National Innovation Policy Forum - Address

Introductory Remarks

Good morning, and thank you for the opportunity to address the National Innovation Policy Forum – a serious forum on national innovation policy.

I acknowledge Minister Tim Ayres’ address, and as someone that understands the pressures of being in government and the executive, I acknowledge the Minister’s work in the Innovation portfolio and wish him well.

I also join with his thesis that innovation in science and research needs to be a constructive and collaborative area for both government and opposition.

It's not an area for political gain.

I say this after having been part of probably the best government for innovation in Australian history – the Malcolm Turnbull led Liberal National government - and I say that deliberately and precisely.

That particular government was led by a Prime Minister with a laser focus on innovation, but it certainly wasn't popular policy; believe me it was difficult to sell innovation to the general public, but nonetheless, I've seen what can happen when you have a prime minister drive an innovation agenda from the top, and the consequences inside a government of such an approach.

So I do think there's plenty of experience between Tim and I in designing and getting better policy in innovation, research and science.

So today, I want to highlight some of the things we think are important in innovation policy from the Coalition's perspective without telling you things you already know.

In relation to the SERD, we already have 100% consensus between government and opposition on the back of the Minister’s comments, that SERD is a terrible sounding acronym that is really hard to explain to people.

Schumpeter

So we've certainly started on a point of unity there, but beyond that, we welcome the review. My concern is that you can't review yourself into better policy sometimes, and I worry that once the review is handed down, there will be issues with the government's thinking about what comes next.

I'll start with the famous line here from an Austrian economist, which is something I favour, Joseph Schumpeter, who wrote that “the capitalist engine is first and last, an engine of innovation.”

I raise that today, not because I'm going to sell you on capitalism.

I wouldn’t attempt to do that today, but to emphasise the importance of private capital that I sometimes think the government can lose sight of.

This is true particularly after the era of covid related unprecedented government spending worldwide, where it has become a norm for government spending to replace private sector spending. Getting private capital to move is now one of the greatest challenges for innovation in our country today.

This crisis of capital, if you like, is something that I hear from many of you about. Whether it's University Vice Chancellors or business CEOs talking about their R&D challenges; everyone is raising the same issue, essentially, and that there is a lack of capital to drive the innovation agenda.

So Schumpeter is right about that. His idea was that the innovation isn't born out of subsidy or bureaucracy, but from private capital flows, where investors and entrepreneurs take risks and disrupt industries to create new ones. From my own point of view this is a very Liberal notion.

Crisis of Capital

Our challenge in Australia is not that we don't have the passion, the ideas, the world-class researchers, but we lack capital motion. This is very serious for a country like Australia in the competition for global capital and also for our own capital inside our country. The innovation system at the moment is like a network of clogged arteries which is short on circulation.

So we do need policy that promotes and understands this crisis of capital.

I'd say to anyone in this room, you look at the government's balance sheet, it is obvious that there isn’t much scope left for more public sector spending. This should concern every citizen, but it should also concern you.

The public sector is spending a lot of money at the moment. There are too many off book government funds.

There have been good innovation funds that have been put into place as well over the years but these were implemented carefully so that government wasn’t signalling it will always step in with capital to solve problems.

This is why I mentioned the Turnbull government the $1.1 billion National Innovation and Science Agenda. It was an excellent Turnbull government initiative. To me, it is still the most substantial innovation reform in Australia to this day, personally championed by the Prime Minister at that time.

It wasn't just a grant program, as you know, it was a structural reform to the capital system.

In that era I was an Assistant Minister to the Treasurer, and I remember clearly a stat we used to quote– that the entire venture capital pool in Australia at the time was less than one single day’s taking on the Melbourne Cup.

We used that analogy to explain the attitude to risk and the need to change our policy settings.

Now that's changed slightly. It's still not great, but these are the kinds of reforms, in addition to finance and capital reforms that are needed to support innovation.

Another example was the Trailblazer program introduced by the Morriston government. This is still in place. It is a good program. It linked universities and industry with early stage government funding along with streamlined IP agreements, to generate a flow of private capital: proving that research can attract real-world investors when the incentives line up.

The Coalition is minded to have incentives as part of our policy mix - better incentives - recognizing that that's the best way to drive better outcomes.

My fundamental principle as the Shadow Minister for Industry and Innovation is that the role of government is to mobilise private sector capital, not to replace it.

How you mobilize that capital should really be the focus of government, especially in an era where government capital is scarce.

Current Innovation Landscape

I'd argue today, as I've mentioned, that the momentum has stalled in Australia. The figures, are depressing and I know you already know them and I don't want to bring down your forum.

Australia’s total research and development expenditure is stuck at 1.69 per cent of GDP, well below the OECD average of 2.7 per cent.

The issue is we are under invested in innovation research every single year.

And this has this has direct consequences for Australia.

The problem here, of course, when I listen to business, is not that Australian companies have run out of imagination or their desire to more here, they are screaming at government to say, how can you assist us? How can we stay here? We really want to fund this, but the incentives don't make sense. There is just so much competition for capital today that the government's reforms haven't kept pace with what has happened in the capital markets. So what SERD will recommend is going to be very important to fix this. I do respect the SERD process and the fact that the government is doing it. But I have heard concerns about its direction, and that is something we can address once we see the outcome of the SERD.

