Go8 submission to the Economic Reform Roundtable (ERR)

July 25, 2025

Economic Reform Roundtable, The Treasury

The Go8 consents to the publication of this submission and has no wish for any of it to be treated as confidential.

Introduction

To improve Australia’s languishing productivity as well as enhance economic resilience, national investment in research and development (R&D) investment needs to be lifted to at least 3 percent of GDP. This is because labour productivity depends on the capital labour ratio and R&D investment directly adds to the capital stock which raises this ratio and productivity.

Modern economics also highlights the importance of R&D investment to lifting productivity relative to other forms of capital investment. R&D is a form of intangible capital that has unique features for which there are no substitutes – unlike physical capital investment, it is both non-rivalrous and to some extent non-excludable.

These unique features are the basis for achieving increasing returns to scale. The economy-wide returns to R&D investment in Australia are significant – conservative estimates suggest $1 of R&D investment in Australia creates an average of $3.50 in GDP per capita benefits.^[1]

While an aspirational R&D target of 3 per cent of GDP has been a longstanding goal in the ALP National Platform, we are moving further away from this target. Australia is investing less in R&D as a share of the economy (‘R&D intensity’) than at any time since the global financial crisis (GFC). Over the same time, Australia’s productivity growth has weakened, which undermines our standards of living.

While other economies are moving fast to lift their R&D intensity to boost their productivity, Australia is falling behind. It is time to move from aspiration to action on R&D. With the right incentives and policies, we can enhance our innovation and productivity performance.

Reform recommendations

Lifting R&D needs to be coupled with other productivity enhancing reforms – such as enhancing research infrastructure, achieving international research collaboration, improving workforce training, boosting investment in artificial intelligence, and reducing red tape.

No one sector alone can fix Australia’s productivity problem, and it cannot be fixed overnight – we need a long-term tripartite approach involving government, industry, and research sectors working together.

The attachment provides a succinct discussion of our reform recommendations. The Go8 has undertaken significant work on productivity, resulting in our recommendations to the Australian Government for a comprehensive decadal roadmap for broader productivity-enhancing reforms in Australia’s research and development (R&D) intensity: a decadal roadmap to 3% of GDP (“Go8 Report”). The Go8 Report has been provided to the Treasurer and other Ministers in July 2024.

Conclusion

Lifting national investment in R&D is necessary for productivity growth because R&D investment is the basis for achieving increasing returns to scale. We need to act now on lifting R&D to boost productivity.

Our evidence-based recommendations reflect extensive consultation by the Go8 with industry, government, and the broader research sector. We have also contributed to, and are supportive of, the broader recommendations outlined in the Joint Group of Industry Associations’ submission to the ERR.

Go8 universities are responsible for over 20 percent of the nation’s R&D investment. We have a key role to play in supporting the Albanese Government’s productivity agenda and will harness the skills and knowledge capability in our universities to work with government and industry to create a more dynamic, competitive and productive economy.

Attachment A

Lifting R&D investment is not about locking in government expenditure – it is about investment across all sectors, with a predominant focus on lifting business sector investment in R&D.

A 3 per cent of GDP target for R&D investment is not arbitrary. The economic calculations underpinning lifting investment in R&D from 1.7 per cent to (at least) a goal of 3 per cent of GDP are provided in section 3 of the Go8 Report Australia’s research and development (R&D) intensity: a decadal roadmap to 3% of GDP. That report sets out the economic underpinnings and an estimate that the long run optimal level of R&D intensity for Australia is actually closer to 4 per cent of GDP.

A national R&D target is also supported by the Australian Universities Accord Review Panel (2024) in its final report to the Australian Government:

“…the Australian Government develop a multi-agency government strategy that sets medium and long-term targets for Australia’s overall national spending on R&D as a percentage of GDP, requiring a significant increase to ensure Australia fully utilises the potential of its research sector and, consequently, competes more effectively in the global knowledge economy.”^[2]

The ALP National Platform seeks to have R&D investment get closer to 3 per cent of GDP in line with comparable countries, but we currently do not have a timeline or systematic roadmap for turning this aspiration into a reality.

Since the GFC, Australia’s R&D investment at 2.24 per cent of GDP, which was essentially the Organisation for Economic Cooperation and Development (OECD) average in 2008, has fallen to 1.66 per cent of GDP.

The fall in Australia’s R&D investment as a percentage of GDP over this period has been concentrated in the business sector where R&D investment has fallen from 1.37 per cent of GDP to 0.88 per cent of GDP.

