Strategic Examination of Research and Development: discussion paper

2025 Strategic Examination of Research and Development

Input in response to discussion paper

Prologue

There have been massive changes in global trade and economic thinking since the SERD discussion paper appeared. These are far reaching and will not be undone in the short or medium term.

“The Old Global Economic Order Is Dead”: headline of an article on changes to the international trading system in place since World War II ( Martin Wolff, Financial Times 7 May, 2025)

Everyone has been shaken out of their comfort zone. The noise you are hearing from the political undergrowth is the frantic foraging for options. People are rethinking their position in the world and their relationships. There is no doubt at all this is a major shock. This is the most significant geostrategic event I can remember in terms of America and the world. (Tony Blair, the former UK prime minister as reported in The Guardian, 10 May 2025).

We are not realising that there’s a fundamental shift occurring in the global economy. We should be thinking about repositioning Australia for the next few decades, we have to rethink our geopolitical alliances and the economy (Warwick McKibbon, ANU, The Age 27 April, 2025)

We argue that these changes will drive increased investment in Australian industry to promote diversification, enhance national resilience, and foster greater industry independence. Simultaneously, an increase in defence spending can be anticipated to expand Australia's sovereign capabilities. We expect these developments will necessitate greater government intervention in the marketplace. A significant portion of this investment will likely involve the application, adoption, or development of new technologies.

This evolving landscape provides a new backdrop for the Government to plan its investment in the national innovation system. It must ensure that the country’s scientific capabilities are positioned to deliver the greatest national advantage.

Upgrading national performance

The SERD discussion paper makes a convincing case that Australia has fallen short of its potential in exploiting one of our most valuable assets - our scientific capabilities - to benefit the nation through innovation.

Australian businesses are not keeping up to the frontier of innovation. Further, they may not be aware of how far they lag (Productivity Commission, 2023, SERD, p. 13).

Here we focus on one aspect of this multifaceted problem: how to improve the national return from the $14.4 billion annual expenditure by Federal government on R&D. How can Australia get the greatest possible economic and social value from this investment?

We accept the essential role of R&D in innovation and in building technology capabilities and argue that R&D is most productive when it is effectively coupled with industry and government needs and priorities. We wholeheartedly support the call for careful, long-term planning and consistent bipartisan support for the Australian R&D system, and for its application be woven into key industry and innovation policies.

We argue that investment in R&D, whether at a national or program level, should be undertaken with two dimensions borne in mind –the importance and feasibility of research in the new area, and its attractiveness in terms of longer term economic and social return. This Feasibility/Attractiveness approach has been used in national research priority setting exercises in New Zealand, Czech Republic and Indonesia, and as part of the UK research Foresight (Upstill and Spurling, 2025).

Looking at the pattern of government expenditure over recent decades, the picture that emerges from the SERD discussion paper is one of drift, rather than national intent. The R&D Tax concession has doubled since 1991/92 and now accounts for more than 30% of Commonwealth spending on R&D. The distribution of government-funded R&D has changed dramatically (Figure 1) away from government research bodies toward the higher education sector.

Table 1 shows the distribution of funding over the period 1993-2024, excluding the tax. Table 2 shows the change in distribution of government R&D funding by socioeconomic objective, as reported by the performing research bodies, and Figure 2 presents these data as a bar chart.

Figure 1 Australian R&D expenditure, 1993-2022 (SERD, p. 23)

Table 1. Share of Australian government funding excluding the tax incentive

Def

CSIRO

ARC + block

NHMRC

1991-92

10.3

18.9

38.7

4.3

2001-02

6.6

12.1

30.4

12.9

2011-12

6.4

10.3

33.9

11.4

2021-22

10.9

10.9

32.3

9.9

2023-24

4.9

10.6

31.6

9.9

https://www.industry.gov.au/publications/science-research-and-innovation-sri-budget-tables#latest-sri-budget-tables-1

Table 2 Australian government R&D funding by socio-economic objective, 2005-2025.

