Analysis: Innovative? Well, sort of

The IT&T industry is justly delighted that science and innovation have finally come to the forefront of Australian public debate, even if they have been placed there only because this is an election year.

The Prime Minister's $2.9 billion Innovation Statement is a welcome if moderate commitment to rebuilding Australia's scientific and technological capacities, offering a useful financial boost to a sector which has been starved of funds as the nation slid slowly backwards down the competitive ladder over recent years.

Australian Research Council chair Professor Vicki Sara, who helped shape the policies, says the government actions will reverse the brain drain. But others hold genuine fears that the election-year commitment may be prove to be too little, too late.

And whatever the government's rhetoric, the moves are an admission it made a serious mistake in turning its back on science and technology five years ago. Despite his vehement denials, the Prime Minister's Innovation Statement - which he boasts is the "largest group of measures ever put together by an Australian government to foster innovation" -- is a major U-turn. It is justly being seen as a welcome acknowledgement that the government's record on innovation has been less than a brilliant success. Business and education groups alike hope it marks a turning point that may start to reverse the brain drain and restore life to a flagging research community. At this crucial time in the economy such a reversal was sorely needed. And the plan sagely takes up most of the recommendations of the National Innovation Summit and The Chance for Change report by chief scientist Robin Batterham.

Until now, the Howard government has consistently eschewed a role for itself in driving the Australian IT sector forward. Ministers, including new Industry Minister Nick Minchin and Communications Minister Richard Alston, have routinely insisted that for Australia to be an enthusiastic adopter of IT is enough to keep the engines of the economy grinding away. Few players in the IT&T sector would agree with that stance and now at least some ministers are starting to modify their rhetoric, although Cabinet remains bitterly divided over just how far the government should go to address the problem. Political journalists report the changes to the R&D tax concession for business R&D were long and bitterly opposed by some of the government's economically "driest" ministers, with Treasurer Peter Costello determined to keep a lid on the cost.

So while the Prime Ministerial Innovations plan pledges $2.9 billion to boost education, research and technology over five years under the banner Backing Australia's Ability, most of that money is committed to the future years, with just $160 million committed in 2001, rising to nearly a billion in 2005. The focus is on short-term political gain and a minimal immediate cost to the federal budget. This is cunning, but not good enough. Singapore, with about one-quarter of our GDP, recently committed $7.6 billion to R&D over five years.

"The amount [the Prime Minister] is investing really grows over time, and over time is, in this day and age, a commodity most people don't have," points out IDC research manager Joel Martin. "By 2005 the Asian economies will be so far ahead of us we will be left playing an extremely hectic game of catch-up."

Further, no Australian Treasurer considers himself bound by the pledges of his predecessors. The Industry Minister, Nick Minchin, assures us the money will be provided even if an economic downturn cuts the surplus. Politicians make these promises all the time. They are never to be believed.

Business groups are disappointed with the reforms to the R&D tax concession. While they welcome the focus on research and education, Heather Ridout from the Australian Industry Group points out that while the "R" part of the statement has been very strongly resourced, the "D" part, which concerns commercialisation, has been largely ignored. Business believes further initiatives are required to help Australia turn ideas into commercial ventures.

It is common for breakthrough technology developed in Australia to be taken up by overseas companies, which then reap the jobs and profits thus generated. The government should have considered ways to encourage commercialisation of innovations within the ICT (information and communications technology) sector. It didn't. By comparison to the extra funding in research grants, the Commercialisation of Emerging Technologies (ComET) will only get a pitiful $40 million extra over four years, plus $79 million to help researchers turn discoveries into products.

But there are problems on the research front as well.

John Schubert, the president of the Business Council of Australia, insists the changes have not gone far enough, saying there will need to be additional initiatives over time. While he believes the 175 per cent tax concession for companies that undertake additional R&D is smartly targeted, he says it will be difficult to work out who's eligible. Smaller IT companies, it seems, almost certainly won't be. Other industry players are also disappointed that the government didn't restore larger tax concessions and that even the paltry 125 per cent general R&D tax concession is now being affected by changes to depreciation. The move from accelerated depreciation to life-of-asset depreciation is likely to remove about three-quarters of the extra expenditure in that area projected going forward, according to IDC estimates.

And IT&T industry leaders are concerned that the new 175 per cent concession for extra research can be claimed only after three years on the existing 125 per cent rate. They are also unhappy it applies to labour costs -- 40 per cent of R&D spending by business -- and only in proportion to the extent that companies increase R&D as a share of their turnover.

The government hopes to address the IT skills shortage through increased investment in tertiary education and further liberalisation of the skilled migration arrangement designed to attract migrants with specific skills. On the education front, the $995 million committed for HECS-style loans for postgraduate study will help address the wide gap between the cost of undertaking undergraduate and postgraduate study. But as IDC points out, the plans come in an environment rife with allegations that cuts to research funding have sparked a brain drain of academics overseas. Will the extra research grants promised by the government be committed to innovation? IDC doubts it, saying the promises may be strong on ICT research, but the question is whether such investment will result in tangible products in reality.

And it is one thing to educate one's population, quite another to then provide the incentives they need to keep them working on Australian soil. Analysts have criticised the lack of focus on providing business incentives for innovation.

While the initiatives on skilled migration are welcome, more needs to be done, with employee share options and further moves to make the Australian tax regime more competitive at the top of the list.

To the extent that the initiative does deliver, Opposition Leader Kim Beazley has every right to say the initiatives really only replace some of the money the incoming Howard government ripped out of the sector five years ago. He also insists the innovation statement's R&D figures exaggerate the boost in funds.

It is also true that many of the policies were stolen from Kim Beazley's Opposition. But until the Opposition leader announces more completely his own policies and costings he will find it difficult to make much headway with the IT&T and education sectors.

Australia faces many challenges when it comes to innovation. It must find ways to reverse the brain drain, and if it can, catch up with more advanced nations which are winning the race to develop new technologies, new businesses and even new industries.

But while the Prime Minister assures us his Innovation Statement has been a year in the making, it is hard to shake off a sense that it has been made more as a reaction to the possible threat to the Coalition's re-election chances of an Opposition determined to hammer home knowledge and innovation as themes in this election year than as a result of a genuine interest in the issues. It's an area where Howard knows he cannot afford to cede territory to Labor.

The policy will be crucial to the government's chances of re-election at a time when murmurs about the way Australian has fallen behind the global race to develop an innovation culture and new economy industries have risen to a clamour.

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