Australia will need to lift its research and development (R&D) investment by 43 percent just to reach the OECD average, according to a major independent review that warns the nation risks falling further behind global peers.
The review was commissioned to assess how Australia can extract greater value from research spending, boost business investment, and better align innovation with national priorities and emerging industries.
Industry and Science Minister Tim Ayres said the report provided a long-term reform blueprint for the government and industry.
Decline in R&D Investment
The report (pdf) showed that Australia’s R&D intensity—the ratio of research and development expenditure to total expenditure—has steadily declined over the past decade.Spending peaked at 2.24 percent of GDP in 2008–09 but has since fallen to 1.69 percent in 2023–24, well below the OECD average of around 2.7 percent.
Business investment has dropped sharply, with R&D expenditure plummeting by 31 percent since 2009 to just 0.9 percent of GDP, compared to the OECD average of 1.99 percent. Government R&D intensity has also decreased by 37 percent over the same period.
The review linked this decline to broader structural weaknesses in the economy. Australia remains heavily reliant on resources, with 43 percent of export revenue coming from iron ore, gas and coal, and another 6 percent from agriculture.
Manufacturing, meanwhile, accounts for the lowest share of GDP among OECD nations and has struggled to scale globally.
Productivity growth in the manufacturing sector has averaged just 1.1 percent since 2000—well below countries such as Germany (2.3 percent), the United Kingdom (3.6 percent) and the United States (3.1 percent).
The report also highlighted a broader slowdown in living standards, with projected growth in GDP per person over the next 40 years revised down from 90 percent in 2002 to 57 percent in 2023.
Strong Returns, Weak System
Amid the downward trend in Australia’s investment, the report pointed out that R&D delivers significant economic returns for the economy, citing international and domestic evidence.In the United Kingdom, each pound sterling of public R&D spending generates around £2 in private investment and £8 in long-term net benefits.
An analysis by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) also found each dollar invested produces $3.50 (US$2.49) in economy-wide gains and a 10 percent annual return.
Firm-level data also pointed to clear productivity gains. Businesses with more advanced innovations recorded labour productivity 1.6 times higher than those making incremental improvements, and 1.7 times higher than firms with no innovation.
In addition, companies earn $4.60 for every $1 invested in R&D after 10 years, while the broader economy gains $7.14.
On weaknesses, the report argued that Australia’s R&D system is fragmented and inefficient, noting that more than 150 federal programs are spread across 13 portfolios, with annual spending exceeding $14 billion—often resulting in duplication and poor coordination.
To address these issues, the review proposed a major structural overhaul, including the creation of a National Innovation Council to coordinate efforts and the consolidation of national R&D investments into six National Innovation Pillars: health and medical; agriculture and food; defence; environment and energy; resources; and technology.
It also called for targeted reforms to improve business incentives, strengthen research capability, expand access to capital, and build a skilled workforce.
Peak Bodies Support R&D Reforms
A similar analysis by the consulting firm Mandala, commissioned by the Business Council of Australia (BCA), Atlassian and Cochlear also suggested that targeted reforms to Australia’s R&D system could deliver significant economic returns, generating around $5 in economic benefits for every $1 of government spending over the next decade.BCA CEO Bran Black said improving policy settings would be key to unlocking investment and boosting long-term economic growth.
“We strongly support proposed reforms to the Research and Development Tax Incentive to make it simpler and more effective. Removing the $150 million cap, streamlining administration and removing the R&D intensity measures would ensure Australia’s R&D system attracts investment,” he said.
Australian Industry Group CEO Innes Willox echoed the call for reform, warning that Australia’s weak productivity growth underscores the urgency of action.
“Australia’s productivity growth has collapsed from 1.2 percent a year before the pandemic to just 0.2 percent. Business R&D is one of the most powerful levers we have to reverse that,” he said.
