Budget 2014 - Innovation nation?

Private sector's role in R&D to increase

Overnight the budget dramatically changed the landscape for research and development in Australia. But it's not yet clear to what extent changes such as slashing the CSIRO's budget and ending government funding for NICTA will drive increased private sector R&D and innovation efforts. The decision to kill off Commercialisation Australia has also caused consternation in the startup sector.

The federal budget cut $80 million of funding for the Cooperative Research Centres program and the government will cut $111.4 million from the CSIRO over the next four years.

The Australian Research Council, the Australian Nuclear Science and Technology Organisation (ANTSO), and the Defence Science and Technology Organisation (DSTO) all faced budget cuts as well.

The government will end financial support for ICT research and commercialisation organisations NICTA in two years, with the organisation forced to source private sector and grant-based funding.

At the same time revealed plans to fund a $20 billion medical research fund through GP co-payments.

The government "has a fascination with markets and market forces", Telsyte analyst Rodney Gedda said. However, the effectiveness of its approach remains to be seen, particularly when it comes to R&D and the construction of the National Broadband Network. The budget sets an end-date for government funding of the NBN rollout.

"It wants to rein in government spending on services and R&D and projects like the NBN and NICTA, and other things are set to suffer as a result," Gedda said. "We'll see if the free market reforms that the government's espousing actually are going to be worthwhile in the future."

"I think from a R&D, nation capability standpoint the government's made its intentions clear to shift more of that to the private sector, but it remains to be seen whether the private sector has any interest in doing these type of R&D and infrastructure-building activities," Gedda said.

"A lot of the R&D capability is already what you could call 'semi-privatised' through universities because more of them are run like commercial businesses rather than educational institutions," Gedda said.

"But if you look at something like the NBN — if the government leaves a lot of the fibre to the premises work to the private sector [even on an end-user-pays basis] when its funding dries up, so far the private sector hasn't demonstrated its willingness to invest in a lot of infrastructure for last mile broadband in Australia."

"On the surface in many ways the budget does not have big ticket items most years from an information technology industry perspective, but there are things that absolutely shape the IT industry that come out of it," said Robert Hillard, who leads Deloitte's Australian technology consulting practice.

The impact from the budget will be a combination of direct flow-on from government actions, but also "the impression that it leaves on the industry," Hillard said.

"Government investment has two effects: One is the actual effect of the dollars that they spend but the other is the flow-on effect in terms of the mood and confidence of the industry. So I think that it's interesting — NICTA was a Howard government era initiative around the digital economy and I think it does send a message when you defund that."

Decisions about funding initiatives like NICTA can have an impact that's out of proportion with the actual dollar amount involved, he added. It can be a signal from the government that can raise questions about whether Australia is the right place to be if you want to innovate, Hillard said.

However, there are some elements of the budget that may promote innovation. "There is a strong efficiency, productivity message in there," Hillard said.

"Shared services comes through in the budget. And that's no surprise coming out of the Commission of Audit discussion and recommendations, so there's opportunity for IT to play a very big role, for eGov to play a very big role.

"The question for government is — do you replace the spending you were going to invest in incenting R&D and incenting collaboration and incenting startups to base themselves here — do you replace that by creating a buying scheme that encourages government departments, which have a pretty large percentage of IT buying power in Australia, to take more risks [when it comes to procurement]?

"Do you buy in a way that will actually encourage people to innovate for government? Because you can actually have just as much dollar impact — or in fact more dollar impact — in terms of how you choose to buy. Particularly if you set things so you're encouraging departments not to just procure single big ticket projects but to buy in smaller chunks that are more digestible by either mid-market or small business."

Ovum research director Kevin Noonan described the budget as a "lost opportunity". The government's Commission "opened the door to new thinking", Noonan said.

"A digital agenda could assist in driving savings, through a long term focus on 21st century e-government. However the budget lost much of that momentum. It was a classic old-style budget focusing on outsourcing, efficiency dividends and cuts to public service headcount. These were themes in early Howard government budgets long ago."

There was some positive news in the form of the amalgamation of backoffice functions in some organisations and the merger of customers and immigration, Noonan said.

Simon Coulton, national head of technology and media at accountancy firm Grant Thornton Australia also had few kind words to say. The government has "overlooked investment in the ICT sector by not providing adequate incentives that encourage businesses to invest in innovation," Coulton said.

The budget was a "lost opportunity to develop our knowledge based industries and services".

"Government incentives contribute to a safe environment for companies to innovate and commercialise new ideas," Coulton said.

"Inadequate investment in technology and a lack of support for innovation is holding back Australia’s productivity and global competitiveness. The ICT sector requires long-term investment, not short-term cost cutting. Strong investment in the sector is required to underpin growth throughout a modern digital economy."

Read more: Budget 2014 - Govt funds new Bureau of Meteorology supercomputer

Tags Budget 2014-15

More about Australian Nuclear Science and Technology OrganisationAustralian Research CouncilAustralian Research CouncilCSIROCSIRODefence Science and Technology OrganisationNICTAOvumTechnologyTelsyte

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