By Colin Chapman
It was billed as prime minister Malcolm Turnbull’s most important policy statement since his ousting of Tony Abbott on September 14. Certainly there were many positives in the National Innovation and Science Agenda, launched appropriately at the Canberra headquarters of the CSIRO, the nation’s foremost science research body.
The benefits included a $1.1 billion spend over four years to encourage innovation, including a reversal of cuts to the CSIRO budget to enable it to lift its game again in research, especially in projects that have the potential to be commercialised. The CSIRO will also administer a new $200 million innovation fund to support investments in spin-offs and start-up companies, and a further $20 million to commercialise research. DOWNLOAD THE FULL REPORT.
There will also be a new $250 million fund—the Biomedical Translation Fund— to invest in promising biomedical innovation. Fund managers will be selected through a competitive process with a view to bringing funding from the private sector for investment, matching government support.
Science and technology are again back in fashion in a country that in the last century has earned its money as a quarry and a granary, digging up a wide range of minerals, breeding cattle and sheep, and harvesting grain.
With the Turnbull government poised to snatch back in the next Budget some of the generous tax concessions offered to those investing in superannuation, there will be new tax relief for those prepared to take a risk in backing innovative entrepreneurs. The major features here are a 20 per cent non-refundable tax offset on investment capped at $200,000 per investor per year and a 10-year capital gains tax exemption for investments held for three years. There will also be as yet unspecified legislation to encourage crowd-funding.
There were suggestions that the Government would introduce US-type Chapter 11 laws, but no announcement to that effect. What there is now is a better balance between encouraging entrepreneurs and protecting creditors, including protection for directors from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company. The Government also plans to make ‘ipso facto’ clauses, which allow contracts to be terminated solely due to an insolvency event, unenforceable if a company is undertaking a restructure.
A further plus is that the Opposition leader, Bill Shorten, says Labor will give qualified support to the strategy, choosing to fight next year’s election on other issues.
However, the Government – and Turnbull – could be accused of hyper ventilating in some of its claims. Take these words from the prime minister’s announcement: “There has never been a more exciting time to be an Australian business. There have never been more opportunities on the horizon for Australians…… Our universities, our research organisations, like the CSIRO, and our workforce are world-class”.
Some of the rhetoric is reminiscent of Harold Wilson’s ‘white hot technological revolution’ promised for Britain in the 1960s – and those old enough to remember know what happened to that.
While we should commend Turnbull’s optimism, the truth of the matter is that Australia has been slipping down the World Economic Forum’s global competitiveness league table, and ranks bottom or second to bottom in the OECD’s ranking for developing good ideas into sound business propositions.
All too often, Australian inventors, scientists and technologists have left the country for better opportunities offered in the United States, the United Kingdom and elsewhere. Turnbull wants them back, along with foreign nationals, creating a new ‘entrepreneur’ class of visa that may boost migrant numbers further.
But obstacles still remain to changing Australia’s culture. Some of these reside in the Australian mentality, where arguably ‘entitlement’ has a stronger pull than ‘risk’, and in a Fair Work system that has outlived its usefulness. Present business and income taxes are also a disincentive. One of Tony Abbott’s many weaknesses was an unwillingness to address this.
For the consumer, there is little or no incentive to buy the products of innovation. There are no worthwhile tax breaks for those who fit solar panels and battery storage on their homes – yet the solar industry is one with our greatest prospects as we await the outcome of the Paris climate change conference. There is no incentive, as there is in Britain, for people to buy fuel efficient and low emission motor vehicles, using the latest technology.
Perhaps the biggest obstacle to be overcome is finding a way to grow the small venture capital sector, and to persuade the big four banks to do some heavy lifting in funding innovation. Australian banks are intensely risk averse, and protective of their dominant business in financing the property sector. Those that have taken some risks, such as ANZ’s expansion in Asia under retiring CEO Mike Smith, are heavily punished by the share market when bad debts show up. There will be a host of new tax arrangements to encourage the formation of early stage venture capital partnerships, but it is unlikely they will achieve their goal. It is a shame the Turnbull government did not exact a price on the big banks for scrapping the proposed introduction of a bank tax, which could have been a limited commitment to venture capital.
It will be four years before we know if the Turnbull strategy is working – just in time for the 2019 election.