RESEARCH AND DEVELOPMENT (R&D)

The OECD defines R&D as comprising 'creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications'.

R&D activity is characterised by originality. It has investigation as a primary objective, the outcome of which is new knowledge, with or without a specific practical application, or new or improved materials, products, devices, processes or services. R&D ends when work is no longer primarily investigative.

Statistics on the amount of expenditure and human resources devoted to R&D effort in the business sector are collected annually by the ABS; comparable statistics on the government, higher education and private non-profit sectors are collected biennially.

In 2004-05, gross expenditure on R&D was $15,722.9 million (m) (table 26.1). This represented an increase of 19.4% over 2002-03. The business sector accounted for the largest proportion of gross expenditure on R&D in 2004-05 (54%), followed by higher education (27%). Growth in expenditure on R&D since 2002-03 was highest for the private non-profit sector and lowest for the government sector.

In 2004-05, human resources devoted to R&D totalled 119,384 person-years of effort, an increase of 11.4% since 2002-03. The majority of human resources devoted to R&D came from the higher education sector.

26.1 GROSS EXPENDITURE ON R&D(a), By sector
		1996-97	1998-99	2000-01	2002-03	2004-05
		$m	$m	$m	$m	$m
Business		4 234.7	4 094.7	4 982.6	6 940.3	8 446.2
Government
	Commonwealth	1 266.6	1 179.4	1 404.8	1 531.3	1 573.4
	State/territory	797.7	863.6	951.0	950.9	977.3
	Total	2 064.3	2 043.1	2 355.8	2 482.2	2 550.7
Higher education(b)		2 307.6	2 555.1	2 789.8	3 429.6	4 282.8
Private non-profit		185.8	225.3	289.0	359.5	493.2
Total		8 792.4	8 918.2	10 417.2	13 211.6	15 772.9
(a) In current prices.
(b) Data for the calendar year ending within the financial year.
Source: Research and Experimental Development, All Sector Summary, Australia (8112.0).

Business sector

During 2005-06, business expenditure on R&D in Australia was $10,080.7m. In the five years to 2005-06, business expenditure on R&D increased by an average of 12.6% per year, in current prices. After adjusting for price changes, the annual average growth in expenditure (in volume terms) was 8.9%.

In 2005-06, the largest industry contributions to business expenditure on R&D were Manufacturing ($3,888.7m), Property and business services ($1,717.0m) and Mining ($1,683.4m) (graph 26.2). Of all industries, Mining and Manufacturing reported the largest annual growth from 2004-05, increasing their expenditure on R&D by 33.0% and 12.0% respectively. Other industries to record large increases included Property and business services (9.6%) and Wholesale trade (17.8%).

Funding of R&D by the business sector in 2005-06 was largely from businesses within the sector; 91.2% coming from own funds and 2.2% from other businesses. The Commonwealth Government and overseas organisations funded 3.9% and 1.8% of expenditure respectively. Property and business services, and Health and community services had the lowest proportions of self-funded research, at 76.5% and 78.2% respectively.

The ABS's social and economic objective classification defines the main areas of Australian economic and social activity to which the results of research programmes are applied. In short, it describes the purpose of the research. The broad social and economic areas of expected benefit rather than the immediate objectives of the researcher.

Much of the growth in business expenditure on R&D, between 2004-05 and 2005-06, occurred in the energy resources (up $324.6m), manufacturing (up $292.8m) and mineral resources (up $224.6m) social and economic objectives (SEOs). Together these three SEOs accounted for 58.8% of the total growth in business expenditure on R&D over the period.

In 2005-06, 82.7% of business expenditure on R&D was in the research fields of engineering and technology (58.1%), and information, computing and communication services (24.6%). The largest growth in expenditure within these research fields, between 2004-05 and 2005-06, was recorded for resources engineering (up 45.2%) and computer software (up 20.0%).

Human resources devoted to R&D in 2005-06 totalled 42,837 person-years of effort, an increase of 6.0% over 2004-05.

In 2005-06, business expenditure on R&D was 1.04% of Australia's gross domestic product (GDP), an increase from 0.97% in 2004-05. This was the first time that the ratio of the business expenditure on R&D to GDP exceeded 1.0% (graph 26.3). Australia recorded one of the largest increases in business expenditure on R&D/GDP ratio of all OECD countries between 2004-05 and 2005-06, although it remained below the OECD average of 1.53% (table 26.4).

