Feds tweak levers for innovation

The federal government’s National Innovation and Science Agenda, released last week, has been well received by Western Australia’s business community, despite mixed evidence that publicly funded incentives for research affect growth.

Among issues highlighted by the government to be addressed were the nation’s low level of industry-research collaboration, lack of early stage capital, and poor school maths skills.

The $1.1 billion package had a variety of spending initiatives, including a $200 million Commonwealth Scientific and Industrial Research Organisation innovation fund, $250 million for a biomedical research translation fund, and $127 million for grants to promote industry-research collaboration.

An additional $48 million will be spent encouraging children and the broader community into science and technology subjects.

There were further regulatory changes, including making it easier for businesses to use past tax losses, shortening bankruptcy periods, and introducing safe harbour provisions for directors in some scenarios.

Chamber of Commerce and Industry of WA chief executive Deidre Willmott said the state’s business community would particularly welcome the changes to insolvency laws.

An additional benefit would be through improved tax incentives for startups.

Australian Private Equity and Venture Capital Association chief executive Yasser El-Ansary supported that view.

“These and other measures, such as the new CSIRO innovation fund and biomedical translation fund, will go a long way towards plugging the current capital and commercialisation gap between our research investment and entrepreneurial potential,” Mr El-Ansary said.

The recently established Growth Centre for the Mining Equipment Technology and Services, a government-funded initiative, also supported the tax incentives.

Chair Elizabeth Lewis-Gray said the focus on research and development would benefit the mining industry, where Australian companies had a strong innovation focus.

By numbers

Australia is mid-ranking on research and development measured by both labour allocation and expenditure as a portion of GDP, according to the latest report from the Organisation for Economic Co-operation and Development.

The country’s position is comparable to France and New Zealand.

The funding mix is different to most competitors, however, with a very low level of direct government support for research and development compared to other developed nations.

It ranks about seventh for indirect government support.

More than 80 per cent of the government’s spend on research and development is through tax incentives, the OECD found, the second highest among member nations.

But evidence of the impact of public research spending on productivity is mixed.

A 2006 study by the Productivity Commission modelling the impact of research spending in Australia suggested it could crowd out private investment.

That would particularly be the case in a deficit spending environment.

“Government spending can crowd out private investment by increasing the demand for research and development,” the paper said.

“Increased demand will result in R&D costs rising.”

How much exactly was not quantified.

“The increase in costs will also affect the investment decisions of firms that are not a direct target of the policy measures,” the commission said.

That followed earlier papers that found public research investment lifted the wages of researchers and reduced efficiency.

But there is also evidence that public research spending could reduce fixed costs, improve capacity and lower common costs, which would increase efficiency.