COMMENT: Government must fund Cutler’s bold innovation vision

In a perfect world, where money flows like honey, the Rudd Government would leap at the recommendations made in the National Innovation Review.

In a perfect world, where money flows like honey, the Rudd Government would leap at the recommendations made in the National Innovation Review.

Unfortunately for small and medium business, there will be many good ideas that simply won’t be funded.

Then there are others that are nebulous feel-good statements that while being given the nod will never be acted upon, like the establishment of innovation prizes, funded to the tune of $5 million over two years.

And that’s a shame, because the reviewer Terry Cutler has created the building blocks of an innovative Australia with his bold, but expensive, plan. There are many benefits for small and medium business if the Government’s white paper, due out later this year, delivers even some of them.

Cutler paints the picture of a new world where ideas, capital and people can be assessed with the click of a mouse. So the emphasis must be on making a business novel, distinctive, valued by paying customers, and hard to copy. Competing on knowledge and innovation is the key to sustainable prosperity, he says.

Innovation in the 21st century is more open and persuasive, characterised by skill in collaborating and making connections. This requires a recasting of policy to give priority to strengthening innovation at the point where businesses and workplaces engage with markets and customers.

He then starts by providing capital to starved start-ups through suggestions for a range of new programs and expansion of successful ones.

The Government would immediately establish a second pre-seed fund. Four new funds get established at the cost of $100 million over five years.

There are even modest funds to help angel groups to help increase their profile and networking. (As if that will get up!)

COMET would be expanded and continued and would benefit from strong linkages to the Enterprise Connect program. And a new grants program at the cost of $150 million would assist 200 firms. However, this is not a real grants program, as the successful firms would be required to repay the grants out of royalties or earning streams.

The maintenance of the Innovation Investment Funds, with the establishment of 10 new funds at a cost of $300 million over 15 years would be aimed to attract some superannuation funds to put money into venture capital.

One of the primary recommendations is the scrapping of the 125% R&D tax concession, which Cutler says should be replaced by a 40% refundable tax credit for large businesses and a 50% refundable tax credit for companies with turnover under $50 million. This would certainly ease the difficulty that companies currently have trying to work their way through the R&D maze.

On procurement, there are fairly weak recommendations. He calls on the Government to implement a small pilot small business innovation contracting program based on the US program. It will also recommend that a program to ensure that small and medium businesses are considered for Government procurement projects be introduced.

In the United States, 2.5% of research contracts from government are awarded to early-stage companies, which assists bringing early stage R&D and technology to market. Also in the US a huge amount of government procurement contracts go to SMEs. It is a shame this idea was not more firmly worded and central to recommendations.

There is a lot on how the skills shortage would be addressed through education, including raising the APA annual student stipend improvements and improving immigration policies to ensure Australia attracts human capital, but there is little detail on the actual programs that should be created.

And the idea of fully funding university research programs is simply wishful thinking and would lead back to the bad old days of researchers pursuing pet interests instead of disciplined projects that lead to commercial or public good outcomes.

Fast forward 10 years. Many of today’s recommendations will not see the light of day. But Cutler will have achieved something important. With the sheer breadth of his recommendations, he has shown Australia many ways forward.

It’s a shame that it will be left to the Government to choose which path we will take.