Terry Cutler explains his innovation package to SmartCompany

Just hours after the release of his National Innovation Review, Terry Cutler talks to Amanda Gome about whether the raft of recommendations will actually get implemented.

Just hours after the release of his National Innovation Review, Terry Cutler talks to Amanda Gome about whether the raft of recommendations will actually get implemented.

Amanda Gome: How big is this package?

Terry Cutler: There are some very big initiatives and a huge focus of the package is on SMEs. At the pure research end of the spectrum we want to restore research funding to 1993-94 level, an increase of 27% which might cost $2 billion. And then there is the full funding of research on top of that.

That is a huge amount of extra funding. The Government is never going to fund all that.

Look, we have put out a framework with a 10 year perspective. If you look at it, we have tried to summarise an innovation scorecard and the picture is incredibly dismal.

We are massively underperforming, we are not growing competitively and there are far too few globally oriented firms.

What we are starting to see is the Australia problem; we are so relaxed because of the mining boom we are going backwards in so many other areas of the economy.

Are you surprised at how backward we are?

I started out thinking we were average, but we are worse than average. The level of investment required is significant. We’ve got to put it in context.

This isn’t just outlays of expenditure, but investment that will give you an economic return in the future.

That is what people don’t think about. Finland and Ireland talk up the economic return; that every dollar you invest now is returned many times in tax and employment.

What do you say to those who claim that many of the SME benefits are just handouts for businesses that would spend the money anyway?

Firms that first move into a market space shoulder a lot of risk. It is easier to be a follower. Even if you fail, the skills and knowledge gained is picked up by other firms and so there are national benefits.

This is not business welfare. Propping up mature oligopolies is, and this is partially the rationale behind rejigging the R&D concession. The value of that is so diminished there is no incentive for a 7.45 cents in the dollar benefit from 125% allowance. Moving to 10 cents in the dollar for a 40% tax credit, and the credit is refundable with the tax benefit coming when the business needs it – this makes a significant difference to SMEs as they get the cash returned which addresses the core need of those companies.

This massively rebalances the scheme for SMEs with special benefits for biotech firms and tech firms.

Now judging from the package it appears you have traced a company’s development from a start-up phase onwards, looking at market failure and then developing programs and assistance to address that market failure.

Yes. So you have the R&D tax credit, renewal of pre-seed funding, expansion of COMET.

Then to assist the connection with research facilities, SMEs can qualify for a voucher for $15,000 to access contract research from a uni and research agency; which is a way of making it easier to establish connection and by doing it in conjunction with COMET and Enterprise Connect, avoids problems of companies doing deals with mates in universities.

How about assistance with export?

That is part of another review. But we have internationalised the whole innovation system by making sure the research or programs are open to anyone Australia-based. For example anyone can get the tax credit if the activity they are doing is based in Australia. This addresses the problem of IP owned here but used offshore missing out.

So how confident are you that the majority of your package will be funded and true to its spirit?

I wouldn’t expect them to do it all at once, but it’s incredibly important the holistic picture is kept.

The initial reaction from the Government has been good. They were looking for a big package to make a big statement, and although it is a multi-year program, I would be extremely disappointed if a significant momentum was not created at the next budget. Otherwise no one is putting money where the mouth is. And I think this is something we didn’t stress strongly enough in the report; just how badly we have fallen behind.

Related story:

• Solving Australia’s innovation crisis