuasively in the Committee for Melbourne’s Future Map: Melbourne 2030 report.
The review of the national innovation system – which it is my pleasure to release today – has recommended that climate change mitigation and adaptation should be one of our national innovation priorities.
The central question addressed by the review is this – how do we ensure that Australia has the innovation capacity to solve this huge problem – and the many other problems we face?
It has come up with some interesting answers, some of which I will touch on in a moment.
But first, some history.
Innovation policy
In 1984, the late John Button visited Sweden.
This was a turning point for innovation policy in Australia.
Button discovered that in Sweden:
“Government funds were spent on research and development, venture capital for small firms, export incentives, and training and re-training of workers.” (As it Happened, 1998, p. 256)
He came away convinced that if Australia wanted to remain competitive, it would also need more R&D, more skills, and more support for innovative firms.
When he returned home, Button developed what was in effect Australia’s first national innovation policy.
There were two parts to it.
Part one was to wean Australian industry off old-style protection and make it compete for its place in global markets and supply chains.
Part two was to dramatically increase support for innovation, not least by establishing:
- the Management and Investment Companies Program (1984)
- the 150 per cent R&D Tax Concession (1985) – since reduced to 125 per cent
- Rural Research and Development Corporations (1989)
- and Cooperative Research Centres (1990).
Button made industry support conditional on firms becoming internationally competitive.
But at the same time, he was clever enough to design support that enabled firms to meet that condition.
He recognised that you couldn’t increase efficiency and productivity simply by exhortation.
You had to smooth the path by providing innovation incentives and boosting innovation capacity.
That is a view the present government shares.
The prime minister makes no bones about our readiness to offer “incentives to design innovative approaches to … long-term challenges”.
He stresses the importance of “recognising the power of markets, but recognising equally the limitations of markets”. (Rudd 2008)
Much of the great work done by John Button and his colleagues in the reforming Hawke and Keating governments has been undone over the past twelve years.
During that time, Australia became the only OECD nation to reduce public funding for higher education.
Business investment in R&D fell for the first time on record.
Growth in research degree commencements stalled.
Even without these setbacks, there was bound to come a time when we would have to rethink mainstays of our innovation support framework like the R&D tax concession and the CRC program, which are now a generation old.
That time is now.
Ten-point plan
In April 2007, Kevin Rudd and I released a ten-point plan to lift Australia’s innovation performance called New Directions for Innovation, Competitiveness and Productivity.
This was the basis for the innovation policy we took to the election in November.
We’ve already made great progress on those ten points.
The last of them was to “review government innovation and industry assistance programs”. (p. 27)
That review began in January and was completed last month.
We made it clear in the New Directions document that the review would be wide-ranging.
We specifically said it would consider national innovation priorities and R&D tax incentives.
We said it would be charged with “identifying gaps and weaknesses in the innovation system and developing new policy proposals to address them”. (p. 27)
The review was to prepare the ground for a partnership – involving industry, the research sector and government – dedicated to building a pervasive culture of innovation.
The review panel’s report – Venturous Australia: Building Strength in Innovation – does all this and more.
It is a tribute to the inspiration and application of Dr Terry Cutler and his colleagues Dr Megan Clark, Professor Glyn Davis, Professor Steve Dowrick, Professor John Foster, Dr Nicholas Gruen, Narelle Kennedy, Catherine Livingstone, Professor Mary O’Kane and Dr Jim Peacock.
Professor O’Kane also chaired the review’s Collaboration and CRC Review Working Group and produced a comprehensive report on the future of the CRC Program – Collaborating to a Purpose – which has been widely welcomed.
The panel has done a fantastic job and I want to thank them jointly and severally for their incredibly hard work under sometimes difficult conditions.
I also want to thank my department for giving the panel such magnificent support.
The panel members may be the stars of this grand prix, but the department were the pit crew that helped keep them on the track.
With nine members and as many perspectives, they had no shortage of ideas, no shortage of creative tension, and no shortage of lively discussion.
These are all good things.
The panel started a conversation that eventually involved thousands of Australians – writing submissions, taking part in stakeholder consultations, and attending workshops.
Their enthusiastic engagement in the review process demonstrates both how much people care about innovation.
Venturous Australia gives us a platform from which we can see the next frontier – a frontier beyond the one we defined in our ten-point plan.
It is now the government’s task to decide the best way forward.
We will respond to the review panel’s report with a policy white paper by year’s end.
The white paper will be informed by what the review panel has found and by our own consultations.
We don’t want the level of engagement generated by Dr Cutler and his colleagues to dissipate just because the review has been completed.
People will have many opportunities to share their ideas and opinions as the white paper is developed.
I don’t propose to take you through the report in detail, but I would like to highlight a few headline recommendations.
Restore funding
First, the panel calls on the government to restore Commonwealth funding for science and innovation to the level achieved in 1993-94, when spending peaked at 0.75 per cent of GDP.
In 2007-08 it was 0.55 per cent of GDP – a drop of 27 per cent.
The panel suggests that to get back where we were in 1993-94, we would need to invest about $2.2 billion a year more than we do now.
This is a big ask given the worldwide economic slowdown, the pressures on the budget, and the government’s priorities in other areas, such as health, education and pensions.
The panel’s call for increased Commonwealth investment echoes the Australia 2020 Summit’s recommendation that we should be aiming to double our R&D expenditure from all sources by 2020.
That would take us from the 1.8 per cent of GDP we spend today to 3.6 per cent – an intensity currently achieved only by Finland, Sweden and Israel.
