Speech - CEDA State of the Nation Address
Monday, 10 October 2016
CEDA State of the Nation Address
Parliament House, Canberra
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Good morning. I am delighted to be invited to speak at your State of the Nation forum.
It’s an opportunity to talk about my vision for industry, innovation and science working side by side to drive our economic future and create new high-wage jobs. But I’m also keen to hear from the policy makers here today about their views and their vision for the economy, because we can achieve great things by sharing our views and working together.
Since coming into this portfolio, I have made it clear that in my view, innovation is about both old and new businesses. It matters as much to the worker in the factory as it does to the app designer.
For myself and the Prime Minister, innovation is a serious, long-term plan to secure Australia’s future economic prosperity. Innovation is a major driving force for productivity growth and that is why we must be resolute in our commitment to it.
Existing companies like Sealite, headquartered at Somerville on the Mornington Peninsula are a great example of what is possible. The business’ operations moved out of a backyard garage in 2003. It’s steadily grown to the point where it employs 125 staff selling its maritime and aviation safety and navigation light globally. It has offices in the US, the UK and Singapore.
Its product range includes LED technology for Australia’s coastal lighthouse network, quick deployment airfield lighting for the US military and new navigation aids systems for the Royal Navy’s Queen Elizabeth class aircraft carriers.
Sealite develops optics in-house to produce highly accurate lighting apparatus and new products like complete port navigation aid systems. And it manufactures its products in house.
Innovative and high-growth companies like Sealite will be critical to our success story moving forward. This is because innovative startups create opportunities for themselves and others. Between 2006 and 2011, Australian startups added 1.44 million full time equivalent jobs to the economy.
However the challenge for us all is to work out how we create a future so that more companies like Sealite can thrive and drive innovative activities right across the economy.
This is because businesses old and new, whether they produce a product or provide a service, can all benefit from innovation. It’s all about turning ideas into commercial opportunities.
The Industry, Innovation and Science portfolio is about job security and job creation. By this I mean industry is about the jobs of today, innovation is about the jobs of tomorrow and science is about the jobs of the future.
The Australian Government’s vision for the future is for a strong, dynamic and digitally sophisticated economy. One that is characterised by a network of globally engaged, high growth businesses that innovate, exploit falling entry costs to markets and successfully integrate in global supply chains. This new economy is powered by skilled and educated Australians working in rewarding and well-paying jobs.
In our vision of the future economy, businesses collaborate with the research and government sectors, contributing to a globally focused and vibrant culture of innovation and entrepreneurship.
Today, I’m going to talk to you about how we can work together to achieve this vision of continued growth, jobs and increased living standards. About how we need to be adaptive and open to new technologies that can help improve productivity and increase economic growth.
1 Economic strengths and challenges
1.1 The Australian economy
We have reached the milestone of 25 years of economic growth.
Australia hit 3.3 per cent economic growth over the last year, the strongest annual result in the last four years, tracking above the Treasury and the RBA’s near-term growth rate forecast of 2.75 per cent.
We’ve done better than other comparable economies. Between 1992 and the end of 2015, our economy grew faster than the annual average growth rates for the United States at 2.5 per cent, the United Kingdom 2.2 per cent, and Japan 0.8 per cent .
But despite steady growth in GDP, productivity growth has been flat for the past eight years, consistent with the experiences of other advanced economies. Our global rankings in competitiveness and innovation have been flat or falling. This is concerning as innovation is central to productivity growth.
1.2 The global economy
In a global context, the Australian economy is feeling the effects of low wages growth and lower commodity prices. While our easing exchange rate may be supporting some sectors which were hard hit during the boom, in a sluggish global economy our floating exchange rate won’t be enough to improve our competitiveness.
In this global setting of low growth, Australia needs new strategies to strengthen performance, like higher levels of innovation to boost productivity, in addition to traditional weapons like sound regulatory and institutional settings that support a robust Australian economy.
1.3 Managing change
The world is changing. Depending on the way we respond, change can either work for or against us.
For example, Australian firm Tyro is changing banking systems for small and medium enterprises and health claim rebate services. Tyro offers Australia’s first and only cloud based EFTPOS banking system. SMEs now have a greater choice of EFTPOS banking products, giving flexibility and reducing costs.
Embracing the opportunities while managing the risks is the only way ahead. Governments also need to manage change and ensure that their policies and regulations keep up. For example, while some digital platforms provide effective self-regulation through robust customer rating systems the global nature of these entities can present new competition policy challenges, and data privacy issues in local markets.
