In Australian politics, we talk a lot about innovation. But too often, we forget what actually drives it: private sector capital. As economist Joseph Schumpeter wrote, “the capitalist engine is first and last an engine of innovation.”
That truth should guide Australia’s approach to rebuilding our innovation system. Our problem isn’t ideas – it’s the lack of capital in motion. Private investment in Australian innovation has stalled.
Our system is rich in talent and ideas but short on circulation. Universities, startups and manufacturers tell me the same story: they can’t attract the capital needed to turn research into real-world impact.
After years of unprecedented public spending through the pandemic, government money has come to replace, not mobilise, private investment. Yet government cannot – and should not – substitute for market dynamism. Its role is to unlock private capital, not control it.
That’s why I have concerns about the direction of Labor’s industry and innovation policy. The National Reconstruction Fund has become a vehicle for repurposing taxpayer dollars into politically favoured programs – recently diverting $5 billion into Net Zero priorities.
That might help a sector, but it won’t make Australia more innovative. Innovation doesn’t thrive when bureaucrats pick winners; it thrives when entrepreneurs take risks and investors have confidence to back them.
I reflect on my time in the Turnbull coalition government, the most innovation-focused in Australia’s history. Its $1.1 billion National Innovation and Science Agenda was not just a grants program; it was structural reform that unlocked private capital.
At the time, I served as assistant minister to the Treasurer. I remember our analogy for Australia’s risk aversion – that our entire venture-capital pool was smaller than one day’s betting on the Melbourne Cup. Australians aren’t afraid of risk; they just don’t see innovation as a place worth betting on.
That’s where incentives matter. Business wants to invest in R&D, but the numbers don’t add up. The Coalition believes the best role for government is to create conditions where private risk-taking is rewarded – through smarter tax settings, capital incentives and consistent regulation that gives investors certainty.
Labor calls its approach “mission-led,” meaning government directs where capital should flow. But that’s a winners-and-losers model. Despite heavy government backing, several lithium-ion battery manufacturers have collapsed in recent years.
Picking favourites doesn’t guarantee outcomes – it often stifles broader investment.
The Science and Research Priorities Review (SERD) is an important process, but you can’t review your way to growth. Australia needs incentive-based reforms to restore momentum. We spend just 1.69 per cent of GDP on R&D – far below the OECD average of 2.7 per cent.
Meanwhile, home-grown innovators like Afterpay and Airwallex end up majority-owned offshore because our incentive structures don’t reward investing in companies at maturity, even though we have deep capital pools, including our superannuation funds. That’s not a failure of imagination; it’s a failure of policy.
If South Korea, Japan and Germany can turn R&D into advanced manufacturing and global tech champions, there’s no reason Australia can’t – except that our system doesn’t reward risk. Innovation is also a human system: skills, education and migration must be part of the same conversation.
Our technology workforce is shrinking – the Department of Industry’s latest report shows tech jobs fell to 949,000 in May 2025, a 3.7 per cent decline even as the broader labour market grew 2 per cent. The Government will miss its own target to create of 1.2 million tech jobs by 2030 – an election commitment.
As a former Immigration minister, I know how vital it is to attract and retain the brightest minds. Immigration policy is, in many ways, the HR department of national innovation.
Innovation policy is a difficult political sell.
When companies like Amazon announce 14,000 job cuts driven by AI, people fear the change. But that cannot be a reason for Australia to stagnate in the global race for capital. We have the minds, the markets and the universities. What we lack is capital in motion.
If we get the incentives right, we can turn intellectual horsepower into economic power.Innovation over ideology. Results over regulation. That’s how we turn potential into prosperity.
Alex Hawke is the Shadow Minister for Industry and Innovation
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