Reviewing the latest data on Australia's innovation performance.
Recently, the Department of Industry, Science and Resources (DISR) updated their Australian Innovation Statistics (AIS) to reflect more recent data from the 2023 financial year. Their analysis provides us with the latest insights into Australia’s innovation performance, tracking the conditions for innovation and their impacts on economic productivity.
The AIS data assesses a variety of key enabling factors to measure Australia’s innovation outcomes, including:
Innovation-enabling competition, investment and commercialisation,
National and international collaborations for innovation,
Innovation-enabling training, skilled migration and job mobility,
Foreign trade in technology,
Domestic public and private expenditure on new technology and ideas,
The number and type of innovations being created and adopted, and their impacts on the economy and productivity, and
The Australian Government’s budget allocations towards SRI programs [1].
Key takeaways
Observations from AusIndustry’s analysis of the data included:
Overall, the analysis highlights an increase in innovation despite current economic conditions, with almost half (45.7%) of all Australian businesses engaging some form of innovative activity in FY23.
The Innovation Outcomes showed that the most active industries in innovation were ICT, wholesale trade and manufacturing.
Of the innovation conducted, diffusion was the predominant mode of innovation activity with 94.8% of innovations adopted by Australian companies previously existing, though there was also an increase (4.7% to 5.2%) in world-first innovations for the 2022-23 review period.
Australian businesses identified the top 5 barriers to innovation to include (1) the lack of skills, (2) access to additional funds, (3) costs, (4) uncertain demand, and (5) government regulations.
The 2024-25 Budget Tables establish a steady increase in investment in the R&D tax incentive (R&DTI) overall over the last few years (2% increase for FY25), driven by investment into the refundable portion of the R&DTI.
The AIS also assessed R&D expenditure as a proportion of gross value added for each industry to indicate the amount to research as a proportion of the industry’s overall economic activity. In terms R&D expenditure, the top industries were:
Professional, scientific, and technical services (4.22%),
Manufacturing (4.13%),
Finance and insurance (1.91%),
ICT (1.50%), and
Wholesale trade (1.09%).
Australia’s innovation results don’t stack up
Australia’s innovation investment continues to grow relative to pre-pandemic levels, with the recent AIS figures displaying the highest recorded numbers over the last decade. However, if the impact of inflation is factored in, the increase observed is very modest. Furthermore, whilst overall R&D expenditure has been rising, if R&D spend is compared to GDP Australia’s innovation performance is better characterised as being in decline.
R&DTI Transparency Report Comparison
The recent publication of Australian industry R&D expenditure as tracked via the R&DTI program provides an interesting comparison to the AIS outcomes. The R&D expenditure data was made publicly available by the ATO for the first time ever in the recent 2021-22 R&DTI Transparency Report, released on 3rd October 2024.
For the 2022 financial year, the ATO reported that the total R&D expenditure claimed was $11.2 billion across 11,545 companies. The top performing industries for the purposes of the R&DTI program were reflective of the AIS analysis. Leading the way was the professional, scientific and technical services sector (43% of claimants), followed by manufacturing (21%), wholesale trade (5%), information media and telecommunications (5%), and financial and insurance service industries (4%).
By comparison, the AIS data for this equivalent period identified business expenditure on R&D of $20.6 billion, with 38% of total business R&D expenditure in the field of information and computing sciences.
Comparing the R&D expenditure between the two reporting systems highlights that only 54% of R&D expenditure was claimed under the ATO’s R&DTI. There are undoubtedly multiple reasons that explain this disparity including inconsistencies in the definition of R&D that has been applied. For the AIS’s purposes, R&D activity is defined more broadly per the Organisation for Economic Co-operation and Development (OECD) standards. For these purposes R&D is defined as "creative and systematic work undertaken in order to increase the stock of knowledge - including knowledge of humankind, culture and society - and to devise new applications of available knowledge”. By comparison, the ATO's definition of R&D for Tax Incentive purposes excludes knowledge of humankind, culture and society which undoubtedly contributes to the difference in reported R&D expenditure.
As well as these definitional differences, the disconnect between the AIS and ATO R&D investment data is likely also indicative of inefficiencies within the R&DTI program's design preventing or discouraging businesses actively participating in R&D from accessing the tax incentives available. We have speculated on how the design of the R&DTI program might better support innovation investment by Australian companies. In the meantime, we await further information of the proposed review of Australia's R&D system as announced in the May 2024 Federal Budget.
