Tech is watching: Here’s what initiatives Australia’s startup leaders want to see in the 2019 federal Budget
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This year’s federal Budget is upon us tonight at 7:30pm AEST.
High commodity prices and a healthy jobs market have helped keep the budget in good shape. And ahead of an election next month, all eyes are on what stimulus goodies the coalition government dishes up to help boost the slowing economy.
Amid that environment, Stockhead sought comment from key players within Australia’s tech and startup ecosystem, to get an understanding of what measures the sector is looking for to help boost investment and activity.
Among the experts we spoke to, one clear theme that emerged was the desire for clarity and coherent government policy around tax incentives for research & development.
The current policy is intended to encourage investment among startups by offering a tax offset on R&D costs. For companies with turnover up to $20 million, the offset is paid out as a cash refund.
But there’s been lingering confusion around the policy, with some large companies — most notably Commonwealth Bank — getting into stoushes with the tax office over much larger R&D claims.
Here’s a full rundown of what the industry hopes to see tonight:
Clarification on the R&D tax incentive will prove crucial for this budget, and getting it wrong could send our ecosystem backwards.
We have a thriving accelerator and incubator network in Australia, but a shortage of angel funding. When companies leave these programs they rely on incentives like R&D tax rebate to give them more runway to succeed and go on to find further funding.
There’s also been a groundswell of support for a government fund that could help super funds and other institutional investors better invest into venture capital.
There needs to be a buffer here, as super funds typically invest in a volume of many millions, yet almost all of Australia’s VCs can’t accept this quantum of capital and invest at the scale required to generate venture returns.
This government fund would help break this money down for the VC ecosystem into portions they could take on, and in turn improve funding opportunities in Australia.
This fund could also be directed to invest in VC funds that can commit to using their capital to help solve key Australian social, environmental and economic policies, reducing some of the burden off government to come up with their own tax-payer funded solution for key issues in these areas.
We’d love to see some additional support for startups and investors through some amendments to the Early Stage Innovation Company (ESIC) tax incentives.
In our experience, there is little awareness among investors and companies about the ESIC regime. One of the reasons we think is because of the fairly restrictive eligibility requirements for companies to access the regime (more info here).
We think the regime could be improved by removing the “innovation” requirement, and increasing the incentives for investors, to be more closely aligned with the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) in the UK.
From a CSF perspective, the EIS and SEIS in the UK continue to make a huge impact on investment into small businesses and startups and is arguably one of the reasons why the UK crowdfunding industry is the best in the world.
In the context of an increasingly difficult lending environment for SMEs and macro-economic uncertainty, we think encouraging investment in Australian small and medium businesses makes good sense in terms of diversifying our economy and supporting jobs growth.
As an early stage company, we were pleasantly surprised by the number of grants available to us from government to help us build our business. That was, until we started delving into them. We found the process involved in securing them to be incredibly onerous and time consuming. Applying for grants is almost a full time job.
Beyond that, your success that getting a grant often depended on attaining another grant. It some instances, it was a requirement for application.
For us to succeed at building a business, we need to pour every moment into our startup. While the incoming tax break will be welcome, if the government could go further in improving the accessibility of their programs it would be a huge help to emerging companies.
Beyond this, we would also like to see government invest in its own tech processes and make it easier for emerging companies to tender for government work. Again, to tender for this is a really exhaustive process, and as a result larger firms are often the only ones that get a look in as they have the resources to dedicate an entire team to one pitch. Increasing the odds of startups in winning government work is another indirect way Canberra can support the ecosystem and level the playing field.
Finally, the government needs to continue to incentives upskilling. Required skillsets are changing faster than ever before. Even in IT, the skills you needed five years ago are almost obsolete today.
This budget, we’re expecting the government will further clarify its position on the R&D tax incentive. This clarification is important for fintech and startups looking to leverage the funding to help grow their businesses and finally end the ongoing uncertainty over the future of this policy.
Beyond that, we would like to see the Australian Government take note of the learnings from the UK Open Banking experience and carve out funding for consumer education to promote the use cases and adoption of Open Banking in Australia.
The biggest issue for the Open Banking policy in the UK is adoption, and some preemptive thinking here could see Australia pull ahead in terms of its use of associated technology.
Finally, we would like to see the government expand the early significant innovation company (ESIC) tax incentive. This policy offers tax incentives to early investors of innovative companies, and next to R&D is another key policy underpinning the growth of the fintech sector.
Currently the company needs to earn a minimum of $200,000 per year in revenue before it is eligible. It also needs to pass a 100-point innovation test, which is primarily measured by the company’s engagement with other government initiatives.
Yet, this policy best benefits many pre-revenue companies who are looking for angel investors, and don’t have the time to fill in endless patent and grant applications.
An expanded budget for ESIC tax incentives would allow government to start thinking about how they can make this tax break more accessible.
There’s been a lot of uncertainty on the R&D tax incentives and we would expect that this budget would further clear this up. Our biggest concern is that the overall pool of funds allocated to this regime shrinks, but the government still allows Australia’s largest companies to easily access them.
For instance, under the existing regime, CBA alone attempted to claim up to 5 per cent ($100 million) of the $1.8 billion in government funds allocated to this policy. It’s no wonder the policy has cost the government $3 billion instead of the anticipated $1.8 billion.
Ideally, we would like to see a scenario where this policy is further honed on emerging businesses and government works to reduce access to it for Australia’s top companies — who already have access to several other incentives and breaks and employ accounting manpower to leverage them.
Beyond this, we would like the government to revisit the debate around parallel importing of vehicles, and see this canvassed in the budget. This was raised last year, but has since been canned.
We believe this would go a long way to improving competition in the auto market, and would push car manufacturers to release new technology in cars in this market sooner rather than later. Australia is behind in adopting EV cars for instance, but we’d attribute this to a lack of variety in EV Cars in the local market rather than a lack of interest.