MELISSA CLARKE, HOST: A review of the state of research and development in Australia has found the country must do better in encouraging innovation or risk a decline in living standards. A Government-commissioned panel has recommended bold reform, including an overhaul of how research grants are administered, a new body to oversee that funding and more tax breaks to encourage private sector investment in innovation. Tim Ayres is the Minister for Industry, Innovation and Science. 
Tim Ayres, thanks for joining us on AM.

SENATOR TIM AYRES, MINISTER FOR INDUSTRY AND INNOVATION AND MINISTER FOR SCIENCE: It's really good to be on the show.

HOST: Before we get to the report, as we have an oil shock unfolding in the global economy, does Australia have the right industry settings when it comes to oil? Do we need more sovereign supply of crude? Do we need more oil refining capacity at home?

AYRES: Australia doesn't have its own crude oil reserves. We have plenty of coal, plenty of gas. We have enormous reserves of sunshine and wind and storage capacity, and hydro capacity in Australia. But we don't have geological reserves that are cost-effective all to ourselves. So, the Minimum Stockholding Obligation that the Government imposed at the beginning of our term that we effectively put into law by signing off on the regulation and implementing it, is the strongest measure that has been in place for more than 15 years to secure as much fuel as possible in diesel, petrol and jet fuel. And we're managing that reserve carefully in the national interest and working carefully with the industry to make sure that it gets to where it needs to go.

HOST: So, you're satisfied that the circumstances we face, currently, it's enough?

AYRES: Well, I’m not complacent about these circumstances that we find ourselves in. That's why you have a Minimum Stockholding Obligation. That's why we have a fuel reserve. It’s to deal with challenges and shocks like the one that we're experiencing. So, we're not complacent about it at all. It has been managed on a daily, hourly basis, principally by the Energy Minister, Chris Bowen, and we'll continue to work through that over the coming weeks and months.

HOST: Now, when it comes to this report into research and development, it's given a wide range of recommendations. Is the Government inclined to adopt them all?

AYRES: This is a very wide-ranging report that offers a really strong menu of options for decadal reform for the research and development system.

HOST: I guess we're just trying to get a sense of what the willingness of the Government might be when it points to things like reforming the maze of grant schemes as it describes it, and the overall decline in funding. Can you reverse the decline in innovation without addressing that decline in funding and the administrative burden that comes with this maze of grant processes?

AYRES: I think one of the real strengths of this report is that it points to the scale of the Commonwealth's contribution, around $15 billion, but spread across 160 programs. So, there's certainly a case for consolidation and concentration of effort.

HOST: And that's one of the recommendations? Setting up a National Innovation Council. Sounds like you see a need for that.

AYRES: Well, making sure that our innovation system and our research and development system are working in the national interest, with clear priorities and clear missions and objectives, is central to us achieving our Future Made in Australia objectives. This is all about at the end, getting a research and development system that drives industrial growth and the re-industrialisation of our outer suburbs and industrial regions. To move from just exporting critical minerals to making critical metals and making advanced manufacturing products that produce good jobs for Australians.

HOST: The report describes uncompetitive corporate tax settings. Is the Government in a position to be more generous when it comes to tax breaks, given all the other pressures on the budget?

AYRES: We’re not afraid of recommendations about the tax system or about the innovation system more broadly. And we’re going to take our time to work them through. There’s obviously budget consequences. We spend, I think in the last year around $4.5 billion on the research and development tax incentive. Of course we want to make sure that that’s targeted for impact for industry and produce good jobs.

HOST: Tim Ayres, thank you very much.

AYRES: Thanks very much.

HOST: And Tim Ayres is the Minister for Industry, Innovation and Science.