26.4 BUSINESS SECTOR EXPENDITURE ON R&D/GDP RATIO, Selected OECD countries
	2001-02	2002-03	2003-04	2004-05	2005-06
	%	%	%	%	%
Sweden	3.3	na	2.9	2.7	2.9
Japan	2.3	2.4	2.4	2.4	2.5
Finland	2.4	2.3	2.4	2.4	2.5
Korea, Republic of (South)	2.0	1.9	2.0	2.2	2.3
United States of America	2.0	1.9	1.8	1.8	1.8
Germany	1.7	1.7	1.8	1.7	1.7
Denmark	1.6	1.7	1.8	1.7	1.7
Austria	na	1.4	na	1.5	1.6
Iceland	1.8	1.7	1.5	na	1.5
Luxembourg	na	na	1.5	1.5	1.3
France	1.4	1.4	1.4	1.3	1.3
Belgium	1.5	1.4	1.3	1.3	1.2
United Kingdom	1.2	1.2	1.1	1.1	1.1
Canada	1.3	1.2	1.1	1.1	1.1
Australia	0.8	0.9	0.9	1.0	1.0
Netherlands	1.1	1.0	1.0	1.0	1.0
Czech Republic	0.7	0.7	0.8	0.8	0.9
Ireland	0.8	0.8	0.8	0.8	0.8
Norway	1.0	1.0	1.0	0.9	0.8
Spain	0.5	0.5	0.6	0.6	0.6
Italy	0.5	0.5	0.5	0.5	0.6
New Zealand	0.4	na	0.5	na	na
Hungary	0.4	0.4	0.3	0.4	0.4
Portugal	0.3	0.3	0.2	0.3	0.3
Slovak Republic	0.4	0.4	0.3	0.3	0.3
Mexico	0.1	0.2	0.2	0.2	0.3
Poland	0.2	0.1	0.2	0.2	0.2
Turkey	0.2	0.2	0.1	0.2	na
Greece	0.2	0.2	0.2	0.2	0.1
All OECD countries	1.6	1.5	1.5	1.5	1.5
na not available
Source: Main Science and Technology Indicators, 2007/1, OECD, Paris, 2007.

Higher education sector

In 2004, higher education sector expenditure on R&D in Australia was $4,283m. This represented an increase on 2002 expenditure of almost 25%, in current prices (or 18.0% in volume terms). Over the ten years to 2004, higher education expenditure on R&D increased at an average annual rate of 13.4%, in current prices. Higher education expenditure on R&D as a proportion of GDP increased from 0.44% in 2002 to 0.48% in 2004 (graph 26.5).

Almost half (46.9%) of higher education expenditure on R&D in 2004 was devoted to research in the fields of medical and health sciences ($1,082.4m), engineering and technology ($473.9m), and biological sciences ($451.0m).

The majority of funding for higher education R&D in 2004 was sourced from general university funds ($2,964.6m or 70%) and Australian competitive research grants ($739.6m).

Australian higher education organisations devoted a total of 56,809 person-years of effort to R&D in 2004, up 14.5% from 2002.


Government sector

Expenditure by government sector organisations on R&D in 2004-05 was $2,550.7m. This represented an increase of 2.8% in current prices over 2002-03, but a decrease of 4.3% in volume terms. Since 1996-97, expenditure by government organisations on R&D increased by an average of 2.9% per year in current prices but decreased by an average of 0.3% in volume terms.

In 2004-05, expenditure by government organisations on R&D represented 0.29% of GDP, down from 0.32% in 2002-03 (graph 26.6). The ratio of expenditure by government organisations on R&D to GDP in Australia remained slightly above the average for all OECD countries of 0.28%.

Human resources devoted to R&D in 2004-05 totalled 16,989 person-years of effort, down 8.4% from 2002-03.


Private non-profit sector

Expenditure on R&D by private non-profit sector organisations in 2004-05 was $493.2m, an increase of 37.2% in current prices over 2003-04, or 28.0% in volume terms.

A total of 3,930 person-years of effort was devoted to R&D by private non-profit organisations in 2004-05. This represented an increase of 26.1% since 2002-03.


Biotechnology-related R&D

Information was collected by the ABS on biotechnology-related R&D for businesses in 2003-04, and government and private non-profit organisations in 2004-05. Biotechnology is the application of science and engineering principles to living organisms as well as parts, products or models thereof, to alter living or non-living materials for the production of knowledge, goods and services.

In 2003-04, 304 business organisations performed and/or paid another to perform biotechnology-related R&D, totalling $378m.

In 2004-05, expenditure on biotechnology-related R&D performed by government and private non-profit organisations totalled $299.4m.

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