Coalition Senators’ additional comments
Coalition Members of the Senate Economics
Reference Committee welcome the interest of the Committee in Australia’s
innovation system, and particularly the timely nature of the report, given the
Government’s pending announcement of the National Innovation and Science
Coalition Members particularly note and
thank Professor Roy Green, Dean of the UTS Business School, for his valuable
input and the contribution he has made to the development of the Government’s innovation
The Coalition agrees strongly with the
Committee on the importance of innovation to Australia. As the Prime Minister
If we want to remain a
prosperous, first world economy with a generous social welfare
safety net, we must be more competitive, we must be
more productive. Above all we must be more innovative. We have
to work more agilely, more innovatively, we have to be more
nimble in the way we seize the enormous opportunities that are presented
to us. We're not seeking to proof ourselves against the future. We
are seeking to embrace it. And this is a Government and a
Ministry that has that as its focus.
The Government is already investing $9.7
billion in science, research and innovation in 2015-16. That said, we can and
must do more to allow innovation to unlock jobs and growth in the economy, and
so this report is well timed and will contribute to the National Innovation and
Coalition Members note the Committee’s
first recommendation, and agree that stable, coherent and effective
administrative arrangements for innovation policies and programmes are
important – but this should not be read as an excuse to let policies that are
not working to their full potential simply continue to do so. The Government
wants a more innovative economy, and part of that is adapting to circumstances
and changing as required, and the Government will do that in the implementation
of its Agenda.
We express some concerns about the merits
of the Committee’s recommendation that the Government commit to a target of
increasing R&D spending to a level of 3 per cent of GDP. Until now
Australia has resisted the adoption of R&D targeting. The Productivity
Commission dismissed calls for Australia to adopt an R&D target in a major
study into science and innovation. It pointed out that R&D targeting is
conceptually flawed and has a history of failure.
Targeting an increase in an input
measure, such as spending on R&D makes little sense. Like any cost to
business its impact on productivity depends on the quality of the spending. As
a consequence, Australia has in modern times focussed on output measures — in
The most well-known example of R&D
targeting is Europe’s Lisbon Strategy.
During the European Council in Lisbon in March 2000, European Union
leaders launched a Lisbon Strategy aimed at making the EU the world’s most
competitive economy by 2010.
The key element to this strategy was a target that Europe would achieve
an average level of R&D of 3per cent of GDP across countries.
The strategy contained no explanation of how this target would be
Almost all countries missed their R&D targets by huge margins.
By 2010 the EU28 average R&D level was 1.9 per cent of GDP, up from
1.8 per cent in 2000,
far behind leading countries like the US and Japan.
Over the same period, Australia — which
did not have an R&D target — actually saw its R&D share of GDP rise
more rapidly, from 1.5 per cent to 2.2 per cent over the decade.
Coalition Members note the Committee’s
second recommendation of the establishment of an independent Government agency
with a mandate to administer and coordinate innovation system policy and
programs. The Committee will be aware with interest of the recent appointment
of Mr Bill Ferris AC as the Chair of Innovation Australia, and the impending
release of the National Innovation and Science Agenda which will contain
further detail on how the Government will place innovation and science at the
heart of decision making. Currently, Innovation Australia sits as an
independent statutory body under the Department of Industry, Innovation and
Science and has been responsible for the administration and oversight of the
Australian Government's industry innovation and venture capital programme,
including the R&D Tax Incentive and the Entrepreneur’s Programme.
Coalition Members also note with interest
the Committee’s third recommendation of policy options to address structural
and strategic barriers that inhibit innovation. The Government’s Innovation and
Science Agenda will outline a raft of measures that will:
make the Australian economy more creative and agile;
make it easier for start-ups to raise capital, more attractive for angel
investors to invest and;
encourage greater collaboration between business and research
The Committee’s report examines important
issues surrounding the Government’s ability to boost capability and capacity
building among businesses and research institutions to promote innovation
(discussed below). However, it is important to note that the provision of
capabilities, while necessary, is not sufficient for an innovative and
productivity economy. Analysis by the Productivity Commission confirms that
productivity growth “arises from many small, everyday improvements within
organisations to improve the quality of products, service customers better, and
reduce costs.” In this regard, the Commission highlighted three
essential policy “planks” for driving and stimulating innovation — incentives,
flexibility and capabilities. While the latter is discussed in the Committee’s
report the other factors, flexibility and incentives are just as important. For
businesses to take full advantage of the provision by government of improved
education and R&D policies and capabilities, they also need both an
appropriate set of incentives to make the most of these capabilities, and the
flexibility to do so.
Competition is the driving force for
economic growth, dynamism and innovation in any economy. The very existence of
competition laws recognises this fact. Hence, a substantial weakening of
competition invariably extracts a heavy price on an economy, on consumers,
businesses and workers. To take one example, the potential dampening role
played on the investment plans of small firms or potential new market entrants
by the actions of an incumbent with extensive market power must also be
considered. Firm entry and exit is an important factor in economic efficiency
over time. Indeed, in emphasising the crucial role of competition as providing
the first of these planks, the then Chairman of the Commission Gary Banks
suggests that it is market competition, rather than government assistance, that
is the main driver of innovation and its diffusion throughout an economy.
The Coalition members agree with the
Committee’s fourth recommendation, and note that the COAG Industry Committee
has already started this important work; in addition to measures to be
announced in the National Innovation and Science Agenda. We endorse the
importance of development of local and regional innovation ecosystems for
regional development. While there is no ‘one-size-fits-all’ solution, a key
precondition for the promotion of a strong and supportive regional innovation
ecosystem is infrastructure, in particular, communications infrastructure.
Without adequate broadcasting and telecommunications infrastructure, firms and
individuals are unable to access the utilities required to participate in the
The education system is, as the
Committee’s fifth recommendation notes, the bedrock of our Innovation system.
Its importance canvasses all areas – both in the humanities and social
sciences, but also in the study of STEM subjects which has been in decline.
Again, the Coalition members look forward to the Government’s measures in the
National Innovation and Science Agenda.
The Coalition acknowledges that Australia
has enjoyed nearly a quarter of a century of uninterrupted economic growth and
rapid developments in science and technology are disrupting traditional jobs
and industries around the world. It must be said that we cannot rely on the
old industry and business models if we are to make the most of the
opportunities presented by the new global economy.
The Government’s National Innovation and
Science Agenda will outline the Government’s plan for the future in innovation
and science. It will recognise that we must embrace an entrepreneurial and
innovative mindset to build an agile economy and create the jobs and industries
of the future. A strong innovation ecosystem is one of the key drivers of
competitiveness, productivity, economic growth and higher living standards.
The empirical evidence to support the
direction of a national innovation agenda is overwhelming. Innovative
businesses play a disproportionately large role in the economy - in 2012-13,
only 42 per cent of businesses with at least one employee were innovative. But
these businesses accounted for around 70 per cent of total employment, capital
expenditure and business income. Further, innovative businesses compare
extremely favourably to businesses which don’t innovate. They are 31 per cent
more likely to grow their income and 46 per cent more likely to report
increased profitability; and twice as likely to export and five times more
likely to increase the number of their target export markets. The activities
undertaken by innovative businesses have the most potential to bring about positive
spill-overs, and for every $100 million invested by business in R&D, there
is an estimated return between $150 and $200 million to the economy.
Innovation is critical to Australia. It
contributes to productivity performance through the creation of new knowledge
and technologies and through diffusion of new processes and technology to firms
across the economy. At the most simple level: it creates jobs and growth.
Senator Matthew Canavan
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