Doltone House, Sydney
** Check against delivery **
Thank you Joanne [Joanne Gray, Editor, BOSS, AFR] for that introduction.
Michael Stutchbury, Editor-in-Chief, The Australian Financial Review; my fellow keynote speakers; distinguished guests; ladies and gentlemen.
It’s my great pleasure to address the inaugural AFR Innovation Summit.
Let me start with a simple proposition – innovation is about both old and new businesses.
That’s why my first visit to a major firm in my new role was to a 100-year old firm – Dulux.
Dulux is no aging centenarian. It has a thriving research and development centre in Melbourne with over 60 scientists.
This is a firm that has invested in research which has led to more durable paints. And in the process, has created more manufacturing jobs, more construction jobs with a $165 million manufacturing plant in Melbourne. Dulux has tripled its share price in the last six years.
Similarly, on my way here this morning I visited Tyro – a relatively new fintech firm employing 300 people, that operates Australia’s first and only cloud based EFTPOS banking system for small and medium businesses as well as health claim rebate services.
This means that SMEs now have greater choice of EFTPOS banking products, giving flexibility and reducing costs. New jobs for real innovation.
This speech then is deliberately about innovation in both old and new businesses. It is the third in a series of keynote addresses setting out my portfolio priorities since taking on the Industry, Innovation and Science portfolio.
The first was on science, delivered last week in Canberra to the National Research and Innovation Alliance, a group of 16 science and research national peak bodies.
Yesterday in Port Pirie, I delivered the second, focusing on industry and the need for a new wave of microeconomic reform.
Today, I’m rounding off that series with a discussion of the Government’s innovation plan and my vision for industry, innovation and science working side by side to drive our economic future, but it is based on real world business needs and examples.
Today, I want to lay out our plans not just to complete the first wave of the National Innovation and Science Agenda, but also to pursue a second wave based on investment attraction and a third wave built around business simplification and our 2030 science and innovation plan.
For myself and the Prime Minister, innovation is a serious, long-term plan to secure Australia’s future economic prosperity.
Australia is now in its 26th year of uninterrupted economic growth against a background of major structural reforms and global shocks.
Despite this growth, our productivity performance has been lagging for almost a decade. Innovation is, however, a major driving force for productivity growth and that is why we must be resolute in our commitment to it.
Innovation and the Portfolio
This brings me to the Innovation portfolio.
In essence the Industry, Innovation and Science portfolio is about job security and job creation.
By that 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.
Innovation therefore matters to the mechanic in Melbourne, the coffee roaster in Sydney and the mining services firm in Central Queensland.
Innovation matters because 45 per cent of our firms are involved in it.
Innovation matters because it drives 60 per cent of our national productivity.
Innovation matters because it gives us better medicines and safer cars.
Innovation is therefore about new or improved goods or services, new processes or new business models.
That is, it’s all about turning ideas into commericial opportunities – to create jobs and better the quality of our lives.
1. Past: what have we already achieved?
In setting out our innovation model let me look to the past, the present and the future.
Our inventiveness as a nation, our entrepreneurial spirit, and our inquiring minds and scientific capability stand us in good stead.
We have a history of being well hooked into waves of global innovation.
1.1 Global innovators
Our great innovators of the past have included our scientists, doctors and inventors.
Our world has been transformed by the work of Alexander Fleming and Sir Howard Florey whose complementary work gave penicillin to hundreds of millions. They literally changed our lives.
Edison’s light bulb, Bell’s telephone, the Wright brothers’ Kitty Hawk all shaped our modern world.
We have gone from the iron age to the steam age, to the electronic age and now to the biomedical age.
Innovation has driven our world forward and will continue to do so.
1.2 Australian innovators
Here in Australia, we have great examples of innovators. CSL is one example of a large and brilliant Australian innovator.
When the Australian Government established CSL in 1916, few would have imagined it would grow to become a global biotherapeutics leader.
A century on with major facilities in Australia, Germany, Switzerland, the UK and US, it delivers innovative therapies such as plasma products and vaccines to patients around the world.
Since its incorporation in 1991, and listing on the ASX in 1994, CSL has grown to a $53 billion market capitalisation.
CSL understands the value of R&D, with its R&D investments in 2014–15 totalling $463 million and driving its growth.
At the smaller end, let me talk about Spinifex.
Spinifex was established as a startup in 2005 and was based exclusively in Australia until 2014.
It specialises in new approaches to treating pain that could benefit untreatable chronic neuropathic pain.
Following its innovation success, Novartis acquired the company for $200 million upfront, and potentially $500 million in milestone payments.
2. Present: what does it mean today?
These part successes lead us to our current policy and its application to both new and existing businesses.
2.1 Current policy
In 2016–17, we are on track to provide $10.1 billion to support research and experimental development. This is an increase of 3.55 per cent on the Budget Estimate of $9.7 billion in 2015–16.
