Australia needs to stop focusing on dividends to become a smart country, says Tech Council

A slowdown in research and development spending is threatening to derail Anthony Albanese’s ‘smart economy’ plans, prompting the nation’s peak tech lobby to call for a cultural shift.

Tech Council CEO Damian Kassabgi says R&D investment in Australia is not only struggling to keep up with developed countries but is falling behind.

Australia needs to swing from an investment culture obsessed with dividends to focus more on US-style capital growth to insulate its future, the nation’s peak tech lobby says.

A slowdown in research and development spending is threatening to derail Anthony Albanese’s “smart economy” plans, with investment tipped to fall from 3.9 per cent of gross domestic product to 3.5 per cent by the end of the decade unless urgent action is taken.

That’s the view of the Tech Council of Australia, which highlights in a report that Australia is not only struggling to keep up but is falling behind other developed countries. Across the OECD, R&D investment is expected to rise to 2 per cent of GDP in the next 10 years.

Industry and Science Minister Ed Husic says tech investment has “barely budged” since the pandemic, and he is “determined to turn this situation around”, believing the $15bn National Reconstruction Fund will be vital to de-risking private investment.

Federal Science Minister Ed Husic.

TCA chief executive Damian Kassabgi is also calling for changes in the way superannuation funds invest, as well as policy changes that offer tax incentives to not only start-ups but companies that are scaling up.

He said if Australia could lift R&D spending to 4.6 per cent of GDP, it would inject an extra $38bn worth of productivity gains into the national economy by 2035. That number would rise to $167bn if tech investment rose to 6.9 per cent of GDP.

“There’s a lot of funding for start-ups. Where we’re seeing a hole is organisations that are scaling up, that are at a stage where they’re a $1bn or $2bn company, they need to launch overseas. We don’t have the funding sources for those types of organisations,” Mr Kassabgi said.

“That’s why we’ve been thinking about, how can superannuation be leaning into some of these organisations? Can the NRF be part of the solution for some of these organisations as they scale up?”

Mr Kassabgi said encouraging more investment from superannuation funds into tech would not fritter away retirement savings.

“Just 1 per cent of superannuation is about $30bn worth of capital, so we’re not talking about risking retirement savings,” he said. “When we look at the returns on VCs (venture capital funds), we see there are very good returns from the tech sector on companies that do R&D. But we do think there is potentially more room around transparency of how superannuation money is spent.”

Mr Kassabgi said a gulf had emerged between the UK and US, largely as a result of America’s “flourishing tech sector”.

“Only 15 years ago, the GDP of the average Brit was about the same as the GDP of the average American,” he said. “Fifteen years later, the GDP of the average American is about 60 per cent more than the average Brit. Now, when you look at the US economy, probably the one defining factor that is different between the US and the UK from 15 years ago now is a flourishing tech and innovation sector. That is something that we need to focus on.”

Mr Kassabgi said Australia’s culture of focusing on dividends rather than capital growth was holding the country back.

“That culture doesn’t exist in the US,” he said. “The money goes back into R&D and continuing to grow the business and getting value out of the companies from a stockmarket perspective, rather than focusing on the dividend in imputation.”

He highlighted Atlassian, the market value of which has soared from $US3.3bn to $US62bn ($94bn) in the past nine years.

“One of the interesting things about Atlassian, is that the money that their employees earned when that company went public, we know about $1bn has gone back into Australia, and that’s because Atlassian and companies like Atlassian have ESOP (employee stock ownership) plans and share arrangements with their employees that allow them to share the wealth and growth of the company,” he said.

“And we think that is one of the attractive things about the tech sector. You can take a risk, and that as part of that risk, you can also benefit financially from the company’s growth.”