Change can and should be harnessed for positive outcomes by both governments and businesses. Australians are good at managing change. I am confident, based on our history of navigating change that Australians will be resilient, seize opportunities to create jobs and better the quality of our lives.
While governments have helped set the right conditions, it has ultimately been private enterprise that has had the vision and drive that has generated prosperity. To that end, industry policy is designed to help businesses help themselves, placing the onus on business leaders to make choices to help their businesses to thrive.
2. Macroeconomic reform
Government has a duty to create a business environment that is conducive to growth with underlying settings in areas like business tax and finance, labour, infrastructure and skills.
2.1 Budget and tax
First I want to emphasise that Budget repair is a prime task, it’s a fundamental moral challenge.
The Turnbull Government is committed to debt reduction and restoring our Budget to balance. This means making the Budget affordable in today’s tough fiscal environment. It means examining expenditure that is no longer fit for purpose or can be better targeted while also looking at revenue changes that can lead to greater sustainability and integrity of the tax base.
As a nation, we are living beyond our means. We can’t continue to pass debt forward to our children and their children. We are determined to get public sector finances under control so growing debt doesn’t lead to higher taxes down the track.
At the same time, the government is determined to encourage more investment and more job creation by reducing the tax burden on industry.
Under the Enterprise Tax Plan we will progressively reduce the company tax rate over 10 years to 25 per cent and we’re providing additional tax incentives for small businesses.
2.2 Industrial Relations
From a macro sense, it’s important to have a sound workplace relations environment.
Not only does it improve the ability of business to recruit the right staff but it supports international competitiveness through efficient labour costs and it influences productivity.
Labour is not just an ordinary input in the production process. We’re determined to strike a balance between enabling growth and prosperity of businesses, leading to jobs, but also protecting the rights of workers.
2.3 Free Trade Agreements
Looking outwards, Free Trade Agreements are an important element to our agenda.
Like the recently concluded Trans-Pacific Partnership Agreement, not only do FTAs reduce tariffs to strengthen traditional export markets, but also create further opportunities for Australian firms and investment in emerging areas, like e-commerce.
Recent free trade agreements with China, Japan and Korea have opened up unprecedented access for our firms to the world’s largest and most dynamic markets for Australia’s products and services.
Already we sell more than two-thirds of our resources and energy exports to China, Japan and Korea and these agreements will further enhance our competitiveness for exports like pharmaceuticals, mining machinery, medical equipment, automotive parts, textiles, clothing, footwear and film.
Our next focus is delivering agreements with Indonesia, India, the Gulf Co-operation Council as well as Europe.
3. Microeconomic reform
3.1 Red Tape
We are also working to reform inefficient taxes and red tape that hinder businesses and cost the country $176 billion a year.
Our Regulation Reform Agenda has achieved total red tape savings of $4.8 billion since 2013 and a further $15.7 billion from repeal of the carbon tax.
We’ll continue to pursue red tape savings but we’re refocusing on reforms that make doing business simpler.
We’re investigating business simplification with our state and territory colleagues, for example by eliminating overlapping approvals, to help save businesses time so they can concentrate on growing their business, creating more jobs, and developing new products and markets.
We have also established a Business Grants Hub to deliver government grants to businesses. It aims to improve the experience of businesses accessing grant programs and will simplify the way government administers grants.
3.2 Industry policy
Industry policy is about productivity growth and globally competitive industries. Science and innovation are vital ingredients to building the type of globally competitive industries Australia needs.
We know we need to forge strong linkages across the economy to enhance growth – business to business, business to researcher, with international counterparts, the full gamut. Collaboration is about making connections, it will fuel innovation and assist businesses to turn ideas into commercial opportunities.
However, we are consistently weak at working together on innovation. We have the lowest rates of collaboration on innovation between researchers and industry of any OECD country.
3.3 Industry Growth Centres
Industry Growth Centres take an industry-led approach to collaboration that drives innovation, productivity and competitiveness by focusing on areas of competitive strength and strategic priority. This is helping to build smart, high value and export focused industries.
Growth centres work alongside Cooperative Research Centres (CRCs) and the Entrepreneurs’ Programme to address information and coordination failures and build closer partnerships between industry and the science and research community.
Growth centres will not only help Australian businesses compete on cost, but also derive a competitive edge through differentiated products and services with high value add.
Industry Growth Centres are connecting with CRCs which provide them with research into real life applications.
