Australia was once a world leader in innovation. A new report shows the system is now ‘broken’
Australia’s research and innovation system is “broken” and in need of “bold reforms”, according to a major new independent report released on Tuesday.
Titled ‘Ambitious Australia’, it is the culmination of a strategic review of research and development in Australia, commissioned by the federal government in December 2024. It was led by Tesla chairman Robyn Denholm.
Ambitious Australia joins a long line of reports dating back to the Hawke-Keating era of the 1980s and 1990s, when government spending on science, research and innovation received a substantial boost.
By the late 1990s, the fastest growing part of Australia’s export mix was high-quality, complex finished goods. Accordingly, productivity growth in Australia was well above the OECD average.
We are now in a very different world. As this new report shows, Australia has fallen behind its peers on many fronts.
Diagnose the problem
If the report had done nothing more than highlight how fragile Australia’s hard-won prosperity is, it would still have performed a valuable service. And she doesn’t hold back on this point.
The report notes that Australian manufacturing as a percentage of gross domestic product (GDP) is the lowest among developed economies in the OECD.
Australia also has one of the lowest research and development expenditures in the OECD at 1.69% in 2023-2024. This comes from a peak of 2.24% of GDP in 2008-09.
And between 2010 and 2020, productivity growth in Australia was the weakest in six decades.
Of course, correlation is not causation. But in most countries, manufacturing is where companies make the biggest efforts in research and development. Unsurprisingly, as production has declined, so has spending on innovation.
Alan Porritt/AAP
Rethinking our dependence on resources
The economic concept of ‘comparative advantage’ suggests that a country should specialize in producing the things it can do at a lower opportunity cost than its trading partners.
The problem is that successive federal governments, in their pursuit of comparative advantage, have allowed Australian resource exports – such as iron ore and coal – to crowd out high-value manufacturing.
The task of this review was twofold.
First, the country had to think about rebuilding our entire research and innovation system. This also applies to neglected ‘blue sky’ research, which has no immediate practical use but has led to world-changing inventions.
For example, work on the mathematics of black holes played a key role in the invention of WiFi at CSIRO.
Secondly, it had to ensure that the system was “fit for purpose” as part of wider industrial policy to create new areas of competitive advantage in global markets and value chains.
The report’s recommendations
Following a lengthy consultation process, the report proposes a comprehensive “action plan” with 20 recommendations, including:
- better support for fundamental research
- consolidation of fragmented research and innovation programs
- changes in the incentive structure for business research and development
- improved start-up and early-stage financing
- embedding research and development in government contracts.
Following previous reviews, Ambitious Australia also called on the Federal Government to establish a new National Innovation Council. This body would set priorities and coordinate efforts to achieve objectives across six national innovation pillars in the areas of:
- health and medical
- agriculture and food
- defense
- environment and energy
- sources
- technology.
Overall, the aim is to promote more efficient teamwork within these pillars between government, industry, investors and researchers on high-risk, high-impact challenges.
What could work better
The problem with this approach is that, while the motivation is good, the bureaucratic complexity of the new structure can prove to be a disadvantage. This is especially true when it comes to industry engagement.
As a number of submissions, including one from the Business Council of Australia, suggested, Australia should follow the lead of countries such as Germany, Britain and the US, which have built a network of joint research and innovation centers in specific locations.
For example, the UK Catapult centers bring together some of Britain’s best companies, scientists, technical specialists and engineers to work side by side. In doing so, they bridge the gap between research and industry.
This is not a new idea. About thirty years ago, then Prime Minister Paul Keating advocated a similar model in his policy statement ‘Innovate Australia’, with the CSIRO and universities driving industrial transformation.
But as with so many policy statements and reports, this too fell victim to a change of government. The Rudd-Gillard government’s Venturous Australia report suffered a similar fate.
Gaps that need to be filled
The recommendations in the report are largely convincing. But there are still some significant gaps.
For example, the report provided no insight into whether current tax incentives for research and development represented better value for taxpayers’ money than direct targeted funding.
It also failed to address management’s critical role in improving productivity by engaging with the workforce and building their capacity to adopt and adapt to new technology, such as embodied artificial intelligence in manufacturing.
And then there are the Australian regions. These can play a crucial role in the research and innovation system as they address the associated challenges of energy transition and economic diversification.
A separate report on the government’s energy sector jobs plan could go some way to filling this gap.
What’s next
Ambitious Australia outlines many recommendations whose time has certainly come – especially given the federal government’s vision of a “Future Made in Australia”.
The challenge now is to develop the report in the run-up to the federal budget for 2027 and beyond. We must also ensure that strategic intent is matched by transformative actions.
