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NEW ERA OF FISCAL RESTRAINT FOR AUSTRALIA
Article by Sir Gustav Nossal, President, Australian Academy of Science, published in Nature
12 September 1996

The first Budget of the new Coalition government offers an opportunity to reflect on the way in which Australian science must adapt to an environment of fiscal rectitude.

On 20 August, Australia's new Liberal-National Coalition government handed down its first Budget. The scientific community was facing a situation where the Treasurer, Mr Peter Costello, was committed to severe cuts, needing to repair (over two years) a $8-billion deficit without raising taxes. In this context, Mr Peter McGauran, the Minister of Science and Technology, actually did very well.

The Commonwealth Scientific and Industrial Research Organisation (CSIRO), Australia's largest research agency, escaped essentially unscathed, although some hoped-for budgetary increases of $20 million a year for three years will in fact have to be repaid by asset sales and other savings. Nevertheless, the maintenance of the CSIRO budget was an important victory.

The other main government science agencies suffered moderate cuts. Some will compensate by becoming more commercially focused.

Another triumph was a substantial increase in the funding of the Australian Research Council, the government's main agency for supporting non-medical research in Australian universities. This increase includes more postgraduate scholarships.

A modest increase in funds for the National Health and Medical Research Council for medical research in universities, teaching hospitals and medical research institutes will be matched by new funds from the UK Wellcome Trust. This partnership between public and private sectors is likely to be highly beneficial for medical research. But these increased funds are dwarfed by government reductions in tax concessions for industrial research and development (R&D).

The rather open-ended Research and Development Syndication Scheme has gone, at least partly because it was being used by those more interested in tax minimisation than R&D. This is a pity: it would have been fairly straightforward to close the tax loopholes without axing the scheme altogether.

Syndication has been replaced by a new 'Start' initiative to provide grants, loans and interest-rate subsidies for high-risk research and high R&D spending. Whether this will fill the gap remains to be seen. It is clear, however, that the sums foreseen for Start are much smaller than those saved on syndication. The scheme will also take some time to get going, and in the meantime much momentum will be lost.

The previous, widely praised scheme of 150 per cent tax deduction for industrial R&D has been reduced to 125 per cent. This is unfortunate because largely through this and other government-backed schemes, Australia had begun to redress its traditional imbalance between fundamental and applied research. Industrial R&D has recently been increasing fairly substantially, although from a small base, as have Australian exports based on high technology. To jeopardise this seems imprudent. Some of the more thoughtful business leaders, including Mr John Prescott, Managing Director of BHP, Australia's largest corporation, have criticised the government for reducing incentive for innovation just as the tide appeared to have turned.

University funding is to be cut by around 5 per cent over the next three years, and student fees repaid through the Higher Education Contribution Scheme are to increase substantially. The implication of this move to user pays is clear, and there is no indication from the government that the extra fees raised should go back into tertiary education. Universities are encouraged to become more independent, with fewer bureaucratic controls. Further, they can retain the fees they charge for students recruited over and above the government-mandated quota in various subject areas.

Given that many of these quotas have been difficult to fill, however, it is doubtful that these savings will amount to very much. The offset of a thousand scholarships a year to soften the blow for the best less-well-to-do students is too small even to warrant comment.

Australia's university system seems to be heading in the general direction of that of the United States. There will be more pluralism, strong and weak institutions and extreme competition for student numbers, with recruitment of full fee paying overseas students an important factor. Invariably, there will be hardship in the academic community, although a freed-up system will certainly reward the most able and sought-after academics and punish the less productive ones. The entry of the marketplace will have to be administered with great care by vice chancellors, particularly to protect creativity and the right to be different and to dissent.

Fiscal rectitude, not some well-articulated plan for 'the clever country', was the key driver of this first budget. The rhetoric in favour of a higher profile for science and engineering is now strong on both sides of the Australian political fence. Even as economically rationalist a body as the Industry Commission has seen the need for excellence in Australian R&D, praising university research and urging CSIRO to concentrate on the more strategic, pre-competitive aspects of its work.

The new growth economics suggests that countries emphasising an entrepreneurial culture and technological innovation and building a first-class educational system are destined to thrive in the next millennium. So it is sobering to see the proportion of the total pain that will now be borne by the higher-education sector and industry committed to R&D. The 1997/98 budget will probably have a similar flavour.

There are really only two pathways for expansion in fundamental research. The first will be the difficult task of forging a partnership with industry in which the academic sector is valued for what it can contribute, not for short-term tactical problem-solving.

The second will be an extension of what has been so well begun through the Cooperative Research Centre Scheme. Initiated by the former Labor Prime Minister Bob Hawke, the scheme has been strongly supported by the Coalition. It seeks to build collaborative networks (there are already 62) between different fields of science and technology, where academic and government laboratories (particularly CSIRO) and industry work together. A government commitment of (usually) $2 million a year must be at least matched (in cash or in kind) by the partners. The result has been a pooling of skills and resources, a new broader commitment to the education of postgraduates, and a better mutual appreciation of problems and challenges. There is a robust tradition of competition in Australian science: it is time to work together more creatively.

Australia's excellence in basic science can continue only if the attitudes of the past can be modified. The traditional handout mentality will no longer work; entrepreneurial self-help will be required. This will include intelligent partnerships with industry and multi-skilled networks and task forces that come together as needs dictate. Industrial R&D will have to prosper with less government subsidy and so win over those in corporate boardrooms who do not have first-hand experience of true wealth generation through innovation and high technology.

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