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Key points

• A report by Industry Innovation and Science Australia warns the government that the structure of  industry is blocking innovation.
• Australia has an estimated 56,000 medium-sized employers.
• The $15 billion National Reconstruction Fund was set up in September with a mission to expand Australian manufacturing.
• Priority areas include agriculture, medical science, energy, advanced technology, defence and transport.

Australian companies are shrinking or stagnating when they try to join the ranks of the nation’s biggest employers, spurring the federal government to spend $392 million over the next four years to help them commercialise ideas and generate more revenue.

A new report warns the government that the structure of Australian industry is blocking innovation by making it hard for companies to make the leap into big business, thinning the ranks of middle-sized businesses that would otherwise inject more competition into the economy.

Companies can apply for federal grants to commercialise products in priority fields such as medical science.

Industry Minister Ed Husic will release the findings on Monday when he opens the spending program to applications from companies that want advice or federal grants to commercialise products in priority fields such as agriculture, medical science, energy and defence.

The report also shapes the agenda for the $15 billion National Reconstruction Fund, which was set up in September with a mission to expand Australian manufacturing, subject to an investment mandate that is expected to be revealed this week.

Australia has an estimated 56,000 medium-sized employers but very few of them are able to expand into big companies, according to the report from Industry Innovation and Science Australia, a federal body that advises Husic on policy options.

Industry Minister Ed Husic.Credit: Alex Ellinghausen

The report concludes that 79 per cent of medium-sized businesses stayed a similar size in the year to June 2021, while 17.5 per cent shrank. Only 0.6 per cent were able to grow to become large businesses.

Husic said the results pointed to a “missing middle” in Australian industry and the need for measures to help companies expand.

“Growing them into much larger ones – that’s a challenge we need to tackle to beef up our manufacturing base,” he said.

“Countries that make things make great jobs. That’s our focus as a government.”

The $392 million policy, called the Industry Growth Program, funds advice to small and medium-sized employers, or SMEs, as well as offering grants over the next four years. The policy assumes $79.2 million in annual spending in future years.

The Coalition opposed the National Reconstruction Fund and has accused Labor of failing to act on soaring costs for small and medium business owners, saying this would help more than the $15 billion fund.

“It’s an incredibly clumsy, inefficient and ineffective way of helping businesses when they need it,” deputy Liberal leader and industry spokeswoman Sussan Ley said last month.

“The real problem we see out there now is manufacturing businesses that are absolutely desperate, desperate because of costs. But lots of them have got really smart ideas, innovative ideas, and we offered relatively small grants that were matched by others that absolutely bought them from that idea stage to manufacturing on the factory floor.”

While Ley criticised Husic for appointing Australian Manufacturers Workers Union national secretary Glenn Thompson to the board of the National Reconstruction Fund, the fund also has former Liberal cabinet minister Kelly O’Dwyer on its board.

The board is chaired by lawyer and company director Martijn Wilder and its other directors are former Australia Post chief Ahmed Fahour, venture capital partner Katharine Giles, tech industry executive and investor Daniel Petre, former Australian Workers’ Union national secretary Daniel Walton and company directors Kathryn Presser and Karen Smith-Pomeroy.

Investment deals in climate change and advanced technology have dominated the first 100 proposals for the fund, which is meant to focus on priority areas including agriculture, medical science, energy, advanced technology, defence and transport.

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