An excellent example of applied outcomes is a CRC-led project between The Sleep Health Foundation and Seeing Machines. The project involves 26 participants including local and international researchers and industry. It uses new technology developed by Seeing Machines to predict the likelihood of a fatigue accident. The study will lead to improved alertness among shift workers.
The linking of industry priorities back through the innovation chain, means that our research dollars are targeted to achieving commercial outcomes that matter to business.
3.5 Entrepreneurs’ Programme
But business leadership and management skills are also crucial.
The Business Management element of the Entrepreneurs’ Programme helps to improve business acumen and source growth opportunities for businesses, including through innovation, with advice from experienced advisors and facilitators.
The advisers and facilitators work directly on business improvement strategies for SMEs like Stenhouse Lifting Equipment. This is a 30-year family firm selling, servicing and inspecting critical industrial lifting and safety equipment like chains and beams. The firm’s productivity jumped immediately after it adopted recommendations from a business review through the Entrepreneurs’ Programme. In the following 3 months, the service team’s turnover doubled, and administrative workload was reduced by two thirds.
An ACT-based biotech start up MyHealthTest developed with John Curtin School of Medical Research has developed a proprietary home-based sample collection and secure digital online ordering and result delivery which will potentially transform the pathology testing market. The company is using Accelerating Commercialisation assistance through the Entrepreneurs’ Programme to commercialise its service.
3.6 Other initiatives
Other key initiatives include the R&D Tax Incentive and venture capital and early-stage investor tax programs and the two National Innovation and Science Agenda (NISA) co-investment equity programs, the $500 million Biomedical Translation Fund and the $200 million CSIRO Innovation Fund.
Two weeks ago I released the R&D Tax Incentive Review report for comment. Submissions are invited up to 28 October 2016. Once we have had a chance to consult broadly on the review recommendations, Government will consider its response to the review.
Feedback received in response to the recommendations presented by Mr Ferris, Dr Alan Finkel, the Chief Scientist and Mr John Fraser, Secretary to the Treasury will ensure the R&D Tax Incentive is an effective mechanism in driving investment in businesses of all sizes and ages in R&D.
4. National Innovation and Science Agenda
The Australian Government is set to invest more than $10.1 billion in supporting science, research and innovation in 2016–17. The National Innovation and Science Agenda, NISA, will ensure the government maximises returns from this investment.
NISA is just the start of a long-term Australian Government plan to achieve our vision and secure Australia’s future economic prosperity.
The agenda encourages Australians to not just have new ideas, but to pursue them, take a risk, learn from failure and excel in the global marketplace. It also recognises the importance of international engagement in an era of increasing globalisation and technological advancements.
NISA is built around four principles: building the science culture and capital, strengthening collaboration, encouraging science and innovation talent and Government leading as an exemplar.
The agenda takes a long term approach with three waves going forward.
4.1 First wave: Implementing NISA
So far in the first wave, we have taken three big steps.
First, we are investing in Big Science, including allocating $520 million for the Synchrotron under NISA and contributing to build the world’s first silicon quantum computing circuit.
Second, we have amended the tax system to encourage investors to direct their funds towards high-growth, innovative startups.
Third, we have taken steps to boost women’s participation in science, technology, engineering and mathematics. Only one in four IT graduates and fewer than one in 10 engineering graduates are women. Encouraging greater gender equity will help us realise our potential as a nation.
4.2 Second wave: New ways of attracting investment and infrastructure
The second wave will focus on encouraging private sector investment in innovation and new infrastructure for science.
I will be exploring with the sector the value of a broader National Innovation Fund based on matching debt or equity, rather than grants, for this mid stage commercialisation.
The other component of the second wave is the focus on Big Science infrastructure. The government is currently investing $3.2 billion over 10 years in research infrastructure through key science activities – AAO, NMI, CSIRO, ANSTO and Questacon.
An expert working group, chaired by the Chief Scientist, is developing a prioritised plan of investment in national research infrastructure capability for the coming decade, including long-term research infrastructure needs and areas of proposed future investment.
Access to leading-edge research infrastructure is critical to pursuing scientific endeavour.
One example where Government is currently supporting critical infrastructure is the Square Kilometre Array (SKA) project is a global collaboration at the cutting edge of astronomy and high tech engineering, but is also a massive ICT project. Its daily data download will exceed what is on the entire internet today. The supercomputer to process the data has not been invented yet, putting SKA at the forefront of Big Data developments. In addition spinoffs like remote power solutions, imaging and receiving technologies will also influence the jobs of the future by influencing the technology of the future.
