A new report has found boosting research and development (R&D) investment through targeted policies is critical to fixing Australia's productivity problem and unlocking significant investment, which will boost jobs and real wages across the country.
Commissioned by the Business Council of Australia, Cochlear and Atlassian, Unlocking Australia's R&D Potential by Mandala Partners, has revealed improved R&D policies can unlock upwards of $7 billion annually in additional gross domestic product and will increase productivity growth 0.1 per cent each year.
This report provides real world examples through companies like Atlassian and Cochlear of how large business R&D investment has a positive spillover effect on the economy, by creating better environments for commercialising innovations, entrepreneurship and finding new discoveries (see figure 1).
However, the report paints a concerning picture that Australia's R&D capability is going backwards, with business investment much lower than in comparative countries and dropping 24 per cent over the last decade (see figure 2).
These recommendations, which are revenue neutral to the Budget over the next decade after the growth impact, spell out how we can reverse that trend, and show how R&D is critical to major initiatives like Future Made in Australia and the ongoing efforts to boost living standards.
Increasing R&D spend would unlock a number of economic benefits for Australia, with the report finding every $1 of government expenditure on the proposed reforms to support business R&D creates an economy wide return of $5, while also providing a raft of new sectors and career pathways for current and future workers.
The report recommends:
- A simplified, flat-rate R&D tax incentive (R&DTI) premium of 18.5 per cent
- Removing the $150 million cap on the R&DTI
- Introducing a concessional 10 per cent tax rate for profit from Australian R&D commercialised in Australia
- Incentives for collaboration between industry and research institutions
- Streamlining compliance and reporting requirements for R&DTI
- Consolidating R&D grants into fewer nationally significant programs.
BCA Chief Executive Bran Black said reversing the current trend in R&D investment and giving businesses the right environment to invest is critical to driving an economy-wide plan to increase innovation and productivity.
"Empowering businesses to make R&D investments is critical to making our economy more productive and innovative, and for delivering greater prosperity for all Australians," Mr Black said.
"This report sets out clear recommendations to create a better environment for private businesses to invest in and make significant contributions to our economy - and if we don't act now then we will keep losing innovators, capital and ideas to other nations.
"Better tax, collaboration and commercialisation policies will give businesses the confidence to take the next step and create new Australian technologies that benefit everyone's lives.
"With Government and industry working together, we hope to create dozens of new Australian made innovations and world leading companies like Atlassian and Cochlear."
Cochlear CEO and President Dig Howitt highlighted better policy settings, including removing the current cap on R&DTI in Australia, need to be considered if Australia wants to be an environment that can attract innovation.
"Many countries have clear, well-funded strategies to capture the full value of local R&D and attract high-value global companies," Mr Howitt said.
"Given that R&D and intellectual property are mobile, there are constant efforts by other nations to attract elements of Australian business' value chain - particularly our innovation, IP development, and advanced manufacturing - offshore.
"By removing the current cap on the R&DTI in Australia we can encourage companies to do more R&D in Australia."
Atlassian Chief of Staff Amy Glancey said major companies play a critical role in creating an environment for entrepreneurship and innovation.
"Australia has always been ideas rich, but we've fallen short on our potential to commercialise and sell our ideas to the world - this is a big, missed opportunity.
"Further investing in research and development will supercharge our tech industry, helping turn those ideas into thriving global businesses homegrown from our own backyard.
"Atlassian is living proof of the potential we have to export our ideas to the world, and we're proud that so many ex-Atlassians have gone on to build their own companies leveraging excellence in R&D."
This report was commissioned in response to the Strategic Examination of Research and Development by the Federal Government.
Figure 1: Spillover impact of R&D
Figure 2: Decline in Australia's R&D expenditure
