Our R&D system is in crisis. It’s time to act

Jun 21, 2023
R & D or Research and development text on black blocks, concept.

Near on a decade of neglect has left Australia’s national innovation system in a lamentable state, as the Academy of Science has observed.

The most recent science funding tables show that government expenditure on Research and Development (R & D) as a percentage of GDP are at the lowest levels since records began. Further, that during the pandemic, education spending actually fell.

Many ministers have confirmed that the Labor Party’s stated policy aim is to lift R & D expenditure from 1.8% of GDP to 3% by 2030. That is an appropriate ambition: in fact it has been Labor policy since 2014. But the record shows we are going backwards. So it is strange that the working drafts of the Labor Party’s new platform have omitted this target. Commitments to fix this remain unfulfilled.

The challenges are not all about money. The fact is that in Australia, our national innovation system lacks cohesion, coordination and program scale of other advanced economies. Our research effort is fragmented across 200 plus programs in 13 portfolios – with over a dozen Ministers each protecting their own patch. Business support programs aimed at stimulating investment number over 550. It’s no wonder you hear all too often that business finds these programs confusing and impenetrable.

Our single largest instrument for R & D support is the tax incentive, but it has not been overhauled despite clear and sage advice from some of the most respected experts in the country. Nor will it be touched by any of the reviews running in the education system. Basic research funding has now slipped to just 22% of total funding, a tipping point that threatens the viability of the entire research value chain. Without new knowledge, there can be no commercialisation.

Australia faces acute challenges across a range of areas. The stakes couldn’t be higher. Coherent, coordinated R & D investment is the key to building genuine sovereign capability, of maintaining living standards and social wellbeing. The productivity of our economy and our capacity to solve problems and build things will depend on our science and research capacity. Our R & D as a percentage of GDP is miles below our competitors and our performance has been declining for the last ten years.

It is made more difficult when we appreciate that Australian business culture lags behind our competitors. The average ASX 200 company spends just 3% of revenue on R & D, in comparison to the international average of 6% for listed companies. Figures from the industry department assert that a minority of all Australian companies are innovation active.

Universities conduct 35% of the total national research effort – largely on behalf of government and business who do not pay the full cost of this research. Indeed, about half of the university research effort is funded from their own resources. On average a government grant only provides 46% of the cost of research, requiring the university to find the other 54% from other funding sources. In effect, this means our universities have been asked to subsidise the research effort by government and business by transferring money from international student fee revenue and other teaching income. That means taking money away from other equipment, facilities and staffing.

It is not sustainable to run a national research enterprise on this basis. If you can’t keep the lights on, the water running and the library staffed, you can’t conduct research. It is that simple. That’s why the previous Labor Government designed and introduced a program to fund the full cost of research, known as Sustainable Research Excellence (SRE).

The SRE initiative provided $500 million for three years in the 2009 budget. Eighty percent of this was contingent on universities undertaking transparency costing audits, as well as meeting specific performance targets. Twenty per cent of this funding went to all universities on a formula-based allocation. This program was suspended and it needs to be re-established.

The current discussions within the Higher Education Accord Review have concentrated on the compacts. Research is playing second fiddle and the universities are dividing on the issues of quality versus excellence in the pursuit of university programs. This is a nonsense because you cannot separate quality from equity in well-designed programs: access to mediocrity is no kind of equity, after all.

It is timely that we have a whole of government root and branch national enquiry into how we can lift our R & D performance. Such an enquiry could emulate and build upon the best international experience that we’ve seen from the British, the Canadians and the Americans.

Historically we have used the review process to shape national policy directions. Think of the Vernon inquiry (1965) into economic policy, or the Jackson inquiry (1974) into manufacturing policy, or even Gough Whitlam’s Royal Commission into Human Relationships (1974). Such a review into our innovation system would be timely, especially if we seek to achieve the kinds of productivity gains the Treasury has built into its forecasts in the latest Budget. Those improvements cannot and will not be achieved without a research and innovation system that is humming. But the open, comprehensive and frank review needed to get there will require the support of all the leading players within that system.


An edited version of this article appeared in the Australian Financial Review, June 18, 2023.

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