Budget 2015 acknowledges importance of small business, but lacks of focus on needs of tech startups.
Budget 2015 offered the government an opportunity to help Australia transform into a nation that fosters technology entrepreneurs and high-growth companies as drivers of economic growth and job creation.
Despite an encouraging move by the government to back small business, this year’s budget does not address the needs of a vital part of Australia’s economy: its tech startup eco-system.
StartupAUS is pleased to see moves by the Government to support crowd-sourced equity funding and to fix the tax treatment of employee share schemes. We also applaud financial measures that make it easier for Australians to start new companies. The fact that the government has recognised that startups play a major role in the future of Australia’s economy is hugely encouraging.
However, we believe an overall strategy is needed to accelerate the growth of Australia’s tech sector and to bring the Australia in line with the rest of the world when it comes to supporting startups.
Budget 2015 did not address many of the key issues affecting the startup ecosystem: lack of venture capital, lack of technology and entrepreneurial skills development, and a lack of investment in soft infrastructure.
Five key issues the Budget did not address:
1. Confusion between “small businesses” and “startups”
Startups are very different to small businesses. Startups are emerging high-growth technology-based business that are tackling global markets and have the capacity for massive and sustained growth, enabling them to become significant global businesses within a short period of time. Worldwide, startups have been shown to be a major source of job creation and economic growth.
On the other hand, most small businesses provide less differentiated products or services, are often trading in a confined geographical area, and although they provide an income to a significant proportion of the workforce, are generally not a major source of economic growth or job creation.
Budget 2015 has delivered initiatives that primarily of benefit to small businesses – such as the streamlining of business registration and lowering of the company tax rate. It has not delivered the initiatives we believe are needed to address the major issues affecting Australia’s tech startup eco-system.
The recent Crossroads report set out an eight-step roadmap to building a competitive startup ecosystem in Australia, one that would help startups compete on a global scale. StartupAUS urges the government to use the learnings from other countries that have been set out in detail in the Crossroads report as it develops its own startup-focused policies and programs, and to engage with the startup community to ensure it is developing programs that will have the maximum possible impact.
2. No commitment to creating and implementing a national innovation strategy
Australia urgently needs a national innovation and entrepreneurship strategy, and a central agency to drive the innovation agenda. The lack of policy co-ordination and funding for implementation reduces the effectiveness of existing government programs, while decision making regarding regulations and support for startups is falling through the cracks as a result of there being no single portfolio with responsibility for innovation and startups.
The recent announcement of plans to reduce red tape and lower costs of business formation is positive for small businesses, but of limited relevance to tech startups, which are still lacking many of the basic support programs available to startups in other countries.
3. No investment in education that will equip young Australians to build the businesses of the future
If Australia is to undergo the economic transformation that is needed to see us prosper beyond the resource boom, we need to be producing more STEM graduates and more people with programming skills.
We also need to encourage an entrepreneurial mindset in young Australians and equip them with the practical skills to successfully launch and grow businesses with global potential.
The Budget offers no indication that the government recognises this looming skills shortage or has any plans to address it.
4. No investment in improving the funding climate for Australian startups
In Budget 2014, the Government announced a “saving of $845.6 million over five years” by scrapping Commercialisation Australia and the Innovation Investment Fund, a reduction of support of nearly $170 million a year.
The Entrepreneurs’ Infrastructure Program (EIP) is now the government’s only substantive program remaining to support tech startups, and this year was the subject of funding cuts totalling $27.3 million over five years.
There was no commitment in Budget 2015 to give the accelerating commercialisation stream of the EIP a greater focus on tech startups. Nor was there any new initiative to stimulate greater levels of angel or venture capital investment.
In contrast, China recently announced the creation of an A$8.3 billion seed-stage National Venture Capital Fund, and many other countries including the UK, Singapore, Israel and New Zealand continue to deliver funding programs specifically aimed at stimulating greater levels of private investment in startups.
5. No investment in the soft infrastructure needed to support a growing startup ecosystem
Many countries have invested in the establishment of national networks of entrepreneurship centres and incubators as a means of support growing clusters of tech startups. Australia has a number of high quality incubators, but still lacks a national framework for the support and growth of this vital piece of soft infrastructure.
For inspiration we need look no further than our neighbours in New Zealand, Singapore and China as exemplars of national networks of government-supported startup incubators aimed at accelerating the growth of their national tech startup ecosystems.
Professor Jana Matthews, StartupAUS board member commented: “If Australia is to remain “The Lucky Country”, we need to evolve, and shift from programs focused extraction to commercialising innovation and growing companies. We’re pleased that the government have recognised that the future of the economy rests on the new companies that are starting up now. What is missing is an overall strategy for the government to develop the vital sector called the technology sector.
“In order to do that we, we need to give people the skills and knowledge they need, both in science, technology, engineering and math (STEM) so that they can build tech startups, and also entrepreneurship so they can turn those startups into high-growth business that will create jobs.
“Beyond skills, we need government leadership and tangible support for tech entrepreneurs and investors to drive the startup ecosystem.”
Peter Bradd, StartupAUS board member commented: “The budget does contain big wins for small business, but not the big wins we need for tech startups in Australia. As the Treasurer himself said “People ask me where are the future jobs going to come from.” We know that high-growth businesses create the vast majority new jobs. In the United States, research from the Kauffman Foundation shows that the fast growing 4% of companies there create 70% of the new jobs. Research in the United Kingdom has seen similar findings of 1% of companies creating over 68% of new jobs, and the conservative government has implemented the Future Fifty Program to encourage more growth-stage digital businesses.
“It is widely accepted that tech startups are amongst the fastest growth companies. The budget demonstrates that the Government is grasping the problem of moving away from an extractive economy to a knowledge driven one, with services and small business prioritised. However, we need to put tech startups on the top of the agenda if Australia is to safeguard its economic future.”
Colin Kinner, author of the StartupAUS Crossroads report commented: “Australia urgently needs to develop a strategy for an “Economy 2.0” that can sustain our way of life beyond the resources boom. There is little in this budget to suggest that the government has grasped the importance of investing in the tech sector, despite evidence from around the world that high-growth tech startups are a massive driver of economic growth.
“The government needs to act to prevent any further erosion in support for knowledge-intensive industries and tech startups at a time when every other developed economy is providing increasing levels of support for tech startups.”
– Ends –
Ashford Pritchard, Launch Group
Louise Proctor, Launch Group
StartupAUS is a not-for-profit entity with a mission to transform Australia through technology entrepreneurship.
StartupAUS believes a strong home-grown tech sector is vital to future Australian jobs and wealth. But getting there will require a national imperative to create the right environment, with a supportive culture and more entrepreneurs with the right skills.