One way to fund research is that rather giving a tax break directly to a company we can take some of the funds from company tax and give it back to the firms who paid it. The catch is that they have to spend the money on research and development and commercialisation - but not in their own companies.

The companies or organisations receiving the research money will have to account for how they spend their money. If they are found to cheat then they are banned from the system. Companies who want to get the money for research have to be registered.

Companies who give the money to things other than research and development and commercialisation in other companies are also banned from the system. Also if a company does not want to get money back it doesn't have to.

What this will do will be that companies will select where to put the money - not governments - and it will make compliance much simpler. It will also spread research funds to areas other than the current "favourites" of the government and direct research into areas of commercial worth. Imagine what Coles or Woolies will do with the research money they have to spend.

Because they have to spend the money with other companies (or with research organisations) and because they can get a return on their investment they will tend to direct it to activities that will give them the best return.

It is the same as a research tax but it is companies spending the money not the government.

hmm, i wonder how long it will take for company 'a' to set up a 'separate' company 'b' to receive research money? 30 seconds?

Tax breaks should be just one of several mechanisms used by government to encourage R&D. My suggestion is that, with some $900 billion now invested in superannuation, the federal government should offer special taxation and other incentives for a maximum of 1% of our super funds to be used as venture capital in higher risk R&D proposals. By allowing super fund managers to be the people who decide where to invest the resulting $9 billion (with a couple of billion extra each year coming from the growth in super funds), this takes away the need to have government picking winners (which they're normally very poor at doing) and instead leaving it to individuals and market forces to decide where their money should go.

The author is a bit harsh and misleading. The very nature of R&D means that much of the activity will never bear fruit commercially (or at least not in the form that it is initially developed in). The purpose of the tax breaks (and the grant system, which the author has conveniently ignored) is to encourage companies to invest time and money into high risk areas (high risk in that there is a low chance of return commercially).

Benefits to other businesses generally flow not from sharing of technology developed, but from the availability of that technology or product to improve their business practices. Eg, satellite broadband technology was developed in Australia by a company that accessed the R&D concessions. This was 10 years ago, and we know how long that has taken to get out to the general marketplace. Whilst it hasnt been given away, it has been of great assistance to any number of businesses.

Other R&D activities result not in technologies per se, but in new crops, stock treatments (eg chemical muesling to make PETA happy), safer crop sprays etc, which all of society benefits from. If you simply look at technology exports you will miss all of these types of developments.

The tax breaks are not easy to access. You need to have a unique product/technique that hasnt been developed anywhere else in the world (and you actually have to complete pages and pages of application forms and annual forms to show that you qualify). You must conduct the R&D in Australia (or have a very good reason for doing part of it overseas).

Using a system like the Finns where non-commerical products must repay a grant will simply discourage companies from investing the time and resources into areas that MIGHT pay-off. If a company is guaranteed of a success then they have little need for government or other assistance anyway. Its the maybes that we need to support in order to get the additional payoffs that can arise.

Yep. If Australian governments wish to improve private-sector spending on research and development with the goal of increasing the dividend Australian research pays the Australian economy it must do two things:

(1) Encourage high-risk investment not *within* existing enterprises but from investors who traditionally speculate on uninteresting markets like bonds, housing, commodities and big-company shares. That is, the super funds, banks and insurance companies should risk some Australian money in Australian venture capital funds.

(2) Look at the existing businesses who are actively trying to develop innovative Australian technology and SUPPORT THEM, even if that means withdrawing support from incumbent big business. The glaring example is Australian solar-energy research, where local academics have made practical breakthroughs, have attempted to commercialise them here, and found better opportunities abroad because the commonwealth and state governments are firmly in the pockets of the coal-mining industry.

The largest Australian solar-power installation is 38MW of auxiliary solar thermal heat contributed (on sunny days) to the output of the 2GW Liddell power station -- the other 1962MW are still from coal, of course. The developer is moving to the US to take part in genuine large-scale solar thermal development there.