Towards 3% R&D – rebuild capability over 10 years – by Dr Philip Chindamo

Australia’s Group of Eight major universities has issued a decadal roadmap to return the nation to a necessary 3% of GDP devoted to R&D. (Download @AuManufacturing’s Towards 3% R&D e-book here) Here Dr Philip Chindamo proposes actions to boost business R&D.

A thriving, innovative, and internationally competitive economy is essential to maintain our standard of living, and create opportunities for better and more highly paid work.

But Australia’s economy is showing signs of weakness, not only in terms of recent economic growth per capita, but broader indicators of our capacity to raise standards of living, such as productivity growth.

Productivity growth, which is influenced by many factors, not least of which is how much we invest as a nation in research & development (R&D), is at a 60-year low.

Australia’s R&D intensity – R&D expenditure as a per cent of Gross Domestic Product – declined from 2.25 per cent in 2008–09 to 1.68 per cent in 2021–22.

We must reverse this downward trend as a priority. Our future economic prosperity depends on it.

The Group of Eight Universities comprising Australia’s leading research-intensive universities took on the challenge to get Australia back on the path of productivity growth and prosperity.

We developed a Roadmap report to the Australian Government – Australia’s research and development (R&D) intensity: a decadal roadmap to 3% of GDP – to achieve optimal investment in R&D over a decade.

This ambitious Roadmap calls on the Government to formally adopt a national target of lifting R&D intensity from 1.68 per cent of GDP to 3 per cent by 2035.

Go8 universities are central to Australia’s R&D effort, providing just over 20 per cent of national R&D.

But we need stronger R&D performance across all sectors to lift productivity growth.

Business expenditure on R&D

As a nation, just over half of all R&D expenditure comes from the business sector – about $20 billion annually – but the business sector’s share of total R&D expenditure has gradually declined over a period of twenty years.

We particularly see this trend for manufacturing.

The manufacturing industry currently contributes just over $5 billion to annual R&D expenditure, or around 25 per cent of business sector R&D, but twenty years ago that share was over 35 per cent.

The Roadmap sets out the solution.

We tapped into our expertise and consulted widely across the business and government sector to arrive at dozen key policy reforms in the Roadmap.

Central to the Roadmap is facilitating stronger investment by the business sector to lift our R&D intensity.

Key recommendations specific to lifting business R&D include:

• Introducing a Small Business Technology Transfer type program, which has been so successful in the United States, to incentivise Australian SMEs to engage with research institutions on R&D collaboration
• Leveraging the Research and Development Tax Incentive (R&DTI) by offering an additional equity or debt finance incentive from the National Reconstruction Fund to businesses that qualify for the R&DTI and enter into formal R&D collaboration with an Australian research institution
• Facilitating further collaboration between businesses and the research sector, including strengthening the National Collaborative Research Infrastructure Strategy programme
• And improving the coordination of existing programmes and support to incentivise development of knowledge precincts through co-location of Australian universities and businesses.

By implementing these reforms to raise our national R&D intensity, we can enhance Australia’s innovation and productivity potential that underpins our future prosperity.

Now is the time for action.

Dr Philip Chindamo is chief economist at the Group of Eight (Go8) Universities and has led the project on lifting Australia’s R&D intensity. He has previously worked across government and the private sector, including as chief economist at the Australian Industry Group, where he monitored and advised on Australian industry policy, including manufacturing. He holds a PhD in economics from the University of Melbourne.

Picture: Dr Philip Chindamo