Government and business R&D stagnating – by Dr John Howard

When the Minister for Industry and Science Ed Husic revealed the latest budget estimates for R&D he claimed that ‘Gov't R&D (was) up'. A detailed analysis of the figures by Dr John Howard confirms that government investment in R&D as a proportion of GDP was, in fact, down, with worrying trends also apparent in higher education and business research.

The Science, Research and Innovation (SRI) budget tables, released on 18 October, deliver a keen insight into the government’s investment in research and development (R&D) activities and implied priorities. The data points to significant trends, concerns, and implications for R&D investment policy.

The tables highlight a dip in the government's investment in R&D relative to Gross Domestic Product (GDP), which has slid from 0.56% in 2007-08 to 0.52% in 2024-25.

While there’s been a nominal uptick of 4.2% in Government R&D investment compared to last year, this long-term trend raises concerns about the sustainability and commitment of the government to support R&D initiatives in Australia.

Looking at sector-specific investments, the tables reveal that funding for higher education research has been on a steady upward trajectory, especially after the COVID-19 pandemic.

In 2024-25, investment in this sector is set to rise by 10.1% compared to the previous year, signalling a significant recovery and renewed focus.

On the flip side, investment in business enterprise R&D has seen modest growth, while multisector research funding has fluctuated widely, particularly in energy and environmental research.

The tables underscore that, despite some increases in funding for some public research agencies, overall commitments are still stuck at 2007-08 levels.

This stagnation suggests the government isn’t keeping pace in investing in the challenges and opportunities that are emerging in the public research landscape.

In terms of the distribution of R&D investments, around 27% of the total is allocated to “General Advancement of Knowledge,” primarily happening in universities.

However, the concerning drop in funding for industrial production and technology raises serious issues about whether the research funding is meeting the needs of industry and the wider economy.

Government research spending

The analysis of investment by government portfolios reveals that seven portfolios account for 99% of R&D investment, with the lion’s share coming from the Industry, Education, and Health sectors.

This heavy concentration hints at potential vulnerabilities, as it shows a lack of diversification in funding sources and priorities––particularly in relation to areas such as renewable energy and meeting the Net Zero targets.

At the programme level, the R&D Tax Incentive (RDTI) stands out as the elephant in the room, consuming 30.1% of total resources. Meanwhile, funding for medium-sized programmes has taken a back seat, resulting in a concerning concentration of resources in a few large programmes.

Interestingly, there’s been a rise in small programmes, which now make up 2.2% of total R&D investment.

This growth raises important questions about their effectiveness and whether they deliver genuine value for money or simply serve as window dressing.

The tables suggest a need to seriously question the overall effectiveness of current funding distributions, particularly in relation to the RDTI and university block grants.

The tables also challenge stakeholders to think about how these funding mechanisms genuinely deliver positive outcomes for Australian industry and society at large.

Moreover, there must be greater clarity around how research supports socio-economic objectives, especially in areas that are hard to unravel.

Aligning R&D with national interests

In a nutshell the tables reflect a complex picture of R&D funding distribution in Australia, with ongoing challenges in ensuring that investments align with strategic national interests.

While there are promising areas of growth, particularly in higher education and some public research agencies, the overall trend calls for a rethink of investment priorities and mechanisms.

Addressing these highlighted gaps and questions will be key to fostering a strong research environment capable of meeting the future needs of both the economy and society.

Dr John Howard is an experienced policy analyst focused on science, technology, innovation (STI) policy and practice, industrial policy, management strategy, university-industry engagement, and regional innovation ecosystems. Dr Howard is Executive Director, Acton Institute for Policy Research and Innovation and Visiting Professor, UTS Institute for Public Policy and Governance.
 
Picture: Ed Husic