Higher education sector R&D intensity has remained stable but faces headwinds in terms of sustainability of funding sources, such as reliance on international education revenue and external funding which does not adequately cover the indirect costs of research.

For the government sector, overall Australian Government investment in R&D (inclusive of R&D tax incentives) has fallen from 0.58 per cent of GDP to around 0.51 per cent of GDP.

As a result of these sectoral trends, Australia’s investment gap with the OECD has widened and we have fallen behind the OECD by a full percentage point. Over the same period, our average productivity growth has significantly weakened to the point where over the past year labour productivity declined by 1 per cent.

While Australia’s R&D intensity has been in decline, the fallback position has been to increasingly rely on adopting R&D and technologies developed internationally. There is value in Australia adopting world leading technologies as we cannot and should not expect to be self-reliant. However, this approach of relying on overseas innovation is insufficient for Australia to prosper as an innovative, knowledge-based economy, as evidenced by our weakening productivity performance over the past two decades.

There are reasons why we cannot solely rely on a “buy it in” from overseas approach:

• The stock of international R&D and technology may not suffice to meet Australia’s unique emerging opportunities and challenges, so that new domestic R&D investment tailored to our needs is required. Evidence suggests that R&D conducted in a home country is just as important as R&D conducted in other countries in terms of national economic payoffs.^[3]
• There are lags involved before R&D performed overseas can be adopted and absorbed in Australia, which negatively impacts Australia’s productivity. We are then constantly playing catch-up on productivity.
• To effectively absorb and adopt complex R&D produced overseas requires having a capable existing domestic research workforce (examples include nuclear science and artificial intelligence). That workforce may not be substantive enough when domestic R&D intensity is declining (i.e. “hollowing out” the domestic research workforce).

There are clear productivity benefits for Australia from greater domestic investment in R&D. One conservative estimate from the CSIRO, allowing for a lag between R&D performed and the subsequent payoff to GDP per capita, is that $1 of R&D investment in Australia creates an average of $3.50 in economy-wide benefits and an average annual economy-wide return of 10 per cent. At a more granular level, the following are three case studies of the tangible benefits of R&D conducted by Go8 Universities.^[4]

There are countless other examples of R&D performed domestically that has been translated into tangible commercial products and services that benefit Australia.

To further derive the productivity and broader benefits of domestic R&D, we must be bolder as a nation and adopt a formal national target for R&D investment. However, a target alone will not shift the dial – we also need an ambitious timeline and roadmap of reforms to succeed

This is not about locking in a target for government spending on R&D – it is a target for total R&D investment across business, government, higher education, and not-for-profit sectors. It is the investment we need today, especially from the business sector which currently contributes 50 per cent of Australia’s R&D investment but whose R&D intensity has significantly declined since 2008, to secure sustained productivity over coming decades.

Small and medium-sized enterprises (SMEs) are the bedrock of the Australian economy, therefore lifting their R&D and innovation capacity is important to Australia’s economy-wide productivity performance.

The Australian Government already has programs in place to support R&D commercialisation, such as the Trailblazer Universities Program , but there remains a critical gap in fostering ‘technology pull through’ by smaller Australian businesses. The introduction of a Small Business Technology Transfer (SBTT) program would address this.  

The program would uniquely involve a combination of formal R&D commercialisation partnerships between the Australian Government, small businesses, and research institutions.

Under the initiative, through Australian Government agencies existing procurement and R&D budgets, targeted funding in critical areas of need would be provided to small businesses that enter into formal R&D and commercialisation partnerships with research institutions.

This would support SMEs wanting to do R&D but not necessarily having all the in-house resources, it would boost R&D collaboration between SMEs and research institutions, and stimulate commercialisation of the R&D by smaller businesses. By targeting areas of need, the government will build economic resilience, and SMEs will boost their own and, in turn, national productivity. The following table summarises the key benefits of a SBTT program for Australia.

Such a program has been operating successfully in the United States (US) for decades, facilitating commercialisation of R&D by SMEs including in areas such as artificial intelligence, advanced manufacturing, biotechnology, and national security.^[5] In the US approach, the government funding is ‘non-dilutive’ which means 100 per cent of the equity and ownership remains with the SME.

Domestically, the Australian Government’s Business Research and Innovation Initiative, which currently has budget funding until 2026-27, is a similar program, but it does not have the same scale and longevity of funding as in the US where major departments such as Defense, Agriculture, the National Science Foundation, Education, Energy, and Health and Human Services are major funding agencies under the US program.

