Australia: Broader thinking needed to avoid our own research crisis .

This piece first appeared in Capital Brief.

The Federal Government’s Strategic Examination of Research and Development (SERD), announced in the 2024–25 Budget, is due to deliver its final report before the end of the year.

There’s a lot to like about the discussion paper released by the review panel in September. While not perfect by any means, it offered several well-reasoned proposals for improvement, including some that reflect the perspective of venture capital.

As the review made clear, Australia’s chronic underinvestment in R&D is a serious problem. We spend roughly 40% less than our OECD peers on government R&D and 50% less on business R&D.

This matters because R&D spending is one of the key drivers of productivity growth and quality of life. Without the innovations that flow from R&D, our children will be poorer and Australia will become increasingly irrelevant on the global stage.

In designing our response, we must recognise that other countries wrestle with similar challenges, and learn from their experiences.

A recent report by a House of Lords committee into the UK’s struggle to grow investment in science and technology likened the situation to “bleeding out in a national crisis of growth”. Graphic, yes, but apt in conveying the scale of the problem.

While the British are great at foundational research, the committee found they are failing to retain the economic value that they produce, with too many fast-growing technology firms heading offshore to scale.

Sound familiar? This has been the problem statement of review after review into Australia’s own R&D ecosystem.

Conveniently, the Lords report offers a suite of recommendations that broadly align with the structure of the SERD process — spanning talent, institutional capital, public procurement reform and, importantly, clear leadership from the prime minister down.

Australia’s additional challenge is to work out how to compete without the strong base of business-led R&D that the UK enjoys. That’s where SERD can take a few lessons from the House of Lords.

Leadership from the top is essential. Australian prime ministers have been reluctant to champion a national focus on technology and innovation since Malcolm Turnbull, and for years we’ve seen a revolving door of industry ministers. 

The prime minister should publicly back the SERD recommendations and make it clear that they form a key plank of the government’s productivity agenda.

On the venture capital front, updating the Early Stage Innovation Company (ESIC) tax incentive and establishing a national Angel Investment Board, to advocate for investor needs and provide training and support, would be positive steps.

Public funds such as the National Reconstruction Fund and ARENA need to be turbocharged and given long-term certainty.

On the private capital side, we have a world-leading superannuation industry that is the envy of the UK, which has introduced the Mansion House Accords to drive greater investment in innovative assets. SERD should propose a package of measures to encourage superannuation funds to invest in domestic innovation, using targeted incentives rather than the blunt stick of mandated allocations.

One area where the SERD papers fall short is talent attraction. All business is people business, and nowhere is this truer than in R&D. Targeted measures, such as three-to-five-year tax relief for skilled global recruits, would help startups attract experienced talent and hopefully will be part of the final report. 

SERD represents the best opportunity this decade to improve how Australia funds, manages and captures the societal benefits of R&D. The report must set out how we can build a sustainable ecosystem powered by a self-reinforcing flywheel of capital, ideas, talent and returns.

The House of Lords committee concluded that serious, coordinated reform is needed to stop the UK remaining an “incubator economy” that continually loses its best assets.