Socio-Economic Objectives

2005/06

2010/11

2015/16

2020/21

2024/25

01. Exploration and exploitation of the Earth

4.1

5.4

3.0

3.49

3.95

02. Environment

1.4

2.6

3.0

2.7

3.2

03. Exploration and exploitation of space

0.1

0.9

0.4

0.3

1.5

04. Transport, telecommunications and other infrastructures

1.4

2.4

2.5

1.8

1.9

05. Energy

17.5

5.7

6.2

4.0

4.2

06. Industrial production and technology

17.6

19.8

16.1

12.5

13.5

07. Health

13.4

16.1

14.2

19.8

19.9

08. Agriculture

6.0

6.0

7.7

6.9

7.9

09. Education

0.2

0.2

0.2

0.3

0.4

10. Culture, recreation, religion and mass media

0.8

0.7

0.2

0.2

0.5

11. Political and social systems, structures and processes

1.5

4.8

6.4

3.1

4.5

12. General advancement of knowledge: R&D financed from General University Funds (GUF)

24.0

23.8

28.2

34.1

23.9

13. General advancement of knowledge: R&D financed from other sources than GUF

5.9

4.9

4.3

4.28

7.6

14. Defence

6.4

6.7

7.5

6.4

7.1

https://www.industry.gov.au/publications/science-research-and-innovation-sri-budget-tables#latest-sri-budget-tables-1

We note:

the big shift in the balance of intramural and extramural research. Funding (as a percentage) for the DGST has effectively halved since 1991/92, as has funding for CSIRO. In contrast, funding for the NHMRC (which funds university and medical research Institutes) has more than doubled and funding of the ARC and other university research has fallen by about 30%.

the changing a distribution of national research classified by socio-economic objectives. There has been a large drop in research for energy and industrial production & technology and a corresponding increase in spending for the health objective.

A further change, as noted in the SERD discussion paper, has been the growth of applied research by the university sector over recent decades. It is now the main performer of applied research, making Australia something of an outrider internationally.

(p.19) Higher education institutes account for 50% of applied research expenditure in Australia. By comparison, universities contribute 14% of applied research in France and South Korea, 18% in the United States and Japan, and 30% in the United Kingdom. (SERD, p.19)

This leads to the question: have these funding trends, been the deliberate result of Government priorities? Or are they the unintended consequences of poorly co-ordinated policy making?

Figure 2 Australian Government R&D funding by Socioeconomic Objective, 2005-2025

Arresting the drift

Radical action is needed to arrest this drift. Steps include:

Prioritising R&D as a national asset and acknowledging the importance of R&D talents and resources as enablers of industrial development and growth. This calls, firstly, for increasing research that directly supports activities of national benefit and, secondly, growing our national absorptive research capacities and the ability to adopt to changing circumstances and exploit scientific knowledge developed elsewhere. We believe both courses will become more urgent in the new global landscape.

We note that Australia has successfully exploited its science and technology strengths at critical times in our nation’s history. This can be seen in the contribution of CSIRO and universities to the rapid growth of industry self-reliance in World War II. And also in the response to calls to lift the international competitiveness of local industry in the 1980s (or become a “banana republic”). This led to a wide-ranging program of microeconomic reform. Australian researchers played a critical role in working with industry and responding to this challenge.

Reconsidering the balance of government R&D funding across different sectors. Table 2 shows that spending on Industrial production & technology R&D has fallen from 17.6 to 13.5% over the past two decades. In addition, the spending on defence R&D has effectively remained the same. Is this a rational response to the increasing uncertainty in the world in general or our region specifically?

Tackling the disengagement of research from national needs and goals. While it is essential we maintain support for fundamental research in areas of world class performance, we need increased goal-oriented R&D linked to national needs and away from a system driven by “bottom-up” research goals. We note the comment that:

The substantial reliance on international student revenue by Australian universities means that R&D capacity is linked to enrolment patterns in student markets. It does not reflect the quality and impact of research or its contribution to national priorities (Department of Education, SERD, p.22).

This “science-push“ process means the economic and social benefits of research are not systematically considered: it runs contrary to the situation in many research-intensive industries in which the role of the scientist is to take part in a top down-bottom-up process to work out how to achieve the company’s ambitions. Indeed, in many research-intensive industries the thrust of company research is determined by the marketing department rather than the scientists themselves.

Establishing shared on areas of national importance to guide and justify future government funding and to help guide R&D funding. There are different ways of doing this. We note that other countries have employed a national mission approach:

R&D funding in high-performing jurisdictions often recognises that spillover benefits of R&D vary and emphasise investments in national missions. For instance, funding in the United States, Germany and South Korea is more strategically directed and intentional, led by national agencies or specific strategies (SERD, p.30)

The critical technology areas that are listed in reports by the National Reconstruction Fund, the Critical Technologies Statement, and Future Made in Australia report are indicative of the kind of national missions that could be developed in a future, consolidated exercise. (See Annex)

What to do?

