Australia must embrace a new era of innovation and economic reform to rebound from recession and fix an inefficient economy, according to a new report published this week.
The Committee for Sydney report, supported by economic research and modelling from big four business consultancy EY, argues that Australia will not be able to regain its pre-Covid levels of prosperity without implementing “difficult but important” reforms, including R&D for new products and services, and investing in globally competitive industries.
The report says without reform Australia will be left behind by the fast-changing world economy, and points to competitive countries like Canada, which are investing heavily in R&D, attracting overseas talent, supporting entrepreneurs, and creating an easy business environment.
The report claims that almost 30 years of uninterrupted economic growth in Australia has had the unfortunate side-effect of reducing the impetus to reform our economic and social systems, and has led to complacency, and a lack of innovation.
But this must change. The Covid-19 pandemic creates an unavoidable imperative to take action, the report argues.
“Covid-19 will lead to the biggest loss of economic activity in Australia since WW2. How we respond will have a fundamental impact on our economy and society,” said Gabriel Metcalf, CEO of independent think tank Committee for Sydney.
Metcalf says as companies close and jobs disappear in the economic downturn, only an innovation economy offers a real way to replace these with good new jobs, and to maintain national income.
“Without a major investment in innovation by governments at all levels, Australia will not regain its living standards for many years,” Metcalf said.
“Many of the reforms proposed in this paper have been considered for years, but the current crisis makes their immediate implementation necessary. Many of these reforms have substantial costs, but the alternative – sustained economic decline – will cost much more.”
Australia fell into recession earlier this year for the first time since 1992. The International Monetary Fund predicts that in 2020 Australia’s GDP will contract by 4.5 per cent and unemployment will reach at least 7.6 per cent.
The report recommends a suite of reforms, targeted at Sydney's growth but applicable Australia-wide, including increasing R&D spending to far exceed the OECD average – at present at 1.79% of GDP, it is below the average of 2.37% – as well as making entrepreneur visas much easier to access, reforming the tax system, and helping more international students to stay in Australia after graduation.
Drawing on new analysis, the report suggests that increasing Australia’s R&D spend just to the OECD average would create a $10bn economic boost, and 22,000 additional jobs each year.
The report also recommends funding what it calls national missions – it says "moonshots" that aim to solve big problems are the basis for public, private and university investment into innovation.
Apart from investment in R&D, other crucial steps include making it easier to start new companies, to create good jobs, and for talented people to come and stay. Underlying economic systems also need to be more efficient, and local workers need to be given the necessary skills to be successful.
The report recommends expanding access to employee share schemes – which allow small start-ups to offer employees stock or options, helping cash-strapped start-ups to attract, retain and motivate talented staff without paying high cash salaries.
It seeks to reform the taxation system – to eliminate or substantially reform payroll taxes, replace state stamp duties with a broad-based land tax, and consider increasing the base or rate of the GST.
Speeding up the internet is also seen as imperative – it wants legislation to give NBN Co an objective target of ensuring that Australia is able to enter the top 50 per cent of OECD countries for broadband speed by 2030, and the top 25 per cent by 2035.
The report calls for an easy pathway for entrepreneurs to move to Australia by reducing the funding requirements and providing a pathway to permanency. It wants to make it easier for high skilled people to work in Australia under Global Talent visas – by reducing the income threshold and upfront costs for sponsoring firms, and it wants to see support for international students to stay in Australia, specifically by giving every student who completes a degree in Australia access to a four-year post-study work visa.
It also wants to plug the funding gap for universities, saying governments should provide more funding to universities, both in the short and long-term, especially those who have been drastically affected by the Covid-19 crisis.
Finally, it says there needs to be an emphasis on creating a substantial increase in new Australian start-up companies, pointing out there are nearly 500 unicorns (start-ups valued at US$1bn) in the world, but only four in Australia, less than one per cent of the total, a situation described in the report as “underweight”.
Gabrielle Upton MP, parliamentary secretary to the NSW premier, welcomed the report, saying, “The ideas that come from Research & Development can build new companies, jobs, products and services. This is why accelerating investment into Research & Development is so important, and absolutely crucial in light of Covid-19.
“I commend the Committee for Sydney for their report which yet again highlights the positive impact of Research & Development on our community's economic and social wellbeing.”
