Why business innovation investment has ‘barely budged’ and what the Albanese government plans to do about it

The Albanese government has released a revived set of Innovation Statistics, revealing the dire state of Australia’s transition into the so-called smart economy.

Industry and Science Minister Ed Husic says the $15bn National Reconstruction Fund will be vital to spurring private investment.

Investment in innovation among Australian businesses has “barely budged” since the pandemic, holding back the country’s shift to a “smart economy”, according to a new report.

Industry and Science Minister Ed Husic released the findings in a “revived set of Australian Innovation Statistics” on Thursday night at the Academy of Technological Sciences and Engineering’s gala dinner.

Mr Husic said the statistics – which the former coalition government discontinued – revealed that a lack of access to capital had overtaken finding talent and cost of doing business as the main hurdles towards investing in innovation.

He said he was “determined to turn this situation around”, saying the $15bn National Reconstruction Fund will be vital to de-risking private investment.

“It is often lost in the debate that the NRF’s central aim is to crowd-in private investment. Lowering risk, priming the pump for investors to get behind innovative businesses in this country,” Mr Husic said.

“The board is brimming with venture capitalists and governance experts and technologists. It’s not an agency investing directly in emerging businesses, as our Industry Growth Program does. It is a spearhead for increasing the sorry state of our R&D (research and development) system.”

Mr Husic said the report confirmed that “our investment as a nation in R&D is not where it should be, languishing still at 1.7 per cent” of gross domestic product. It also found government investment in R&D is up by almost 5 percentage points, outpacing private R&D spending growth.

“But business investment in R&D has barely budged … against a background of falling capital investment overall.

“These are valuable insights into what many … have suspected, the gap between our world-class research and businesses at the coal face.”

Australian venture capital ­investment increased from $US1.2bn to $US1.4bn ($2.1bn) in the half year to June 30, according to KPMG’s latest VC Pulse report.

But the industry has lost steam in the past three months, easing to $US727.3m, from $US723.1m in the same period last year.

Mr Husic said the government’s new innovation report analyses the reasons for the country’s poor performance in R&D. He said access to funds has overtaken cost and lack of access to skills as the main barrier for business investment into R&D.

“This is concerning. It shows that businesses want to innovate. But capital is proving hard to get. This is reflected in the report, which shows a fall in the number of venture capital deals, and aggregate deal value, over the last few years.

“I can assure this report only reinforces the government’s determination to turn this situation around.”

Michael Batko, who has spent most of his career working in fast-growing start-ups, including freelancing tech company Expert360 and online pet marketplace Mad Paws, told The Australian in the The List: Innovators 2024 magazine, which is out on Friday, that the government could not only help with funding but also policy.

He said the government can add value in three areas. The first of which is taking a top-down approach by matching VC commitments through initiatives like a “fund of funds”, which is an “essential feature of a mature ecosystem that Australia still lacks”.

Originally published as Why business innovation investment has ‘barely budged’ and what the Albanese government plans to do about it