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If driving innovation is the aim, cutting foreign aid is a poor strategy

ARDR analysis of the federal budget 2016-17

Remember the Super Science Initiative? Now those were the days. Announced in 2009, endowed with $1.1 billion, and a myriad of initiatives across the innovation system it was to heave us well and truly into the ranks of the world's innovation leaders.

Fast forward a few years (and a few governments) and we have another $1.1 billion talking point that is to kick us into the league of knowledge-driven economies, the National Innovation and Science Agenda.

Spread over four years, its initiatives are to trigger a boom of ideas which, in contrast to the apparent huff and puff of the past, are supposed to make it all the way to world markets.

An 'Ideas Boom' should get Australia's innovative heart pounding. But somehow it doesn't quite feel that way, despite the potential of recent initiatives - including the Medical Research Endowment Fund set in motion with the 2014-15 budget.

If the 2016 budget is any measure, instead of a whiff of fresh pioneer sweat there is a cold sweat of relief.

'No major cuts, a little bit of here and there, now lets get on with the job' seems to be the message and maybe that is befitting of our current economic outlook, if just not quite measuring up to the 'Ideas Boom' rhetoric.

Against the backdrop of an upcoming election, a government greatly concerned for its survival has little room for taking risks.

However, its choice to again nibble away on the already dismal development assistance we provide relative to our economic possibilities is regrettable.

Another $224 million will be cut from our foreign aid budget, after the 2015 budget already reduced spending by $1 billion. We now spend 0.23% of our gross national product, a record low.

This is not just lacking generosity. It is simply not smart policy, especially from the perspective of a country that is geographically isolated, sparsely populated and struggling to make its mark in world markets.

And it's notably different to the approach taken by the world's most competitive and most innovative countries, as revealed by recently released data from the OECD on the 29 member countries of the Development Assistance Committee (DAC)

As illustrated in the infographic, of the ten countries that spent the most on foreign aid relative to their gross national income (GNI), six countries were also among the top ten in the 2015 Global Competitiveness Index, and seven were the most innovative in the 2015 Global Innovation Index.

To this we could add the US, as they are by far the highest spenders in absolute terms (Singapore and Hongkong both are not DAC members).

Released in April, the OECD data also show that foreign aid across DAC countries continued to grow in 2015, despite the substantial costs associated with refugees in many donor countries.

Another interesting point to make is that China, while not a DAC member, is also expanding its foreign aid.

What is the motivation behind this?

Obviously, there are many aspects to consider, but it's a fair guess this increasing engagement is not entirely altruistic.

A recent report by the Australian Council of Learned Academies made clear that the most competitive and innovative countries generally take a more strategic and long-term approach to innovation policy development. And here Australia was found wanting.

And it seems that a lack of long-term strategic vision is also guiding our progressing retreat from international development.

Former British Secretary of State Andrew Mitchell pointed out in a recent interview with the British Telegraph:

"UK aid provides enormous opportunities for sustainable economic growth. We have seen developing countries become emerging economies, and emerging economies become the engines of future global growth and prosperity. Where the UK's development assistance has played a role in this process, we build strong links and create powerful trading partners for the future."

One of the world's most innovative countries, Sweden, spent 1.4% of its GNI on foreign aid in 2015. Australia spent 0.27%, far below the DAC average of 0.41% and the recommended ratio by the UN of 0.7%.

Sweden has a relatively small population, and it is dependent on selling high-value goods and services to the world. And in contrast to Australia, it does this remarkably well.

If Sweden and other successful knowledge-driven economies believe it is worthwhile investing in the future of potential new export markets, maybe Australian political leaders hoping for an ideas boom should take notice.

The new measures include the Tax Incentive for Early Stage Investors and New Arrangements for Venture Capital Limited Partnerships, which aim to facilitate investment in innovative high-growth potential start-up companies and improve businesses’ access to venture capital.

Legislation for both new initiatives passed the Senate on 5 May 2016.

The new Entrepreneur Visa and Incubator Support Program will be implemented early in the new financial year.

The Global Innovation Initiative (GII) is also in full swing, including the selection of landing pads for businesses in areas of new, high-growth markets.

So far announced were San Francisco (launched), Shanghai, Tel Aviv and Berlin.

The Government has also launched the Global Connections Fund, which is a component of the GII initiative.