Over the last ten years Australian Government support for R&D has increased by 52 per cent —from over $6.6 billion to $10.1 billion.
As part of this, the National Innovation and Science Agenda contains measures worth more than $1.1 billion.
Implementing the measures in the agenda is one of my top prioities.
NISA is built around four principles: building our science culture and capital, strengthening collaboration, encouraging science and innovation talent, and Government leading as an exemplar.
2.2 Existing businesses
Let me turn to how we apply this to existing businesses.
Innovation is not just about tech startups or IT; it’s also about established businesses doing things better to stay competitive in a changing environment.
Innovation is happening on the factory floor, on our farms, at the supermarket checkout and in the office, in addition to the leading-edge research occurring in our science laboratories.
Let me give three current examples from large businesses and one from a small local business.
Telstra is currently testing its next generation of mobile data communications. Lab tests have delivered 5G download speeds greater than 20 gigabits per second. This will not only transform the product Telstra provides to its customers, but in turn will change the way Telstra’s business customers run their own enterprises.
On Monday, I visited Bluescope Steel – the largest employer in my electorate of Flinders. I was told about, what in hindsight was, a simple change to the way they company rolled steel, yet had contributed to a significant cost reduction.
By lowering the temperature at which the steel was poured by 30 degrees they not only reduced energy consumption but allowed the steel to be rolled at a faster rate. This directly reduced costs and improved output.
Yesterday I visited the Nyrstar smelter in Port Pirie. This plant, which started life as a lead smelter almost 130 years ago, is now a state-of-the-art integrated multi metals recovery plant which employs around 740 people. This followed a $514 million transformation project which commenced in 2014.
Our small businesses are also innovating.
I recently visited Melbourne Garages in Hastings. They have quadrupled business, not by reinventing the garage door but reinventing how you buy it.
In their new service model, they do your design, planning permits, construction and finishing.
The most recent international comparisons, compiled for 2012–13, show Australia’s proportion of innovation-active SMEs ranks well in the OECD—at five out of 30 countries.
2.3 New businesses
Innovation is of course about new businesses as well.
In recent weeks we have launched three key initiatives as part of the National Innovation and Science Agenda to encourage early stage investment in innovative startups to boost growth by fostering new enterprises and promote entrepreneurship.
First, earlier this month I launched the Biomedical Translation Fund – a $500 million for-profit venture capital fund targeting investments in companies with projects at advanced pre-clinical and Phase I and Phase II stages of development.
These investments are expected to help solve the second ‘valley of death’ funding problem which holds back the commercialisation effort of ground-breaking new medicines, therapies and medical devices.
Second, on 1 July 2016 new tax arrangements came into effect for angel investors to encourage more investment in startups.
These new measures include a 20 per cent tax offset based on the amount of their investment capped at up to $200,000 per investor and a 10 year capital gains tax exemption for investments held for 12 months or more.
Third, our early stage venture capital partnership, which also started on 1 July 2016, allows for a broader range of investment activities. They increase the fund size from $100 million to $200 million and provides a 10 per cent non-refundable tax offset on capital invested during the year.
These measures are about building investment.
Innovative entrepreneurs create opportunities for themselves and others. Between 2006 and 2011, Australian startups added 1.44 million full time equivalent jobs to the economy.
Just recently, I spoke with Mike Pritchett, the CEO of Shootsta, a digital media startup based in Sydney.
The company has created a niche market in video production by modifying the traditional video production model to give better value to customers.
Shootsta gives companies the tools to film their own corporate video content, but provides the more technical, post-production services, reducing costs for customers.
And it counts some big names among its clients, including Qantas, Toyota, KiwiBank and Bank of Queensland.
Our innovation system performs very well in some areas.
These include the quality of science and research in our universities and research agencies, the strength of our education system, and our favourable business environment.
The latest data shows 45 per cent of all Australian businesses were innovation active in 2014 15, up from 37 per cent in 2006–07.
However, there are persistent weaknesses within Australia’s innovation system, for example, in relation to collaboration between the industry, science and research sectors, and commercialisation of viable research.
Therefore, I’m pleased to open the second Cooperative Research Centre Projects round today.
The CRC–P funding stream supports collaborative research projects that will develop products, services or processes to solve problems for industry and deliver tangible outcomes and commercial benefits.
3. Future – where will we be focusing next?
Now I want to turn to our future waves of innovation.
And here, we are looking at three waves.
3.1 First Wave: Implementing NISA
We’ve already made good progress in the first wave of implementing the National Innovation and Science Agenda.
So far we have taken three big steps.
First, we are investing in Big Science.
Last week, I formally completed the handover of the Synchrotron to the Australian Nuclear Science and Technology Organisation.
With its unique imaging power, this important piece of research infrastructure has enabled breakthroughs in a spectacular range of scientific fields.