When you look at the government's funds, the National Reconstruction Fund and other funds, the problem is with having government decide where the capital goes based on the programmatic based decisions of government bureaucracies. In this way, the government decides, and some of you might be winners, but a lot of you will be losers. The NRF money has now been repurposed several times, the government will repurpose another 5 billion out of the NRF fund for their Net  Zero priorities – this isn't going to help innovation, even though it might help in areas of that particular repurposing. We need capital available for general innovation, and that's why we in the Liberal National Coalition are minded to have an incentive based approach to research and development. Better incentives and more incentives, to make sure that private capital can move.

You can see the impact of government picking winners when you look at what they’ve done on quantum computing for example. I'm not against quantum computing. I'm not against that investment, but to put all your eggs into one basket and on one technology, government can think that's attractive, and sure it might pay off or it might not pay off.

I've heard from many vice chancellors and other people about the state of things like supercomputing in Australia and the under investment in our AI supercomputers. These sort of things that need upgrading, as opposed to things that seem more attractive to the current government’s agenda, like quantum computing.

I think that's an example of the winning and losing model that I’m talking about; that if we put all our faith in government to make the decisions, government will make the decisions and government isn't always best placed to make those decisions, especially in innovation.

Workforce and the Human Flow of Capital

The Coalition also recognises that innovation policy needs to go beyond creation and support diffusion, which is something I stand by.

As a former Immigration Minister, I spent most of my time focused on the human side.

I viewed myself as a bit of a human resources department for Australia, getting the best and brightest minds to come here. The stats at the moment are quite difficult. According to the Australian Computer Society Digital Pulse 2025, Australia’s technology workforce growth has slowed dramatically, rising just 1.5 per cent in the past year, compared to an average 4.7 per cent growth over the past five years. So we're even seeing a problem on the human side of this equation, in terms of our skills and training but also our ability to retain the brightest minds.

As the Minister said, these issues cross multiple portfolios and I’d just add that I wouldn’t underestimate the importance of immigration policy here, in terms of attracting and retaining the best and brightest minds.

Australian Competitiveness

So today, I'm saying a couple of things on behalf of the Coalition.

Obviously, you can hear me loud and clear that we believe that there is a capital crisis of private sector investment in Australia.

Private capital has fallen to a very, very low level and government spending has replaced a lot of what private sector capital should be doing in our economy.

This has a lot of consequences, especially in the energy and innovation policy areas.

I think the SERD needs to ask these hard questions, and I hope it does. It needs to ask questions like:

Why do countries like South Korea thrive with their R&D and commercialization metrics, while Australia falls behind when we have every comparable competitive advantage that they have?

Why do countries like Japan and Germany have advanced manufacturing sectors but we don’t? I heard the Minister earlier talking about advanced manufacturing in batteries. I'm very technology agnostic about this policy area. Batteries may well be a very good idea, but we've also seen advanced lithium ion battery manufacturers that have been heavily supported by the government also going under in recent months.

This is a serious warning sign to government and to all of us.

The SERD needs to ask questions like why iconic fintech start-ups like Airwallex and AfterPay, founded by Australians, with Australian backing and Australian innovation, end up majority owned by overseas investors at maturity. Why weren’t there pathways for these companies to be retained in Australia?

And the SERD, I think, also needs to look beyond innovation policies and into the broader policy settings I have mentioned that allows the whole system to breathe.

In this regard, I'm hoping the SERD will also look into the connections with critical policy areas like that HR concept I talked about in immigration policy, which is a critical piece of an innovation ecosystem.

To wrap up, we in the Liberal National Coalition believe competitiveness isn't just a slogan. Competitiveness needs to be the most important part of our innovation agenda, and that's something I hope the SERD does take into account.

Obviously, the Liberal and National Parties have a faith in the market to do this, but we're not ideologically narrow-minded about it either. Government policy settings are also important because those settings need to support the markets to solves the hard problems of our time.

We need to incentivize that risk taking, so it’s not just on the Melbourne Cup that we are showing our attitude to risk. There is an enormous amount of money that goes into gambling in Australia. Why isn't it attractive for a lot of that capital to go into innovation as well? Why can't we have a competitive innovation environment?

The gambling analogy is an important one, because it shows that there is a lot of capital flow in Australia that is misdirected way too often.

So our focus and our policy history in the Liberal National Coalition shows our passion in this area.

Concluding Remarks

I learned a lot from Prime Minister Turnbull. I learnt about what it is truly like to have an innovation Prime Minister inside of government who drove policy reform. But we also need to understand that innovation policy has not always been popular. It may not win elections. We certainly almost lost that election because people were very afraid of the innovation agenda.

And when I see the news that Amazon last week sacked 14,000 people purely based on AI and that it could be as high as 30,000, I understand why innovation can be scary. Change can be very difficult for people and very difficult for governments.

But if we have the right incentives and if we have the right initiatives in Australia, I'm confident we have the capital, we have the minds, we have the markets, we have the universities and the world class R and D sectors to have an innovation agenda. Hopefully the SERD will come to some of these same conclusions and we'll be able to support the government where it’s right, and suggest strong and important reforms in innovation policy where it’s needed.

Unlocking the link with private capital, especially right now with governments running out of money all around the world, I think, is more important than ever.