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TIME TO BEGIN REBUILDING THE INNOVATION SYSTEM

21-05-2018
by 
in 

This year’s federal budget was delivered during National Manufacturing Week. Apart from that coincidence, however, the budget had almost no connection to Australia’s manufacturers.

There is certainly nothing in it resembling a plan for the future of the sector, or any recognition of the importance of manufacturing to the wider economy. Insofar as there is any kind of vision involved, it is a narrow political one.

This is a budget crafted for the federal election that must be held sometime in the next 12 months, and may be held very soon.

It uses creative accounting to mask the fact that the Government’s neglect of the national innovation system has remained unchanged since the substantial cuts to innovation programmes and industry support measures in the 2014 budget.

This budget was a missed opportunity to begin rebuilding the innovation system at a time when manufacturing is in transition throughout the industrialised world.

The so-called fourth industrial revolution is transforming the way the world works. It does not have to be just another drastic round of job losses caused by automation, as gloomy media reports suggest.

EU countries, especially Germany, are showing that the use of robotics and the Internet of things in smart factories can boost manufacturing output while creating new kinds of work for people. But achieving that outcome requires getting the public policy settings right, and that has not been happening in this country.

There is still a token doffing of the cap to innovation, but it is not matched by the level of public investment required to make the innovation system work as it should.

The 2014 cuts to business support available from the Department of Industry and AusIndustry remain in this budget. And there has been no review of the piecemeal programmes announced in previous budgets, to assess whether they have been effectively implemented.

There are some welcome developments, such as funding for an improved GPS system and the new space agency – though the latter will not get the $50 million widely reported in earlier media stories.

But closer scrutiny of the big-ticket item in innovation spending, the National Research Infrastructure Investment Plan, reveals it to be not such a big ticket after all.

This was announced with great fanfare as a commitment of $1.9 billion – that amount, however, is to be spent over 12 years, and many of the specific commitments have yet to be announced.

In this volatile world, funding projections over 12 years can be so unreliable as to be almost meaningless. There could be four or five federal elections during that time.

The actual commitment over the next financial year under this “plan” is only $5.5 million.

The most significant innovation item in this budget is in fact not a spending commitment but a cut. Over the next four years, the Government is planning to save $2.4 billion by cutting the R&D Tax Incentive, the most important measure linking the tax and innovation systems.

The so-called “Three Fs” review of the innovation system made a series of recommendations about the Incentive. The key recommendation was the adoption of a premium rate, to foster collaboration between industry, universities and the public research agencies.

The review also recommended offsets to fund that new initiative. What the Government has done in this budget is take the offsets while failing to act on the premium rate.

It has also introduced a new, and very complicated, sliding scale that gives the most benefit from the Incentive to companies with high-intensity investment in R&D. This would disadvantage companies that do most of their manufacturing in Australia.

Labor will have more to say about the future of the R&D Tax Incentive, and will consult industry stakeholders about the impact of the announced changes.

What is clear now, however, is that science, research and innovation programmes have been short-changed in this budget, as they have for nearly five years.

There is nothing comparable to the $1 billion Advanced Manufacturing Future Fund announced by Labor, which would support innovative Australian manufacturers seeking to expand their business and create jobs, but who find it difficult to obtain private finance.

Or the Australian Investment Guarantee we have also announced, which would provide accelerated depreciation incentives for new capital equipment to keep local firms internationally competitive.

I am not citing these measures for partisan point-scoring, but rather to emphasise that announcing a plan for the future of Australia’s manufacturing sector requires more than pea-and-thimble tricks with the budget.

The longer we put off the serious work of devising and implementing that plan, the greater the risk that Australian manufacturers will be left behind.

Senator Kim Carr is the Shadow Minister for Innovation, Industry, Science and Research.

 

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