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Science and Research3.5 International Comparison

3.5.1 Gross Expenditure on R&D (GERD) to GDP, cross-country comparison

Gross expenditure on R&D (GERD) is a key headline measure of a country's aggregate R&D activity. It is the sum of expenditures on R&D across all sectors of the economy, namely the Business, Government, Higher Education and Private Non-Profit sectors. Australia's latest GERD estimate published by the ABS is $33.1 billion in 2017-18, which represents an increase of around 6.0 per cent from $31.2 billion in 2015-16.[91] However, Australia's GERD intensity (GERD as a proportion of GDP) decreased from 1.88 per cent in 2015-16 to 1.79 per cent in 2017-18, remaining below the OECD average of 2.37 per cent in 2017. In the same period, South Korea and Israel had the highest GERD intensities, 4.55 per cent and 4.54 per cent, respectively. GERD intensity in Australia peaked at 2.25 per cent of GDP in 2008-09 and has been declining ever since.[92]

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3.5.2 Gross Expenditure on R&D (GERD) to GDP, breakdown

Gross Expenditure on R&D (GERD) is the aggregate expenditure devoted to R&D by the Business, Government, Higher Education and Private Non-Profit sectors. The largest component is business expenditure on R&D (BERD) and its stagnation in recent years has been a major factor driving the decline in Australia's GERD as a proportion of GDP (or GERD intensity). The latest BERD to GDP estimate is 0.94 per cent in 2017-18, which represents a continuing decline from 1.18 per cent in 2013-14 and 1.00 per cent in 2015-16.[93] Meanwhile, Government and Higher Education expenditures on R&D (GovERD and HERD) have held relatively steady in proportion to GDP over the same period. Between 2013-14 and 2015-16, GovERD to GDP remained at around 0.24 per cent, while HERD to GDP moved from 0.62 per cent to 0.57 per cent.[94] With BERD being a key driver of Australia's aggregate R&D intensity, it is important to interpret the GERD to GDP estimate in the context of the cyclical and structural change in the Mining and Manufacturing industries.[95]

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3.5.3 Share of Business Expenditure on R&D (BERD) performed by service industries

Across OECD countries, a sizeable and growing share of Business Expenditure on R&D (BERD) is performed by service industries. In Australia, the share of BERD performed by service industries in 2015-16 was around 59.0 per cent --- well above the calculated OECD average of 45.7 per cent. In fact, on this metric Australia ranked 8th among 35 OECD economies in that year.[96] Just four years earlier, Australian service industries accounted for less than half of total BERD, and a decade ago it was barely above 40 per cent. A broad economic shift towards service industries is occurring across nearly all OECD economies, in part due to the rapid growth in the uptake of new digital technologies. Across OECD economies, information and communication technologies (ICTs) account for a substantial and growing part of BERD, and are disproportionately represented by innovative firms.[97]

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