Australia, like the rest of the world, is grappling with a changing political and economic landscape, while trying to ensure our economy is set up to thrive into the future. Australia’s level of economic complexity – a measure that typically reflects a country’s ability to absorb shocks and respond dynamically to global changes – is currently 93rd out of 133 countries, just behind Armenia and Uganda. Building new industries to diversify the economy depends on investment in research, innovation, and supporting the development of new markets. 

This report finds government funding is generally skewed towards the later stages of industry development which are already comparatively well-financed by private capital markets. It suggests shifting more funding towards the early stages of industry development, including high-risk high-reward projects that might otherwise struggle to gain private finance, and could one day become major players in the Australian economy.

Recommendations

1. Increase the relative share of financial support for the pre-commercial stage of new industry development as compared to the commercial stage.
2. Amend the investment mandates and risk appetites of the Clean Energy Finance Corporation (CEFC) and National Reconstruction Fund (NRF) to enable them to more aggressively fulfil their role as catalysts of new economic activity.
3. Make broader use of profit-sharing mechanisms for early-stage funding, to ensure a fair return to society for incubating nascent industries.
4. Pre-commercial projects should be given assistance to navigate the complex system of government funding opportunities and policy frameworks, either through the Treasury’s “front door” or through the Industry Growth Program.
5. Where tax credits are used, they should be designed to have a material impact on earlystage ventures (e.g. by being transferable).