IPA’s pre-Budget submission focuses on the benefits of innovation policy

Key points:

• The IPA’s Advocacy and Policy team lodged the IPA’s pre-Budget submission with the Federal Treasury in January.
• While many recommendations focus on tax measures, we also urge change in innovation policy, trade policy, financial services, regulatory reform, and from the small business and SME perspective.
• Our recommendations would boost productivity growth through increasing small business and SME innovation, competition, and participation.
• The IPA’s pre-Budget submission and other policy recommendations have been informed by the work of the IPA Deakin SME Research Centre, and align with the findings of the Productivity Commission’s Inquiry.
  

Each year the IPA’s Advocacy and Policy team lodges the IPA’s pre-Budget submission with the Federal Treasury. This forms the main platform for our advocacy with the Government and sets out policy recommendations to improve the rate of productivity growth in the Australian economy. Productivity is directly linked to our living standards, so it’s crucial that we address the constraints in our economy.

While many recommendations are based on tax measures, we also urge change in innovation policy, trade policy, financial services, regulatory reform, and from the small business and SME perspective.

Download the IPA Pre-Budget Submission 2023-24. 

This year the Federal Budget will be delivered on 9 May by the Treasurer and will be followed by the Opposition’s Budget Reply on 11 May. Like many stakeholders, the IPA is involved in media-related activities to provide our analysis and reaction to the Budget.

Over the past several years, the IPA’s pre-Budget submission and other policy recommendations have been informed by the work of the IPA Deakin SME Research Centre. In 2015, the Centre launched the first Australian Small Business White Paper, with recommendations to boost productivity growth through increasing small business and SME innovation, competition, and participation.

Further white papers followed in 2018 and 2021, with the third benefitting from access to more extensive government datasets resulting in a deeper dive into innovation policy.

All white papers have benefited from extensive stakeholder consultation, including members as well as small business owners and operators.

See extracts and recommendations from the white papers here.

The main themes and recommendations from the white papers, which are part of our pre-Budget submission, include:

• Productivity of small business: Improving the technical efficiency of Australian businesses.
• Regulatory overload: Adopting a risk-adjusted approach, while also relying on regtech solutions, which can shift the conversation from the burden and amount of regulation to the way we deal with it.
• Taxation of small business and SMEs: Their overall contribution to tax collection and how to optimise the tax system, including changes to the tax mix.
• Workplace relations: Ensuring we have policies that facilitate growth-based small businesses.
• Net employment dynamics: The role of small business and SMEs in creating employment and how to improve it.
• Innovation policy: Incremental innovation can be achieved across the economy. Innovation creates jobs, and small businesses are efficient at diffusing innovation.
• Trade policy and internationalisation: Small businesses and SMEs can make a significant contribution to GDP if they lift their export performance. Trade diversification needs to continue.

The IPA emphasises that major reform cannot always be achieved in a short timeframe, and we urge the Government to take a longer-term view based on a clear, determined and well communicated path for the Australian economy and Australian society.

In particular, the IPA is keen to ensure that bold tax reform becomes a priority for the Government and the IPA will continue to voice its disappointment with the stalled tax reform process. The long-standing piecemeal approach is harmful to our long-term future and undermines the overall effort for structural reform of the economy.

In addition, the IPA urges the Government to commit to a progressive innovation policy despite setbacks in previous governments’ communication of the benefits. In this regard, we emphasise the findings and recommendations of the white paper released by the IPA Deakin SME Research Centre in July 2021, Post Covid Policy Options to Enhance Australia’s Innovation Capabilities.

Innovation diffusion and productivity

Our focus is reinforced by the findings of the Productivity Commission’s third interim report in its 5 Year Productivity Inquiry: Innovation for the 98%, released in September 2022.

The Productivity Commission's focus was on extending the ability of Australian businesses to lift their performance and productivity with existing technologies – pushing the productivity impacts of innovation beyond the 1-2% of businesses that produce ‘new to the world’ innovation.

“Policy has traditionally been focused on cutting edge invention, but there are likely to be bigger gains in encouraging everyday, incremental innovation across the vast majority of Australian businesses,” Deputy Chair Dr Alex Robson said, launching the Inquiry’s third interim report.

“There are worrying signs that the principal vehicles for acquiring and transferring knowledge – what we refer to as diffusion – have slowed or stalled. While previously we could have relied on labour mobility and investment in machinery, equipment and intangible capital to spread ideas, these have all been either stagnating or declining.

“Diffusion has the potential to lift the performance of over a million businesses.”

The Inquiry cites skilled migration as a way to increase the flow of new ideas, and recognising the value of such inflows as a driver of diffusion, alongside “a more open trade and investment regime”. It argues that these elements, which contribute to a vibrant business environment, are more important than government funding programs.

“At the individual business level, things like managers' ability to exploit existing innovation, increasing knowledge through recruitment decisions, leveraging industry bodies to connect firms with information about new and better ways of operating, and linkages with universities beyond direct commercialisation can all drive productivity and improve performance,” Dr Robson said.

We desperately need to implement policies and measures to develop an innovation mindset across the whole economy, with a focus on the role of small business and SMEs. In the lead-up to budget night, the IPA has been urging the government to pursue this agenda. We will continue to encourage the government of the day to do so.

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