Australia innovation activity hits record high in 2023-24

Commonwealth Bank and the Melbourne Institute have launched an Innovation Index for Australian business, drawing on 18 years of data.

The index tracks innovation activity across industries, regions and time using de-identified government data on firms and workers rather than survey responses. It combines measures including research and development, skilled employment, intellectual property and knowledge-intensive trade.

The findings show business innovation activity in Australia increased over the longer term and reached its highest level in 2023-24. Over the shorter term, activity was broadly flat between 2021-22 and 2023-24.

The Melbourne Institute of Applied Economic and Social Research at the University of Melbourne developed the index in partnership with the bank. The organisations said it offers a level of consistency, coverage, and geographic and time detail that its authors believe has not previously been available in Australia in this combination.

How it works

The index is designed to map where innovation is strongest and compare selected emerging technologies. By using administrative datasets rather than a survey sample, it aims to provide a broader view of business activity across the economy.

That approach matters because standard surveys can struggle to measure innovation and may miss smaller firms, regional differences, or changes over time. Administrative records can provide a more stable base for tracking trends, although they still depend on the categories and reporting frameworks used in public data.

The release did not include a numeric index score or rankings for specific industries or regions. Instead, it outlined the broad direction of travel and the scope of the new dataset.

Policy context

The work comes amid continuing concern about Australia's productivity growth and the extent to which businesses are investing in new processes, products and services. Economists and policymakers have long argued that stronger innovation can help firms lift output, expand into new markets and improve resilience.

In this context, innovation is defined broadly rather than being limited to laboratory research or patent creation. It can include adopting software that reduces administrative work, changing operating processes, or expanding a business across state borders or overseas.

Professor Paul Jensen, a report author at the Melbourne Institute, linked the findings to the wider economic debate. "As a nation, Australia needs to become more innovative to boost productivity. Examples of everyday innovations include embracing new software which saves administrative time, expanding a business interstate or overseas, or modifying processes, products and services. Making innovation investments can lead to something valuable; even if there is failure, the lessons learnt can still provide benefits."

Banking interest

For Commonwealth Bank, the project reflects growing interest among large lenders in using economic research to understand how business customers invest and grow. Banks have sought deeper insight into the conditions affecting small and medium-sized enterprises as borrowing costs, labour shortages and softer demand weigh on parts of the economy.

The lender said it backed the work to improve the evidence on where innovation is taking place and what may help more businesses turn ideas into practical results. That positions the bank's involvement less in direct technology development and more in analysing the business environment faced by its clients.

Mike Vacy-Lyle, Group Executive, Business Banking at Commonwealth Bank, said the index could sharpen that view. "This Index gives us a clearer picture of where Australian businesses are innovating and how that is changing. The opportunity is to help more businesses turn ideas into new products, services and better ways of working, and help successful ideas reach more customers and markets."

Long view

The 18-year time span is one of the project's central features. A longer series gives researchers and businesses a way to compare current trends with earlier periods, including changes through economic cycles and shifts in industry structure.

Regional detail may also prove useful in a country where business investment and labour markets differ sharply between capitals, outer suburbs and regional centres. Sectors with high levels of skilled employment or export-oriented knowledge services may show patterns that do not match national averages.

Even so, the headline finding of flat activity over the most recent two-year period suggests momentum in innovation has not strengthened further after the earlier rise. That may feed into broader questions about whether Australian firms are maintaining investment in new ideas at a pace needed to lift productivity.

The index brings together measures spanning research and development, skilled employment, intellectual property and knowledge-intensive trade, tracking them across industries, regions and time.