The realisation Iceland spends more per person on important research and development than Australia has sparked calls for significant reinvestment in the sector.
Universities Australia says data from 2015/16 showed for the first time since figures have been kept, Australia's research investment declined.
"Research expands Australia's economy, research saves lives, research creates new products and industries that generate jobs," chief executive Catriona Jackson said on Wednesday.
"But over the past three decades we've seen a worrying trend with governments conducting less and less R and D and universities have had to step into the breach to maintain national capacity."
Australia now spends 1.88 per cent of gross domestic product on research and development, well below the OECD average of 2.38 per cent.
"Australia's R and D spend as a percentage of GDP is less than Iceland's. That's a country with a population smaller than Canberra," Ms Jackson said.
Universities Australia wants the federal government to keep the Education Investment Fund, after it was suspended in 2015 and slated for closure.
"We welcome the government's budget commitment to rolling investment in current and new national research infrastructure," Ms Jackson said.
"But Australia also needs capital funds to build research capacity at universities across the country.
"Closing EIF will deny our world-class researchers the proper resourcing and security they need to keep doing what they do best - making breakthroughs for the betterment of all."
