Australia stands to lose out on an estimated $7 billion annually due to a stagnation in its research and development (R&D) efforts, according to a recent report released by the Business Council of Australia and tech firms Cochlear and Atlassian. The report, prepared by consulting firm Mandala, highlights the urgent need for the nation to address its declining position in the global R&D landscape.
As discussions prepare for Treasurer Jim Chalmers‘ economic roundtable, tax cuts and regulatory hurdles have dominated the conversation. However, the focus must shift toward attracting investment in technological innovation, which is essential for enhancing productivity growth, the report asserts. The Business Council claims that by reforming R&D policies without increasing budgetary burdens, Australia could potentially add an extra 0.1 percent to its annual productivity growth.
Declining R&D Investments and Recommendations
The report outlines that Australia has seen a troubling decline in R&D investments, with large businesses reducing their expenditures by 24 percent over the past decade. Currently, Australia’s total R&D spending accounts for only 1.7 percent of its GDP, significantly lower than the average of 2.6 percent among comparable economies.
To reverse this trend and re-establish Australia as a leader in innovation, the report proposes six key reforms. These include simplifying the R&D tax incentive to a flat rate of 18.5 percent, eliminating the current cap of $150 million on tax incentives, and applying a concessional 10 percent tax rate on profits derived from Australian innovations. Additionally, the report suggests fostering collaboration between industry and research institutions, streamlining compliance requirements for accessing R&D tax incentives, and consolidating existing grants into fewer nationally significant programs.
Cochlear’s chief executive, Dig Howitt, emphasized the importance of having clear and well-funded strategies to capture the full value of local innovations. He pointed out that the mobility of R&D and intellectual property means that countries are actively vying for aspects of Australia’s business value chain, particularly in innovation, intellectual property development, and manufacturing.
Commercialisation Challenges and Industry Perspectives
Atlassian’s chief of staff, Amy Glancey, echoed Howitt’s sentiments, stating that while Australia has historically been rich in ideas, it struggles with the commercialisation of those innovations. She highlighted the need for improved strategies to successfully market Australian innovations on the global stage.
The findings of this report serve as a wake-up call for policymakers and industry leaders alike. By addressing the barriers to R&D investment, Australia has the potential to unlock significant economic benefits, revitalise its innovation landscape, and ensure sustained growth. The call to action is clear: immediate reforms are essential for Australia to regain its footing as a competitive force in the global market.
