Budget 2014: Australia needs tax breaks for innovation

Australian innovation has stagnated in the past 50 years, and could be reinvigorated by focusing on key areas, according to Donald Hector, President of the Royal Society of New South Wales in an interview for The Conversation.

Agriculture, mining and biotechnology all offer huge potential for further development with the right incentives, including tax breaks for research and development, and more secure funding.

With budget cuts looming for Australia’s national science and research body, it’s a good time to assess the best way to encourage innovation.

The Commonwealth Science Innovation and Research Organisation (CSIRO) is reportedly bracing for cuts up to A$150 million in this week’s federal budget, following 300 jobs announced to go next year, and 400 positions axed last year.

The recent federal Commission of Audit recommended greater oversight of CSIRO, and abolishing climate bodies such as the Climate Change Authority and the Clean Energy Finance Corporation.

I interviewed Hector on the state of innovation in Australia today, and how we might once again become a world leader.

Read the full interview transcript here

Peter Doherty: Thinking in terms of Australia’s future, how important is it for us to expand activity in the innovation/high technology sector?

Donald Hector: It’s critically important. If you look at countries that have been successful since the early days of the Industrial Revolution they’ve largely done so through having highly innovative industries that maximise utilisation of technology.

Peter Doherty: Do you think that an expanded high technology sector should focus solely on areas like IT, encryption, software development and so forth, or should we also be expanding niche manufacturing and both heavy and light engineering applications?

Donald Hector: ICT is very important because there are enormous business opportunities in the industry; it’s still very much in its infancy.

But it’s also important to be developing niche operations and manufacturing capability in areas where Australia has a natural strength. Biotechnology and pharmaceuticals are a good example of that.

We didn’t really do much in the way of pharmaceuticals manufacturing at all until about 1948. We then started to manufacture penicillin. Australia was only the second country in the world manufacturing penicillin commercially and was the first country to make it available for the general population.

We started making penicillin in 1948 and by the mid-50s we were one of the biggest penicillin producers in the world, if not the biggest. In 1950 the value of locally-produced pharmaceutical actives was £6.7 million and imports were £630,000. Over 90% of pharmaceutical actives used in Australia were manufactured in Australia.

Today the reverse is so. Over 90% of active pharmaceutical ingredients are imported, and the local content is largely limited to formulation and repackaging.

We’ve gone from being in a very dominant position and self-sufficient position to an absolute devastation of that industry.

But it need not be like that. [Biotherapy company] CSL made the transition from government-owned enterprise to a highly-successful publicly-owned company, and is now one of the biggest producers of blood products in the world.

Tasmanian Alkaloids, which was started in Tasmania by Abbot Laboratories in the 1950s to produce opium alkaloids, was sold to Johnson and Johnson – why did this not end up in Australian hands?

Peter Doherty: What could the universities do better, both in the sense of discovery and translating discovery for economic benefit?

Donald Hector: I’m rather of the view that universities are best suited to doing pure research, and from time to time really good stuff will come out of that. But I think you need research institutions that are not constrained by a heavy requirement to produce income out of their research.

That’s best left to private sector, and possibly government, and that’s why I think the CSIRO and ANSTO (Australian Nuclear Science and Technology Organisation) are so important.

They should be the commercial arms as was originally intended, and develop industrial research so that it puts Australia at the forefront of innovation.

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