The Commonwealth couldn’t possibly do that on its own.
Business already does more than half of Australia’s R&D, and if we want to lift our performance overall, we have to maximise its contribution.
That’s why I’ve given so much emphasis to collaboration and bridging the divide between research and industry.
Whether we can reach the review panel’s target for Commonwealth spending on science and innovation will depend on budget circumstances.
Whether we can reach the 2020 Summit’s target for total R&D spending will depend on how successful we are in creating an innovation ecosystem with high levels of collaboration and connectivity.
R&D tax credit
The second headline recommendation relates to tax incentives for business R&D.
The review panel proposes that we scrap all existing R&D tax concessions and replace them with two R&D tax credits:
- a refundable credit of 50 per cent for firms with a turnover under $50 million
- and a non-refundable tax credit of 40 per cent for larger firms.
A non-refundable credit can only be used by firms in profit.
A refundable credit can be used by firms in profit or loss.
The panel suggests that all Australian R&D should be eligible for these credits, regardless of who owns the intellectual property.
Between 1995 and 2004, Australia was one of only three OECD countries to reduce its tax benefits for business R&D – and of those three, our cuts were the deepest. (OECD, STI Scoreboard 2005)
During the same period, sixteen OECD countries increased their level of support.
That didn’t just put us behind other developed nations.
It put us behind the emerging powerhouses as well.
In a 2006-07 survey of R&D tax incentives, China ranked third, India sixth and Brazil seventh.
Australia was eighteenth out of thirty-eight. (OECD, STI Scoreboard 2007)
Anyone who thinks countries like India and China are competing solely on their low labour costs has missed the point.
They have made a massive commitment to R&D, and they are moving rapidly up the value chain as a result.
Developed countries everywhere are responding to the challenge these new innovation superpowers have thrown down.
They are building their indigenous innovation capacity and aggressively pursuing foreign R&D investment.
In the nine months since Labor came to office, New Zealand, the United Kingdom, France, Belgium, the Netherlands and Spain have all introduced or extended tax incentives for business R&D.
Japan and the United States have flagged their intention to do likewise.
There have been serious questions about the adequacy of the present R&D tax concession for some time, and recent international developments have made it imperative that we find an answer to those questions sooner rather than later.
The review panel has come up with an idea that would restore Australia’s support for business R&D to the levels of the eighties and early nineties.
It would also bring us into line with what our competitors are doing today.
Is it the best way to achieve these aims?
That’s a question we will have to thrash out.
Innovation priorities
The third point I wanted to mention relates to national innovation priorities.
The review panel proposes five broad principles for determining priorities to shape innovation policy and funding programs.
Those principles are that we should:
- leverage Australia’s natural endowments and built strengths
- focus on distinctively Australian challenges and global challenges Australia is advantageously placed to address
- focus on transforming and reinventing existing industries and service delivery
- internationalise Australia’s innovation system through global integration
- and invest in national capabilities, facilities and innovation infrastructure that support the above.
The panel goes on to apply these principles itself in defining a series of priorities, from population health to marine industries, and from finance and risk management to space and astronomy.
The panel’s emphasis on underlying principles allows plenty of scope to revise priorities in line with changing circumstances, while ensuring that there is a fundamental consistency and focus to our work.
Australia is a small country with only so many dollars it can devote to research and innovation.
We can’t be all things to all things to all people.
We urgently need to concentrate our efforts and resources if we are to achieve the scale of activity needed to remain globally competitive.
That’s why consistency and focus are so important.
That’s why it’s so important to set priorities.
Creative commons
The last big idea in the report I want to touch on is open access.
It is embodied in a series of recommendations aimed at unlocking public information and content, including the results of publicly funded research.
The review panel recommends making this material available under a creative commons licence through:
- machine searchable repositories, especially for scientific papers and data
- cultural agencies, collections and institutions, which would be funded to reflect their role in innovation
- and the internet, where it would be freely available to the world.
It also argues that patent law should be tightened to ensure that the inventive steps required to qualify for a patent are considerable and that patents are well defined, leaving maximum scope for subsequent innovators.
This is consistent with steps I’ve already taken to revive work on the accessibility framework proposed – but never delivered – by the previous government.
Australia takes justifiable pride in the fact that it produces 3 per cent of the world’s research papers with just 0.3 per cent of the world’s population, but that still means 97 per cent of research papers are produced elsewhere.
We are and will remain a net importer of knowledge, so it is in our interest to promote the freest possible flow of information domestically and globally.
The arguments for stepping out first on open access are the same as the arguments for stepping out first on emissions trading – the more willing we are to show leadership on this, we more chance we have of persuading other countries to reciprocate.
And if we want the rest of the world to act, we have to do our bit at home.
The future
There is much more to Venturous Australia than this – seventy-two recommendations, 200 pages of analysis, a myriad of insights and ideas.
Ever since the review began, I’ve been saying that its report – and the government’s white paper response – would set the agenda for the next decade.
Like the Committee for Melbourne, we are very mindful of the long-term challenges facing this country and the need to tackle them not at some undefined time in the future, but right now.
Climate change is one of those challenges.
Boosting Australia’s innovation performance is another.
Our goals for innovation are too ambitious to be achieved in one budget, or even in one parliamentary term.
As the government develops its response to the review panel’s recommendations, it will be aiming to strike a balance between immediate needs and long-term aspirations.
We need to reverse the neglect of the past, steer safely through the difficult times we are experiencing at present, and prepare Australia for the future.
This will be a big task, but we don’t start empty-handed.
Venturous Australia gives us plenty to work with.