Entrepreneurs, R&D Tax Incentive

Quantifying Australia’s Returns from Innovation


The CSIRO working paper “Quantifying Australia’s returns to innovation” found that for every dollar invested in Australia, there is a $3.50 return on investment and a 10 percent average annual return. So what does this mean for astute CEOs of R&D-focused businesses seeking above-average ROI?

The CSIRO working paper Quantifying Australia’s returns to innovation focused innovation at an economy-wide level. This contrasts to previous Australian studies about economic benefits from innovation investment focussing on returns at a very narrow firm or industry or area of research level.

The major finding of the paper was that every $1 of R&D investment in Australia creates an average of $3.50 in economy-wide benefits (in today’s dollars), and a 10% average annual return. It should be emphasized that this was a most conservative estimate, and included adjustments for delay in R&D benefits realisation as well as embodied capital deepening (i.e. the capital costs of integrating R&D into the economy). The returns would be even higher if broader societal and environmental benefits were incorporated.

The CSIRO working paper is the first to use the novel but simple macro-level approach from the 2020 study of Jones and Summer (A calculation of the social returns to innovation) and apply it to Australian data. One interesting detail is the adjustment parameters used regarding the delay in realising R&D benefits. Of particular note is that, of the three types of research used in the modelling (product development R&D, applied R&D, and basic R&D), the one most associated with commercial R&D (product development R&D) has the shortest delay (estimated at 3–5 years). Putting this another way: for many businesses, the ROI for R&D will likely be both higher and faster than the already impressive most conservative estimate of $3.50 for each $1 spent and 10% average annual return. As a comparison, Australia’s ten-year government bond returns have historically averaged around 7% per year.

Further research into quantifying Australia’s returns from innovation could investigate how much the economy-wide returns would rise if Australia were to increase its R&D expenditure share of GDP — for example, increasing R&D spending up to the OECD average.
So, if you’re a forward-thinking CEO who not only wants to improve the ROI for your company but also benefit the broader Australian economy, you should definitely consider the following government incentives for R&D-focused businesses:

Another point briefly mentioned in the paper but analysed in more detail in another CSIRO report (SME enablers and barriers to research) is the challenges Australia has in commercialising research, which may explain why Australia’s R&D expenditure share of GDP lags behind the OECD average.

The survey results and interviews from the report indicated a disconnect between SMEs and Universities and Research Institutes (URIs) regarding the following aspects: mindsets, processes in establishing collaborations, and knowledge of capabilities and resources available. To mitigate this, it was recommended that SMEs — individually or through industry associations — be more engaged in networking activities with URIs; for example, participating in industry fairs, specialised conferences, or organised visits and workshops organised by URIs. These networking activities would improve the awareness of URIs’ resources and capabilities and increase the likelihood of future collaborations.

The CSIRO’s SME Connect programmes and the Entrepreneurs’ Programme mentioned above are two examples of initiatives specifically aimed at increasing collaboration of businesses with URIs, as well as the number of successful research commercialisation projects in Australia.

CSIRO’s SME Connect has three levels of matched-funding grants for research projects and researcher placements for SME businesses of various sizes: CSIRO Kick-start, Innovation Connections, and STEM+Business. If you’re a startup developing your MVP, then the CSIRO Kick-Start is probably going to be your starting point. The CSIRO Kick-start can contribute between $10k and $50k matched spending for a CSIRO researcher to assist in an R&D project to research, develop or test a technology, product or service.

Businesses in targeted growth sectors (advanced manufacturing; food and agribusiness; medical technologies and pharmaceuticals; mining equipment, technology, and services; and oil, gas, and energy resources) who want assistance to grow and enter new markets are eligible to apply for the federal government’s Entrepreneur’s Programme (EP). The EP’s consulting team (approximately 170 specialists around the country) includes many ex or current business owners, and they help hundreds of scale-up businesses across a variety of growth industries each year, by providing advisory, impartial counsel, consulting, international connections, and access to government grants and their networks, for exporting and access into Accelerating Commercialisation. The Accelerating Commercialisation service of the EP provides small and medium businesses, entrepreneurs, and researchers with access to expert advice and matched project funding — of up to $500,000 for Research Commercialisation Entities and Eligible Partner Entities, or up to $1 million for all other eligible applicants — to help get a novel product, process, or service to market.

Fullstack is proud to help businesses involved in Australian R&D continue moving onward and upward. We have the knowledge and expertise to keep you on the right path by ensuring you receive the right advice and all the grants, incentives, and rebates you’re entitled to.

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