Turning Australian university discoveries into commercial blockbusters is “first and foremost a tax reform problem”, a Canberra forum has heard.
UNSW Sydney economist Richard Holden said Australia’s “thin” venture capital and private equity markets were a major impediment to the commercialisation of university research, and a “bizarre way of taxing venture capital” was starving them of foreign funds.
“I spent four years before grad school in the private equity sector,” Professor Holden told the Universities Australia conference. “The hoops that you still have to jump through to get a tax-exempt entity to be able to invest in Australia would just boggle your mind.”
This was deterring multibillion-dollar investors such as the California Public Employees’ pension fund and the Yale University endowment. “We’re leaving a lot of money on the table in not reforming that system.”
Education minister Alan Tudge, who has highlighted research commercialisation as his top reform priority, launched consultations on the issue in February. Opening the UA conference, he said he was initiating a “further short review” to strengthen ties between universities and businesses.
“Industry can give students access to practical work experience, real-world technology and the ability to learn from established leaders,” he said later in a statement. “In return, business gets access to world-leading research and potential new employees who are job-ready – the entrepreneurs and workplace innovators of the future.
“Building these relationships between universities and business will also help us achieve our ambitions for more research commercialisation and ensure we are getting the most for Australia out of our world-class research.”
But Professor Holden said reform of Australia’s “uncompetitive corporate tax system” would be the real “game changer”.
He said companies in countries of the Organisation for Economic Cooperation and Development (OECD) tended to “either be at the technological frontier or be cost-cutters”. Australia “sadly” had more firms in the cost-cutting category, said Professor Holden, a former Booth School of Business faculty member who has held visiting professorships at the Massachusetts Institute of Technology, Harvard University and Columbia University Law School.
He said universities had a critical role in encouraging a “shift towards the technological frontier”, not only by providing human capital but also by developing homegrown technology. However, access to funds remained the key problem.
“We spend a shockingly small percentage of our GDP on research and development [R&D], particularly compared to countries like Korea, Israel, the US [and] the UK. We don’t have really significant incentives for R&D in terms of tax.
“We have an uncompetitive corporate tax system, like it or not. We’ve gone from having the second-lowest tax rate in the OECD to the second highest. Next year, we’ll be higher than France of all places.”
Professor Holden cited UNSW’s solar photovoltaic breakthroughs among his “favourite examples” of commercially successful university research. “It’s a shame that more of that development hasn’t happened in Australia. A huge missing piece of that puzzle is getting a more liquid venture capital market.”
