The Denholm R&D report gets the diagnosis right, but real reform is hard and involves pain

[Content from Startupdaily.net]

Will Schmitt led the NSW Innovation Blueprint. Here he shares his insights on the Denholm R&D report.

March 25, 2026

There has been no shortage of hot takes on the Denholm Report, so this is a specific one.

As the former NSW Government senior executive who led the NSW Innovation Blueprint 2035, I’ve spent two years grappling with what makes reform agendas like this one actually deliver.

The Denholm report is the most serious Federal attempt in many years — and it deserves a serious response.

Here’s mine:

The report’s diagnosis of the system is dead on in a sigh-of-relief way. “We must be ambitious and move away from an underperforming system that is the result of often trifling, incremental improvements, risk aversion and band-aid solutions.”

Do you feel seen yet? Good. Me, too.

The system has become atomised (150 separate Federal programs across 13 ministerial portfolios!) alongside its strategic drift. We don’t have a set of true focus sectors or clear goals or outcomes on the horizon.

The system also suffers from underinvestment from multiple angles. That’s chronic underfunding of our often-heroic national science agency, CSIRO and a fundamental research system that often doesn’t cover the actual costs of said research.

When it comes to research translation and commercialisation at meaningful scale, the private market in Australia struggles to muster capital for high-traction growth-stage ventures beyond a good-sized Series B round.

Talking real reform

Most of us working in this space knew these things instinctively on our first scan of the executive summary. So what do Denholm et al. suggest the Commonwealth should do – and do as soon as humanly possible – about this?

The report’s 20 recommendations are detailed – sometimes painstakingly specific – and have been met with something between universal acclaim and relief.

To my eye, this is in part because the recommendations are packed full of ‘goodies’: more funding, more access or higher prioritisation for all kinds of people and industries. But that’s not what makes a massive reform agenda move and succeed, at least not one that requires many people to think and work differently.

Real reform has losers and creates discomfort. And crucially, without a deliberate connection to a comprehensive future economy strategy and very specific, time-bound goals, this ambitious reform agenda risks ending up on the heap of past failed Commonwealth innovation infrastructure ‘projects’.

This is where I think that discomfort needs to land:

1.Name your big(er) bets or go home

An ‘Ambitious Australia’ needs clear, specific industry priorities and the report calls out… six. A brave and welcome move would be to instead name three. Precisely none of our ‘peer’ countries at the top of the R&D system performance league tables (think South Korea, Singapore, Germany) got where they are through such a ‘let’s hedge our bets’ approach.

This more focused and deliberate approach need not mean ‘we won’t fund anything else’. As the report makes plain, the likes of the Defence and Agriculture industries/portfolios have major federal R&D funding allocations and administrative architecture locked in.

The report also suggests a very nested governance overhaul of the system. A National Innovation Council reporting directly to the PM and Minister would oversee the full system, with each of the six pillars (priority sectors) overseen by an advisory council that then sets up to three ‘sub-goals’ (effectively ‘national missions’).

There’s some real merit here: a specific, decadal goal articulated per pillar and a focused ‘mission’ or three per pillar, which focuses resources and rallies cross-collaboration (i.e. ‘a competitive Australian next-generation lithium battery value chain by 2040’).

Taken together, though, this extent of planning, stacked governance and up to 18 national ‘sub-priorities’ begins to feel dangerously like what former Chief Scientist of Australia Dr Cathy Foley called a ‘Vegemite approach’ to R&D. It’s still spread too thin.

2. Aussie corporates, multinationals and big capital: where are you?

Deep corporate R&D — including pre-competitive collaboration with researchers and peer companies — is a hallmark of any top-tier innovation system. Australia struggles in this domain: as UNSW’s Paul X McCarthy has noted:

Australia’s top 50 corporate R&D players contribute just 11% of total Australian R&D funding. Compare that to the US, UK and China at 37-56% and Japan/Germany at over 80%. Sydney, Melbourne and Perth are all APAC hubs for multinational corporates with major R&D budgets and functions, yet many of those companies’ participation in the Australian R&D system is vanishingly thin. Drawing them in must be a priority.

Meanwhile, the report’s capital recommendations have been widely welcomed. But two questions deserve more attention.

• The first is the fit of the VC model: The venture capital model is well-suited to software, platforms and asset-light businesses. It is structurally ill-suited to the capital-intensive industries — advanced manufacturing, agricultural technology, clean energy infrastructure — that sit at the heart of the panel’s vision. Most VCs will not fund significant capex, and for good reason. Before we mobilise substantially more capital into the existing VC architecture, as the report recommends, we need an honest conversation about whether it’s the right vehicle for the industries we’re actually trying to build.

• The second is complexity: Australia has accumulated a growing array of special purpose public investment vehicles across state and federal jurisdictions. We have enough of them that we now need ‘front doors’ for businesses and investors to navigate them. Some of the report’s proposed new financial architecture, particularly the fund-of-funds model, risks adding to this complexity rather than resolving it. The design of any new public finance mechanisms needs to explicitly address consolidation and focus, not just addition.

3. Can we actually execute?

This is perhaps the most boring yet vital point.

The panel envisions a system overhaul of real magnitude requiring match fitness across four dimensions: government bureaucracies and public investment vehicles that can actually execute; a fundamental research sector liberated to do what it’s designed for; corporate cultures willing to commit to genuine collaboration; and a financial architecture fit for purpose.

In my view, Australia is currently zero for four.

Less talk, more action

Here’s the good news: get two out of four right and that’s actually transformational.

Get three out of four right and 2026-2036 becomes the decade that changes everything.

That possibility makes every uncomfortable conversation, political fight and budget battle worth it.

So no more reviews. Let the Denholm Report be the last. Let’s go.