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Executive Summary

Over the last decade, the proportion of innovation-active firms has increased to nearly a half of all employing firms. Increasingly they undertake a range of business operations online, including financial management, information sharing and staff training. Social media is also becoming a widely-adopted channel for marketing, communication and recruitment. However, the majority of Australian firms opt for adapting existing innovations rather than introducing more novel ones. These firms report facing barriers such as a lack of relevant skills and restricted access to funds.

Notwithstanding some emerging downside risks in the broader economy, the evidence on entrepreneurship activity is generally positive. Measures such as number of Australian adults starting a business, perceptions of business opportunity and job creation expected from new business ventures are all above OECD average. However, compared to a decade ago, relatively fewer entrepreneurs are now entering the market and those that enter are more likely to exit than those that entered in earlier years. Among the likely contributing factors are fear of failure and limited access to finance and skills.

Aggregate expenditure on R&D as a percentage of GDP has declined recently, driven primarily by sharp falls in business expenditure on R&D in the mining and manufacturing industries. Government investment in R&D has been relatively flat in recent times, although on a longer timescale the trend in public funding of R&D is increasing. In terms of research output, the science and research sector has increased its share of world class publications and citations — which is evidence of Australia's strength in knowledge creation.

Compared to other OECD countries, Australia has relatively modest proportions of (product and/or process) innovative firms receiving public support for innovation or being engaged in public procurement contracts. There remains an opportunity to strengthen collaboration between businesses and the research sector to maximise commercial benefit from Australia's world-class research.

Australia boasts a relatively high aggregate level of expenditure on educational institutions as a proportion of GDP compared to other OECD countries, and a high proportion of the adult population with tertiary qualifications. In terms of intangible capital stock, R&D and mining exploration continue to dominate, and computer software has seen strong sustained investment growth for more than a decade. Going forward, boosting innovation capability, matching tertiary qualifications to relevant professions, and the uptake of digital, intangible and human capital, will be increasingly important for Australia's economic growth.