Innovation is a funny word

It is now quite clear that the Federal Government does not understand “innovation”. Funny that. This is a government that got elected using the term in every second sentence.

But first they dumped the $1 billion Commercial Ready program that threw the plans of thousands of small Australian innovators into chaos.

Now they are proposing to introduce a program that will raise the bar so high on what will be deemed an eligible activity in order to access the R&D tax concession that we can expect to see a large drop in companies that will apply and get the tax concessions.

And why? Well apparently the program needed an overhaul because it was infiltrated by scammers. That’s right. Companies are abusing the system by pretending to be innovative when they are not. The only problem is the meaning of the word “innovative”. As if bureaucrats and entrepreneurs are ever going to agree on whether an activity is innovative or not.

Entrepreneurs see it this way. They come up with a great idea because they can see a way to do something quicker, faster, cheaper, better. Of course, they struggle to raise the funds to pursue this innovation. Now some would argue here that it is not the Government’s place to provide a program to assist them to carry out these activities.

However governments around the world realise that companies, especially smaller companies, create hundreds of jobs and new products and services that benefit the community by carrying out this sort of innovation. And of course there is the flow on effect: one innovation spawns the next and the next and before you know it you have a cluster of companies that create a new industry that makes you the envy of the world – or so the dream goes.

But then there is the reality. In the future, when bureaucrats come calling to check out the validity of the R&D claim companies will have to show that their R&D activities are both innovative or technically risky. Previously you had to prove one or the other.

To prove both will be very difficult. You need to show that the innovation is novel. Yet most innovation comes from tweaking existing products and processes. And often it doesn’t even come from that tweak. The true innovation comes at the next stage once the entrepreneur sees the initial innovation at work in the marketplace.

So what one entrepreneur deems innovative, a bureaucrat might deem a rort. The fact that you now have to prove the possibility of failure and it being novel is going to rule out a lot of the “entrepreneur” innovation that actually leads to the creation of jobs and improved products and services.

I had high hopes for the innovation program under the Rudd Government and some elements of the new R&D tax concession program, such as the immediate refund to loss making companies with less than $20 million revenue are a plus. But overall, instead of an innovative scheme we have ended up with a bureaucratic nightmare.