In the ever-evolving landscape of business, innovation stands as the driving force propelling progress – a reflection of Australia’s forward-looking vision.

However, recent statistics raise concerns about the state of Research & Development (R&D) expenditure in Australia, indicating a potential ebbing tide of innovation. Despite a commendable 14 per cent surge in business expenditure on research and development (BERD) in 2021-22, the overall scenario reveals a diminishing investment trend.

Reaching a 17-year low, national spending on R&D, as revealed by the Australian Bureau of Statistics in August, dipped to 1.68 per cent of GDP in 2021-22, a 0.12 per cent decrease from 2019-20. These numbers indicate a closer examination of the numbers and an understanding of the implications for Australia’s innovation landscape may be needed.

Amid the substantial $38.75 billion spent in 2021-22, businesses demonstrated a commitment to driving innovation by contributing $20.6 billion (53 per cent). The higher education sector also played a pivotal role, allocating $13 billion (34 per cent) to R&D efforts. Government spending on R&D however, was a historic low and only accounted for 0.49 per cent of GDP in 2022-23. A review of the past 10 years revealed expenditure on R&D in Australia had dwindled from a historical high of 2.4 per cent in 2008 to 1.68 per cent in 2022.

The figure of 1.68 per cent signifies the proportion of the economic pie allocated to fostering new ideas, ground-breaking technologies and the future. While a 0.12 per cent decrease may seem incremental, it sends a resounding message about the challenges and opportunities Australia faces in the realm of R&D. This statistic not only falls below the OECD average of 2.71 per cent but also lags behind global leaders. For instance, South Korea has an impressive 4.93 per cent R&D-to-GDP ratio.

Robust R&D investment is of paramount importance as it fuels innovation, enhances competitiveness and secures a nation’s foothold in the global marketplace. With concerns about Australia’s ability to keep pace with global counterparts, the 2022 Federal election saw the Labor party pledge to elevate expenditure to 3 per cent by 2030. However, the current trajectory paints a different story, risking Australia to slip further down the list of OECD countries investing in innovation in the next five years.

The consequences of this decline extend across industries reliant on innovation, potentially compromising Australia’s global standing in technology, healthcare and other critical sectors. It is therefore vital for policymakers, businesses and the broader community to recognise the urgency. While business commitment to R&D remains commendable, a collaborative effort involving government, academia and the private sector is required to reverse the current trajectory.

Furthermore, recent figures emphasise that Australia’s business R&D intensity is at a two-decade low, with the decline bucking an OECD trend of increasing R&D intensity. Government support for business R&D relies on indirect measures like tax credits and rates of effective support have increased over the last decade. Building a broader industrial base for R&D emerges as a key strategy to improve Australia’s R&D performance and secure a robust foundation for innovation.