A new model: An Innovation and Industrial Strategy Commission

John H Howard, 14 May 2026

This Insight first appeared in InnovationAus on 8 May,2026

Australia already has many of the institutional ingredients for effective innovation ecosystem development. What it lacks is coordination among these instruments around shared objectives.

An Australian Innovation and Industrial Strategy Commission (IISC) could be designed with three foundational elements, each grounded in the constitutional and institutional realities of the Australian federal system that would address this shortcoming.

Element 1: A Cabinet-level coordination mechanism.

The political authority to align agency activities across portfolios resides in Cabinet, specifically in the Expenditure Review Committee (ERC). No external body can supply this authority. A standing Innovation and Industrial Strategy Committee of Cabinet, drawing on the Finnish model (as outlined in Part II of this series) , would provide the political architecture for cross-portfolio coordination.

This would require the Prime Minister and Treasurer to invest sustained attention in innovation and industrial strategy as a standing Cabinet priority and would give the coordination function the constitutional grounding that the SERD report’s NIC proposal lacks.

Element 2: A statutory Commission replacing IISA.

This would absorb IISA’s R&D Tax Incentive administration functions while acquiring a substantially broader mandate. The Commission would operate through three pillars:

• An innovation and industry pillar, coordinating the portfolio instruments examined in this Insight and developing place-based ecosystem strategies

• A research system pillar, providing strategic guidance on how ARC, NHMRC, and other Commonwealth research funding might align with national innovation priorities without displacing peer review independence

• An analysis and evaluation pillar, conducting independent research on innovation and industry economics to complement the Productivity Commission’s efficiency analysis.

This three-pillar structure would distinguish the Australian model from the UK’s research-led UKRI by placing innovation and industrial strategy in the lead position. Where UKRI subordinates Innovate UK as one council among nine, the IISC would position innovation and industry coordination as the organising principle, with research system guidance as a supporting function.

This inversion reflects the reality that the minister’s portfolio is an industry and innovation portfolio, not a research portfolio, and that the coordination problem centres on aligning industrial strategy instruments rather than on managing disciplinary research funding.

The Commission would need to be designed as an advisory and coordinating body with analytical authority, consistent with the Productivity Commission model: a body that shapes policy through the quality of its analysis and the authority of its statutory mandate, rather than through direct operational control. Section 64 of the Constitution means that coordination must operate through the authority of portfolio Ministers acting collectively in Cabinet, not around them.

The Williams decisions (2012, 2014) confirmed that Commonwealth spending programs require statutory authority, and the Industry Research and Development Act 1986 provides the existing legislative foundation that could be substantially amended or replaced.

Element 3: A federal engagement mechanism.

Effective innovation ecosystem development requires state and territory cooperation in areas where the Commonwealth holds limited constitutional authority: land use planning, skills and training, local infrastructure, and regional economic development. A standing intergovernmental forum on innovation and industrial strategy, operating through National Cabinet or a dedicated ministerial council, would provide the federal architecture for place-based coordination.

Both the German and Canadian experiences confirm that innovation coordination in a federation requires formal, standing mechanisms with clear authority; informal goodwill is insufficient. A coordinating body might also benefit from a tripartite structure with representation by industry and unions, as well as individual experts.

Sequencing and political economy

A staged approach could manage the political risks of institutional reform.

• Stage 1: Establishing the Cabinet committee and the analytical function, using the existing IISA infrastructure and the NRFC statutory review (due December 2026) as entry points.

• Stage 2: Introduce the tripartite structure through legislation, with the innovation and industry pillar developing place-based coordination pilots of the kind proposed in this paper.

• Stage 3: Extend the research system guidance function as the Commission builds analytical credibility.

The Government’s strong parliamentary position following the 2025 election provides a window for institutional reform that may not recur. The SERD report has established the case for systemic change. The NRFC statutory review offers a near-term legislative vehicle.

The question of what replaces or transforms IISA is now a matter of when, not whether. The design of that successor body will determine whether Australia builds an innovation coordination capacity comparable to the international models examined here or adds another advisory layer to an already complex and overloaded system.

This is the third and final article in a series of three that explores innovation and industrial strategy for place-based ecosystems. You can read Part I here, and read Part II here.

Dr John Howard is Executive Director at the Acton Institute for Research in Policy and Innovation and a Visiting Professor at the University of Technology Sydney. He can be contacted at john@actoninstitute.au.