We suggest three areas for change:

Establish a Cabinet level process to set thematic priorities for innovation and R&D in support of national industry, social, and defence objectives. This would help determine long term needs for each portfolio and provide a setting for decisions on national R&D funding.

Increase the proportion of intramural government funded R&D. The amount of government funding for intramural agencies such as DGST and CSIRO has been swamped by extramural funding. Intramural agencies have distinct advantages, particularly in a mission-driven national environment. They are largely focused on applied research focus. Their national responsibilities are set out in charters, with protocols for reporting on government funding. They also have the flexibility and breadth of expertise to form research teams of critical mass in areas of national importance.

Establish reporting procedures for applied research. These would require government-funded applied research be subject to explanation/justification in terms of its national return and alignment with national priorities as decided in a Cabinet-led process. One approach that could be used is the employment of a Feasibility /Attractiveness framework to ensure that both scientific merit and national relevance are taken into account in the planning and conduct of research.

Garrett Upstill

Thomas H Spurling

Office of the Chief Scientist,

Swinburne University of Technology,

Hawthorn, Victoria 3122

18 May 2025

Annex Rationale for Government R&D investment

There are parallels between government and industry rationales for R&D investment.

The Government is like a large corporation with many divisions or departments. Each department needs to have a process to consider the pressing national needs that will arise in the medium and longer term, then identify the capabilities and technologies, they need to respond to these needs, and then to identify the areas of science and technology, and in particular, research – achieve these

We note that from its early days the Government did have a process of this nature. They established a National Laboratory to develop the analytical chemistry needed to support their customs and excise operation, a meteorology operation for weather forecasting and a defence research operation.

It is, of course, possible that there will be some overlap between the national research needs, as perceived by different departments and therefore a Cabinet level process is needed. It would be desirable for the details of these processes to be available for the public to understand particularly to guide t academic researchers developing areas of research.

Having understood the research needs the next steps are to decide where the research should be done and what resources will be required. Much of the research needs of the Australian government have been traditionally been met by intramural agencies. (E.g. CSIRO, Defence Science Group, the Bureau of Meteorology (BoM), the Therapeutics Goods Administration (TGA) and the Australian Nuclear Science and Technology Organisation (ANSTO) although in recent decades there has been a decline in the percent of science and innovation performed intramurally. The Science and Industry Research Act (1926) empowered CSIR to undertake research for the benefit of Australian primary and secondary industry. Until the 1970s research to meet the needs of the Government was done by the groups mentioned before. The SIR Act was modified in 1988 to include research for the community and the Government, particularly research to meet international obligations.

The Productivity Commission has emphasised that supporting ‘spillovers’ is a legitimate function of the Government and needs to be part of the previous discussions. Establishing CSIR/CSIRO was the first attempt in Australia to recognise that on their own businesses would underinvest in science and technology. The Science and Industry Research Act (1926) set up strong advisory mechanisms to ensure that the research undertaken by CSIR/CSIRO was in line with the needs of the industry being supported and that there was adequate absorbative capacity in the various industries. The advisory mechanisms work particularly well in primary industries where the commercial entities are generally too small to conduct their own research, are competing with entities in other countries rather that their neighbours and are willing to contribute to the cost of the research through levies and other mechanisms.

Entities like the BoM and the TGA are research organisations with only the scientific disciplines needed to carry out their functions, whereas CSIR/CSIRO is a multidisciplinary organisation established to address problems across the breadth of commercial activities.

We note that none of the projects that emerge from the processes advocated above were selected by a ‘peer review process’. Peer review processes are ideal for selecting work which aims to advance knowledge without consideration of use. Research in Universities is usually selected by a peer review process without the input of any possible end user.

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National Reconstruction Fund Corporation

Critical Technologies Statement

Future Made in Australia

renewables and low emission technologies

medical science

transport

value-add in the agriculture, forestry and fisheries

value-add in resources

defence capability

enabling capabilities.

advanced manufacturing

transportation

clean energy

healthcare

defence

national security.

Net Zero Transformation Stream,

Renewable hydrogen

Green Metals

Low Carbon Liquid Fuels

Economic Resilience and Security Stream.

Critical Minerals Processing

Clean energy manufacturing