The 2014 Budget has been variously celebrated and reviled as a “budget for corporate Australia”. But this assessment is based on the premise that corporate tax cuts and infrastructure spending will provide the major source of future growth and competitiveness in the aftermath of the commodity prices boom.
What if this premise is wrong? What if [the evidence shows](http://www2.itif.org/2014-federally-supported-innovations.pdf](http://www2.itif.org/2014-federally-supported-innovations.pdf) that well targeted government programs to promote science, technology and innovation are a more effective mechanism for creating long-term growth and jobs? In this case, we may be witness to one of the larger public policy mistakes of recent times, with serious implications for the structure and performance of the Australian economy.
Essentially, following the advice of the National Commission of Audit, the budget envisages cuts to the industry portfolio of A$2.5 billion over the next four years. This is not just about the much publicised end of subsidies for car assembly manufacturing but also the scrapping or “consolidation” of programs that are designed to encourage entrepreneurial start-ups and the repositioning of established firms in global markets and value chains, including the car components sector.
Industry assistance cuts will hurt
While other countries are stepping up their commitment to the creation of knowledge-based products and services, Australia will be closing down Commercialisation Australia, the Innovation Investment Fund and Clean Energy Finance Corporation, which have already repaid the taxpayer many times over with new venture creation in areas of home-grown expertise and ingenuity.
Once abolished, such institutions are much harder to rebuild, should it be realised subsequently that they are critical to achieving competitive advantage for a high cost economy.
While other countries are promoting “smart specialisation” by their small and medium enterprises, we will be scrapping the Australian Renewable Energy Agency and Enterprise Connect, a program acknowledged by industry itself to be one of the most successful in our history for accelerating business improvement and transformation. Again this is a program that required a huge effort to build up, but is so much easier to tear down; just as the Howard government did with its predecessor, the National Industry Extension Service in the 1990s.
While other countries understand the importance of business-university collaboration, Australia languishes at the bottom of OECD rankings of collaboration intensity and knowledge exchange. Yet the government will cease public support for the longstanding Cooperative Research Centres program, which has made isolated but significant progress in driving such collaboration, and it will not proceed with the Innovation Precincts program, which might have ensured a more systemic approach to the development of enabling technologies, skills and business models in world competitive clusters.
While other countries are creating new institutions and enhancing existing ones for research and innovation ecosystems, such as the UK’s Technology Strategy Board, the US National Manufacturing Institutes and the German Fraunhofer Institutes and Research Campus program, what will Australia be doing? We will be imposing massive cuts on CSIRO, our premier science and technology organisation, and stripping all public funding from NICTA, which is contributing to Australia’s R&D capability for the digital economy. The new Medical Research Future Fund can hardly be expected to make good the resultant damage.
The scale of this vindictive and ideological destruction of public institutions has yet to be fully comprehended by the leaders of corporate Australia, who are deluding themselves if they believe that very many businesses outside the mining and finance sectors are likely to be the beneficiaries of this budget.
Less R&D will originate in Australia, more of our start-ups and early stage ventures will go offshore, and fewer domestic firms will be in a position to engage in strategically focused clustering activity or participate in fast moving international markets.
As part compensation for the loss of these major public programs and institutions, the government proposes to establish an Entrepreneur’s Infrastructure Program to “improve the capabilities of small to medium enterprises and streamline business access to government programs”.
However, there is no detail provided on how such a program would operate, let alone a vision of the future for Australia’s economy, beyond free trade agreements providing access to our markets in exchange for export opportunities for primary commodities.
And this is the rub. Without world competitive knowledge intensive industries, including advanced and specialised manufacturing, which can capture value from global markets, we face the prospect of our very own “Argentina moment”. This is when a first world lifestyle, dependent on the import of high value consumer goods, can no longer be supported by a third world economic structure, based on the export of unprocessed raw materials. Surely we cannot allow it to come to that.