Conclusion
Overall, whilst several key outcomes identified in the recent AIS data present a rosy picture, digging deeper reveals some concerning signs in Australia’s innovation performance, indicating a need to more effectively support businesses undertaking R&D to improve Australia’s innovation standing. As stated recently by Industry Minister, Ed Husic, “we can’t put our head in the sand and pretend this isn’t happening, we need good data and an honest appraisal of what the barriers are to lifting R&D. While there have been encouraging signs in institutional R&D uplift, we still have a lot of work to do.”
If you participated in the AIS survey but did not claim the R&DTI, and would like to talk more about how we can help you access financial support for your innovation investments, please don’t hesitate to reach out.
References
[1] Department of Industry, Science and Resources, "Australian Innovation Statistics," 18 October 2024. [Online]. Available: https://www.industry.gov.au/publications/australian-innovation-statistics.
[2] Department of Industry, Science and Resources, "How is the Australian innovation system tracking in 2024?," 18 October 2024. [Online]. Available: https://www.industry.gov.au/news/how-australian-innovation-system-tracking-2024.
[3] Department of Industry, Science and Resources, "Innovation outcomes," 18 October 2024. [Online]. Available: https://www.industry.gov.au/publications/australian-innovation-statistics/innovation-outcomes.
[4] Department of Industry, Science and Resources, "Domestic business environment," 18 October 2024. [Online]. Available: https://www.industry.gov.au/publications/australian-innovation-statistics/domestic-business-environment.
[5] Department of Industry, Science and Resources, "2024-25 Science, Research and Innovation (SRI) Budget Tables," 18 October 2024. [Online]. Available: https://app.powerbi.com/view?r=eyJrIjoiNzBmODJjZjAtNDFmYi00YTkzLWI1YWEtNDI4ZTNhZTM3NDY1IiwidCI6IjA3MDk5MWRkLWNkYjctNDc2Zi04MGRjLWU4YzNhOTFjNzBhZiJ9.
[6] B. How, "RDTI growth outpaced Industry dept projections by $860m," 28 October 2024. [Online]. Available: https://www.innovationaus.com/rdti-growth-outpaced-industry-dept-projections-by-860m/.
[7] Department of Industry, Science and Resources, "Research and development expenditure," 18 October 2024. [Online]. Available: https://www.industry.gov.au/publications/australian-innovation-statistics/research-and-development-expenditure.
[8] Australian Taxation Office, "Focus of the report," 3 October 2024. [Online]. Available: https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/research-and-development-tax-incentive-and-concessions/research-and-development-tax-incentive/r-d-tax-transparency-reports/r-d-tax-incentive-transparency-report-2021-22/focus-of-the-report.
[9] Australian Taxation Office, "Industry overview - Data about the R&DTI according to industry and business population.," 3 October 2024. [Online]. Available: https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/research-and-development-tax-incentive-and-concessions/research-and-development-tax-incentive/r-d-tax-transparency-reports/r-d-tax-incentive-transparency-report-2021-22/industry-overview.
[10] Australian Bureau of Statistics, "Expenditure and human resources devoted to Research and Experimental Development (R&D) carried out by businesses in Australia Reference period 2021-22 financial year," 25 August 2023. [Online]. Available: https://www.abs.gov.au/statistics/industry/technology-and-innovation/research-and-experimental-development-businesses-australia/latest-release.
[11] "Research and Experimental Development, Businesses, Australia methodology," 25 August 2023. [Online]. Available: https://www.abs.gov.au/methodologies/research-and-experimental-development-businesses-australia-methodology/2021-22. [Accessed Australian Bureau of Statistics].
[12] Commonwealth of Australia, "Assess if your R&D activities are eligible for the R&D Tax Incentive," 18 January 2024. [Online]. Available: https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/assess-if-your-randd-activities-are-eligible#excluded-activities.
[13] E. Husic and M. King, "Govt R&D up, overall R&D needs uplift: New report," 2024 October 2024. [Online]. Available: https://www.minister.industry.gov.au/ministers/husic/media-releases/govt-rd-overall-rd-needs-uplift-new-report.