Also part of NISA are measures aimed at supporting Australia's emerging 'FinTech' industry. A suite of related actions were detailed in a Government statement released in March. The Government believes that the new industry will transform our financial system as a disruptive technology that will improve the way businesses and consumers interact.

The budget measures supporting the industry include:

• CSIRO's Data61 will undertake a pilot study blockchain technology that offers instant settlement between banks;
• the Australian Securities and Investments Commission (ASIC) will release a consultation paper regarding a regulatory sandbox for FinTech start-ups to test their ideas;
• plans for changes to the GST regime that will stop the current double taxation of digital currencies, such as Bitcoin;
• and the extension for venture capital tax concessions to start-up FinTech businesses.

Currently, a bill is introduced into Parliament that aims to facilitate crowd-sourced equity funding for public companies; it is also a component of the broader NISA.

The project will produce pre-competitive geoscience data, to be released on an annual basis over the next four years. It will focus on areas in the Northern Territory, Queensland, Western Australia, and South Australia.

The Cooperative Research Centres program will be strengthened, with its budget increasing by $46 million or 32% by 2020.

However, as pointed out by CRC's Associations' chief executive Professor Tony Peacock, important for the CRCs is the announcement of a $15 million National Carp Control Plan involving the Invasive Animals CRC:

"Our major concern from the Miles Review was that there could be an over emphasis on commercial outcomes, leaving CRCs that have a big environmental or other non-commercial impact out in the cold.

"The $15 million funding of the Carp Plan shows that other Departments can join with the Industry Department to take important unfinished business of a CRC forward."

The Australian Nuclear Science and Technology Organisation (ANSTO) can also be considered a winner, after its position was strengthened in March with the organisation taking ownership of the Australian Synchrotron from July 2016. The Australian Government committed $520 million towards the Synchrotrons' operations over the next ten years.

Instead, the Government has released another consultation paper on the future of higher education-reform, which it plans to implement by 2018.

The Government says that its plans for a full deregulation of fees are off the table. However, it still considers some 'form of fee flexibility', meaning that uncapped fees could be in the mix for some courses.

The Higher Education Participation Program will be cut down by $152 million (22%) over the forward estimates. The program targets students from low socioeconomic background.

The Industry Skills Fund, set up in 2015 with initially $476 million, will be reduced by $247 million over five years, with $207 million over five years left for supporting the training needs of SMEs.

The funding includes $70 million for the Reef Trust, which is now endowed with a total of $210 million, and $110 million from within the National Landcare Program to support the implementation of the Reef 2050 Plan.

Australian Antarctic Program: Last week the Government released its Australian Antarctic Strategy and 20 Year Action Plan, which includes 200 million in additional funding over ten years from 2016-17 for the Australian Antarctic Program.

Carp control: The Government will invest $15 million in a National Carp Control Plan, which includes the staged release of the carp herpesvirus, beginning in the Murray Darling Basin.

Carp makes up 80%-90% of fish biomass in the Murray Darling Basin and has significant economic impact on business in regional Australia, estimated at $500 million per year.

The pest is a threat to other species by making water turbid, causing erosion and out-competing native fish for food and resources.

Marine reserves: $56.1 million over four years are allocated for the establishment of a management program for Commonwealth Marine Reserves.

Its implementation will cost around $118 million of new money over the forward estimates, with another $122 million reallocated from the Defence portfolio.

This includes $38 million to establish a Cyber Security Growth Centre and enhance cyber security research through CSIRO's Data61 initiative.

National Broadband Network (NBN): The NBN rollout by NBN Co continues to pose significant fiscal risks for the Government.

It has committed $29.5 billion in equity to NBN Co, and the company is expected to complete the rollout through raising debt from external markets of between $16.5 billion and $26.5 billion.

However, if this is not achievable, the government will have to come to rescue the project.

Connecting regional Australia: The budget includes $160 million for the completion of Mobile Black Spot program over the next two years. However, there are no funds allocated for extending the program beyond 2017-18.

From July 2016, the facility will provide state and territory governments with concessional loans to co-fund the construction of water infrastructure projects.

The initiative will complement the National Water Infrastructure Development Fund announced in the Agricultural Competitiveness White Paper.

Other major initiatives announced in the White Paper are the $100 million Beef Roads Program and the $75 million Cooperative Research Centre for Northern Australia, which will be headquartered in Townsville.