A SBTT program for Australia would take time to be established and for it to scale. The US experience is illustrative of the need for longevity and certainty of such programs. It is now embedded in the suite of highly effective programs supporting US small business R&D and innovation.

Such a program would be a complement to, rather than substitute for the Trailblazer program. The emphasis of the Trailblazer is on R&D commercialisation emanating from universities and building business partnerships.

Despite early positive indications of the impact of the Trailblazer, (for example, the University of Adelaide and University of New South Wales Defence Trailblazer in the case study below), the Trailblazer only has government funding to the end of 2025-26. Subsequent funding is needed in the context of the need to lift R&D investment and boost productivity.

The Catapult Network is a UK Government funded initiative of nine innovation centres covering high-tech sectors.  The centres aim to support businesses R&D and commercialisation, including through connections to scientists, engineers, academics and technical specialists. Introducing a Catapult Network in Australia would need to be tailored to the local context including aligning with existing programs as Cooperative Research Centres and the Trailblazers University Program.

It is critical that research linkages between business and the research sector also encapsulate collaboration on utilisation of research infrastructure. The recent Universities Accord Review Panel recommends the Australian Government provide stable and predictable ongoing funding for the NCRIS. The Government can maintain momentum towards a national R&D intensity target by securing and strengthening investment in the NCRIS program and making national research infrastructure a catalyst for further business-research collaboration.

This would involve moving the NCRIS program to a future fund style of funding and undertake a comprehensive review of governance and administration of the program and funded facilities.

There also needs to be a life-cycle approach to funding for national research infrastructure, including capturing ongoing maintenance and operation costs of the infrastructure and the skilled workforce required to support world leading facilities. The emphasis would be on identifying opportunities to build scale, taking advantage of local research strengths and critical mass, including those in the private sector and broader community.

The NCRIS program could also be reformed by specifying a requirement that custodians and users of the national infrastructure, wherever possible, seek out, promote, and enable productive engagement and partnerships between researchers, industry and the broader community.

The Australian Government should establish national doctoral training centres that align with all key sectors of Australian economy and society and in areas of national priority. These centres could leverage existing expertise within various universities and form across the private and public sectors to provide critical mass and the necessary infrastructure for a high-quality student experience. Existing schemes such as National Industry PhD program could be aligned with these centres and industry invited to partner.

The purpose of research training is much broader than employment in academia. A highly trained research workforce will increasingly become a vital aspect of Australia’s future economy and of benefit across a wide range of domains (i.e., business, government, public business enterprises, not-for-profit organisations, NGOs, community organisations).

To further build the contribution of investors such as superannuation funds in early-stage Australian R&D ventures, including by SMEs and Australian universities, the Australian Government should facilitate the presence of additional intermediaries and aggregators between the two.

The role of these intermediaries would be to ultimately broker relationships so that promising early-stage Australian R&D-based ventures have better access to finance from investors such as superannuation and venture capital funds. The Government could facilitate this through its existing programs related to early-stage technology investment.

Artificial intelligence (AI) as a general-purpose technology offers potential opportunities for boosting productivity globally but also domestically. For Australia, realising the potential for this technology will require investment in associated infrastructure as well as the workforce. This workforce includes both the direct technical/research workforce that is developing and deploying AI and also retraining of the broader workforce to prepare for the jobs of the future.  

Go8 universities with research expertise in the areas of AI and computer science and engineering more generally, must be central in any national strategy for Australia to become a leading AI jurisdiction.

We have had numerous reviews into our national innovation system, and we currently have the Strategic Examination of Research and Development (SERD). Notwithstanding what these reviews recommend, we do not have a clear national strategy on R&D, and this is reflected in the two decades decline in national R&D intensity.

No one sector alone can reverse the declining R&D intensity trend and fix Australia’s productivity problem, and neither can it be fixed overnight. We need a long-term tripartite approach involving government, industry, and research sectors working together. This is why we need a National R&D Strategy led by the Australian Government. Such as strategy needs to align Australia’s R&D system, improve existing investment facilitation efforts at Commonwealth and State/Territory levels, and incorporate national science and research priorities. A single national agency for research & innovation would coordinate and implement the national strategy.

Recognising the R&DTI regime is a well-established feature of the Australian Government’s R&D support, its effectiveness would be further boosted by offering businesses that qualify for the R&DTI and who enter formal R&D collaborations with an Australian research institution, an additional equity or debt finance incentive from the National Reconstruction Fund (NRF).