4.3 Third wave: business simplification and collaboration
The third wave of the Agenda will be ongoing over the next three years, and will have two main objectives.
First, we’ll be making it easier for business to interact with government and reducing unnecessary regulation.
In particular, we want to target unnecessary duplication across federal, state and local government levels.
Second, we’ll be helping industry sectors move into the future. This will be guided in part by the national 2030 plan for innovation, science and research being developed by Innovation and Science Australia.
Innovation is something that can happen anywhere, but we know that it happens a lot more in some places than in others.
Particular geographical clusters contribute a lot to innovation, and universities are at the heart of most of them.
We need to recognise that although the world is increasingly connected, and people don’t need to be near each other to work together – to collaborate or to innovate – proximity does have an effect, and that flows through to employment.
For example, a recent report from the NSW Government found that businesses in clusters had a job creation rate 2.25 times faster than that of other businesses.
The most recent cluster scoreboard from the OECD compared the performance of 80 specialised advanced manufacturing and knowledge intensive services clusters in Europe.
It revealed average employment growth rates of 15.7 per cent in advanced manufacturing clusters and 24.4 per cent in knowledge intensive services, over a two year period. These growth rates exceed all country averages.
We know that innovative Australian businesses are four times more likely to collaborate with a competitor than they are with a research institution – so there is a lot of potential for improvement, and clusters present a great opportunity to turn that potential into results.
While the Government already does a lot of work in different ways to bring people together to collaborate on innovation, including through the Industry Growth Centres, we haven’t necessarily focused on the geographical aspect of that.
But that doesn’t mean that it’s not part of our thinking. Clusters don’t appear just because you want them to, and a lot of the other settings and policies have to be in place to enable them to develop.
Australia faces some challenges in terms of developing clusters because of the sheer geographical scale of the country and our low population density.
Having said that, we do have some great opportunities, and there are a number of interesting developments that have already developed or are underway around the country.
For example, Macquarie Park in Sydney is now home to 180 large life science, technology and digital businesses.
Tonsley Innovation Precinct with university-led R&D, vocational training, advanced manufacturing premises focuses on biomedical devices, renewable energy, clean technology, software and simulation.
The WA Government has released new land to enable the development of the Murdoch Health and Knowledge Precinct with Fiona Stanley hospital, St John of God hospital, Murdoch University and South Metropolitan TAFE.
Macquarie University has partnered with major companies including AMP Capital, NAB, Optus, Abbott, Johnson & Johnson and Konica Minolta to develop the Macquarie Park Innovation District, which aims to attract start-ups and foster innovation.
There are a number of other opportunities around the country, both in the capital cities and in regional areas.
Universities and publicly funded research organisations such as the CSIRO are key to this of course, because they are the best source of the ideas that underpin innovation and have a strong geographical footprint across Australia.
I’m particularly interested in the potential that clusters provide for boosting private sector investment in science and research.
The way to bring this about is to present opportunities to businesses to improve their profitability through innovation, but without being prescriptive about where or how they do it.
I know that a lot of you have been working very hard towards engaging with business, and I hope that continues, because we still have a lot of work to do.
This will be part of our work as we press ahead with preparations for the second and third waves of NISA.
A new expert board chaired by Mr Bill Ferris AO, Innovation and Science Australia (ISA), is working on two major priorities, an audit of Australia’s innovation system and preparation of a national 2030 plan for innovation, science and research.
The national 2030 plan will identify investment priorities and specific areas for policy reform and enable strategic decision making to capitalise on new opportunities. Coinciding with these two actions I will be looking to build on and supplement the measures announced under NISA.
As part of implementing NISA, we also need to be vigilant that we have the right measures in place to drive investment in innovative activities.
While the NISA is our industry, innovation and science centrepiece, it’s one important step in our transition towards our vision for Australia’s future.
I want to conclude by saying that Australia has been enormously successful in the past.
We have reached the milestone of 25 years of economic growth, doing better than other similar economies and we’ve done it through economy wide change, and by agilely adopting new technologies, new opportunities and new business models.
The message is clear – innovation is for old and new businesses and is about creating jobs, a better quality of life and job security.
The Australian Government is setting the right framework for economic growth and competitiveness. We’re reducing red tape, cutting the tax burden and establishing a sound workplace relations environment and we are investing in our industry, innovation and science capabilities.
Within these settings the time is right for the private sector to drive our economic future and create high wage jobs along the way.
I want to work with you to make it happen.