We’ve allocated $520 million for the Synchrotron under NISA.
We’ve also contributed to and secured private sector investment to build the world’s first silicon quantum computing circuit.
In addition to the Government’s $25 million commitment, Telstra and Commonwealth Bank of Australia have each pledged $10 million to fund this world-leading research.
This investment will help ensure we not only maintain our competitive edge in the global race to build a quantum computer, but also grow a quantum ecosystem and industry in Australia.
A quantum sector will create new high-tech job opportunities for our nation.
Second, as I noted, the Government has 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 ten engineering graduates are women. Encouraging greater gender equity will help us realise our potential as a nation.
We’ve held two roundtables involving innovators, entrepreneurs, researchers and leaders of many different science and industry sectors, to examine expanding opportunities for women in science and entrepreneurship.
Importantly, we’ve allocated $112 million for science education.
3.2 Second Wave: New ways of attracting investment and infrastructure
Today I want to outline the second and third waves of our National Science and Innovation Agenda.
The second wave will focus on encouraging private sector investment in innovation and new infrastructure for science.
While we have already established the Biomedical translation Fund and the CSIRO commercialisation fund, the venture capital sector has made it clear that there is a mid-level gap for commercialising technologies.
As companies grow from $20 million to $200 million in value, there is often real difficulty in finding investment capital.
In this context 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.
Access to leading-edge research infrastructure is critical to pursuing scientific endeavour.
The Government has committed $2.3 billion over the next ten years to support research infrastructure, including the Synchrotron and the Square Kilometre Array, as well as the National Collaborative Research Infrastructure Strategy.
The Array offers many opportunities for industry and science collaboration, and for job creation. Building infrastructure of that scale can only be achieved with industry’s involvement.
The task now is to find the next Synchrotron or Square Kilometre Array.
Therefore, the Government has asked Australia’s Chief Scientist to complete development of a National Research Infrastructure Roadmap this year.
3.3 Third wave: business simplification
Now I want to turn to the third wave of the National Innovation and Science Agenda, which will be ongoing over the next three years. Here, our focus is twofold.
First, to make it easier for business to interact with government and improve the business environment by tackling the burden of unnecessary regulation, particularly where there might be duplication across federal, state and local government levels.
I have already written to each of the states and territories offering to create single business entry points for government applications.
I have also offered to strike MoUs on genuine priority areas for deep deregulation with each state and territory.
If doing business can be simpler, more people will do business.
Second, we will also be helping sectors move into the future.
CSIRO, for example, has highlighted a number of technologies that may revolutionise the construction sector: from robotic exo-suits that help workers manipulate heavy objects to smart machines that lay bricks and tiles, to 3D printers producing houses onsite.
The third wave will see Innovation and Science Australia, a new expert board chaired by Australia’s father of venture capital, Bill Ferris, prepare a national 2030 plan for innovation, science and research.
The board’s strategic advice on priorities and investment for innovation will help lift Australia’s performance and increase our global competitiveness.
In this context, today I’m pleased to announce two programs to help small business.
First, the renewal of funding for CSIRO’s SME Connect, to allow the programme to continue the good work it has accomplished.
SME Connect has helped more than 180 Australian SMEs create jobs, expand their products, services and customer base, and access international markets.
For example, in collaboration with Victorian biotech company Anatomics, CSIRO has helped develop and produce a 3D titanium heel implant.
The implant was produced using a CSIRO 3D printer and implanted by surgeons at St Vincent's Hospital in a patient with cancer of the bone who was facing amputation of the leg.
Secondly, I’m pleased to announce 74 projects have been successful in their applications for Priming Grants, which link small business with international researchers.
To give one example – a researcher from Edith Cowan University is engaging with a firm in China on the manufacturing of energy-harvesting glass panels for windows, skylights and facades for green buildings.
The story of Australia has been a story of innovation.
From Edward Hargraves’s use of a tin dish to discover gold in NSW – an early innovation that triggered the 1850s gold rushes – to the establishment 100 years ago of CSIRO that has delivered us WI-FI and extended wear contact lenses, to the startups of the 21st century.
We’ve shown we’re a nation that can harness its ingenuity to create opportunity and prosperity.
We have enjoyed 25 years of economic growth because of a strong focus on our competitiveness and innovation. But we need new waves of innovation to continue our growth.
Therefore, our next wave will be about encouraging investment and supporting Big Science infrastructure. Our third wave will be about business simplification and transformation.
Today I have set out these first, second and third waves of the Innovation Agenda, and the message is clear – innovation is for old and new businesses and is about creating jobs and a better quality of life.
Ultimately, if we create the right investment incentives and science infrastructure, and simplify doing business, we can continue to harness the ingenuity that led to our success in the past, for not just the next 25 years but for the next 100 years.
That’s why innovation matters to every Australian.