This reform focusses on business R&D at the applied/development end of the R&D spectrum, and therefore more likely to be within the NRF mandate to achieve a target portfolio rate of return of 2–3 per cent above the 5-year Australian Government Bond rate over the medium to long term.

Assessment of the R&D activity can continue to be done through the administration of the R&DTI program by the Department of Industry, Science and Resources/ATO and formal collaboration with an Australian research institution can also be assessed through this administration.

Australia has a patchwork of R&D funding and infrastructure that lacks a long-term coordinated and national approach. Besides State based programs, at the Commonwealth level we have a fragmentation and myriad of policies, programs, and agencies related to R&D across portfolios such as Industry/Science and Education, while taxation related initiatives, such as the Research and Development Tax Incentive (R&DTI), have been within the Treasury.

The Australian Government should consolidate fragmented R&D grant programs into fewer, larger initiatives with clear objectives to maximise impact, reduce duplication, and drive stronger cross-sector and international collaboration.

The European Union’s $170 billion research and innovation program Horizon Europe is the world’s largest single funding program for research and innovation and provides a prime opportunity for Australia.

While Australia has in place the Global Science and Technology Diplomacy Fund, we should go further and achieve associate membership to Horizon Europe.^[8]

The benefits of associate membership of Horizon Europe include:

• Giving Australian researchers and businesses access to additional funding for R&D and commercialisation projects.
• Broadening participation by Australians in leading R&D international projects, which facilitates the knowledge creation and commercialisation that is so critical to lifting productivity.
• Creating new partnerships in science and technology which can help spur the development of new industries domestically and in turn drive productivity.
• Making Australian research institutions and businesses more attractive to international partners and investors, potentially opening up other markets and ventures.

Associate membership is therefore a prudent financial investment given Australia’s need to boost productivity and the declining R&D intensity over the past two decades. Other Commonwealth countries such as New Zealand and Canada have already joined Horizon Europe.

We are supportive of an economic reform agenda that addresses red tape in the business sector, however red tape extends beyond the business sector. The Australian Government should also address unnecessary, redundant, and duplicative regulation and reporting in the university sector.

The regulatory burden on universities arises from government policy towards regulation and compliance reporting, which has grown significantly over time despite commitments by successive governments to address this issue.

As the Assistant Minister for Productivity, Competition, Charities and Treasury, Hon Dr Andrew Leigh, recently noted: “Many academics now report spending more time managing approvals than pursuing the work that attracted them to research in the first place. More time on grant administration than on experiments. More time on paperwork than on partnerships. Processes intended to ensure integrity and accountability can, in practice, frustrate innovation and collaboration.”^[9]

Recent analysis by the University of Sydney indicates that its legislative compliance register currently records 331 instruments and associated documents, with 157 imposing significant compliance burdens – representing a 10 per cent increase over the last two years.^[10] The University of Sydney also estimates the time spent on regulatory compliance has increased by 20 to 25 per cent over the last decade.

The Go8 has previously estimated an annual cost of over $500 million in compliance-based reporting across the university sector. That is a sizeable impost that diverts resources from where they are needed in teaching and world-leading R&D.

[1] Source: CSIRO Futures. (2021). Quantifying Australia’s returns to innovation. CSIRO, Canberra.

[2] Australian Universities Accord Review Panel. (2024). Australian Universities Accord Final Report, p. 199.

[3] Organisation for Economic Cooperation and Development. (2015). ‘The impact of R&D investment on economic performance: a review of the econometric evidence’, Working Party of National Experts on Science and Technology Indicators.

[4] Case studies sourced from Monash University and the University of Adelaide, respectively.

[5] Details are available at: https://www.sbir.gov/

[6] https://dtb.solutions/news/joint-media-release/australias-trailblazer-program-unlocks-549-million-industry-investment-to-fast-track-innovation/

[7] https://dtb.solutions/news/joint-media-release/australias-trailblazer-program-unlocks-549-million-industry-investment-to-fast-track-innovation/

[8] https://www.europarl.europa.eu/doceo/document/TA-10-2025-0028_EN.pdf

[9] The Hon Dr Andrew Leigh MP, Assistant Minister for Productivity, Competition, Charities and Treasury. (2025). ‘The abundance agenda for Australia’, Address to the Chifley Research Centre, Melbourne, 3 June 2025.

[10] University of Sydney. (2025). Submission to Senate Standing Committee on Education and Employment, Legislation Committee Inquiry into the quality of governance at Australian higher education providers. 3 March 2025.