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Unlocking private sector innovation

On almost every measure of innovation, research and development (R&D), Australia’s private sector is a poor performer. In a major 2021 report, DBS researchers provide post-COVID policy options.

A milestone report by Deakin Business School (DBS) researchers has revealed that Australia’s poor ranking in private sector innovation and R&D could be boosted by tax policy tweaks and tapping into the research potential of universities. 

In the newly-launched Post Covid Policy Options to Enhance Australia’s Innovation Capabilities the IPA-Deakin SME Research Centre’s Small Business White Paper 2021 offers a suite of recommendations aimed at removing policy stumbling-blocks and encouraging greater collaboration between businesses and government-funded research institutions. 

Australia’s R&D under-performance

Within the world’s developed nations, Australia currently languishes amongst the least effective countries when it comes to converting research capital into product innovation.

Co-author and IPA-Deakin SME Research Centre Director Professor George Tanewski says concerns about Australia’s business productivity were first flagged in the centre’s debut 2015 white paper.

‘Back then, we identified a persisting failure to lift business efficiency as a critical problem for the Australian economy. Evidence in this white paper confirms that the situation has worsened with the technical efficiency of Australian private companies declining across all industries between 2006 and 2018.’

Fine-tuning the federal government’s R&D Tax Incentive (R&DTI) and encouraging greater collaboration between business organisations and research institutions are some of the report’s key recommendations to lift the rate of private sector innovation.

Tweaking the tax incentive system

Launched in 2011, the R&DTI encourages R&D in Australia’s private sector by offering tax offsets for expenditure. 

But Prof. Tanewski says small and medium-size companies continue to face significant obstacles in R&D participation which negatively impact both companies and the broader Australian economy.

‘Shortcomings in the existing incentives system are potentially contributing to Australia’s under-performance in innovation and R&D. For example, we found the eligibility criteria for R&D activities are too narrow, with the exclusion in particular of software-related R&D hampering the competitiveness of Australia’s software industry and denying “spillover” benefits to the broader economy.’

Recommendations to the scheme include a reversal of planned cuts for small-medium enterprise (SMEs), quarterly reimbursement of R&D offsets, and the introduction of a premium to the R&DTI for collaborative industry-university research. 

Improving industry-university collaboration

While collaboration between industry and research institutions is recognised as a driver of R&D output, the paper found that only 4.14% of private companies in Australia tap into these resources and, when compared to larger companies, SMEs (with less than $20M in annual turnover) are 83% less likely to collaborate with universities.

‘One of the keys to improving our future R&D performance will be the development of policies to promote more effective collaboration and the commercial utilisation of intellectual capital in universities and other research institutions,’ says Prof. Tanewski.

Among the report’s recommendations to boost engagement are redeemable innovation vouchers, improved funding for innovative SMEs, and expanded investment into Collaborative Research Centres (CRCs).

Influencing policies

The Small Business White Paper 2021 builds on a range of SME policy publications produced by the IPA-Deakin SME Research Centre which was formed in partnership with DBS and the IPA (Institute of Public Accountants) in 2013.

IPA CEO and Deakin Adjunct Professor Andrew Conway says the paper’s findings raise fundamental questions about the adequacy of Australia’s innovation and R&D system, particularly within the SME sector. 

‘This important IPA-Deakin SME Research Centre report highlights that despite Australia’s longest unbroken run of economic growth – from the early 1990s to early 2020 – its economic performance was already demonstrating severe weaknesses before COVID pandemic was declared in March 2020. It is only though research such as this that governments can improve their policy inputs and advice.’

The need for diversification

With ongoing turmoil in Australia’s political and economic relationship with China and the pressure to reduce future immigration rates, Prof. Tanewski says the nation faces a pressing need to diversify its economic foundations and insure against future downturns.

‘As business and public research institution R&D spending is predicted to decrease in the post COVID-19 world it is crucial that the Australian Government steps in to counteract these declines. An obvious area in which Australia can – and should – diversify its sources of growth and security is in the currently under-done field of research and development.’

Download the IPA-Deakin Small Business Report 2020: Post Covid Policy Options to Enhance Australia’s Innovation Capabilities.

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