A rapidly changing global economy and declining manufacturing industry presents one of the greatest economic challenges to Australia. Innovation is crucial to Australia’s growth and preparedness for future challenges – be they social, economic or environmental.
The recent announcement of the National Innovation and Science Agenda on 7 December 2015 is a timely review of Australia’s innovation ecosystem. Aimed to be introduced by the middle of 2017, the agenda is estimated to invest around $1.1 billion in a number of initiatives designed to encourage private sector led innovation.
Entrepreneurship and competition determine the extent to which innovation contributes to productivity and economic performance. Innovation by one company is likely to trigger innovation by others, since companies risk losing market shares if they fail to match the innovations introduced by competitors. This ebb and flow is responsible for a substantial share of efficiency improvements in an open economy and adds to Australia’s competitiveness on the global stage.
A number of factors have been identified as impeding the flow of ideas, mobility and funding between public and private sectors that act as barriers in Australia. Here is how the agenda seeks to address some of those concerns:
Lack of an innovation culture and a low appetite for risk
1) Tax concessions
Tax breaks will be provided for early stage investors in innovative startups in the form of a 20% tax offset based on the amount of their investment. Provided the investor holds the investment for more than three years, an additional capital gains tax exemption will apply upon the sale of their interest in the startup.
Further initiatives include a 10% tax offset regime for early stage venture capital limited partnerships with the existing cap on committed capital to be increased from $100 million to $200 million.
2) A ‘safe harbour defence’
The ‘safe harbour defence’ enables directors of solvent, but struggling, companies to restructure and seek advice within a reasonable period of time, without being exposed to personal liability for insolvent trading.
3) Changes to insolvency laws
The default period of bankruptcy is to be reduced from three years to one, supporting positive entrepreneurial risk taking. This encourages startups to push into more daring territory. Even if they did not achieve success initially, founders of startups will have increased opportunities to start anew. A healthy acceptance of business failure is important for increasing national competitiveness in an international arena.
Limited commercialisation and conversion of research
1) $200 million CSIRO Innovation Fund
Designed to support co-investments in new spinoff or startup companies, created by Australian research institutions, the CSIRO Innovation Fund focuses on commercialising research for economic advantage. The agenda allocates $459 million over 4 years and $2.3 billion over 10 years to key research organisations such as the CSIRO, the National Collaborative Research Infrastructure Strategy and the Australian Synchrotron.
2) $250 million bio-medical translation fund
Created to boost medical discoveries and to further the commercialisation of medical research, private sector fund managers will be selected to support and streamline a commercialisation program. This includes reforming the process of clinical trials and regulatory approvals, enabling Australia to gain an international competitive edge in the delivery of medical services.
3) Reform to university research
Further changes have been introduced to university funding criteria to support increasing grants for collaboration between research and industry. An additional $127 million has been allocated to encourage joint endeavours that produce outcomes that have both commercial and community benefit.
An unconducive climate for innovators
1) Changing employee share schemes
Employee share schemes (allowing employees to gain a percentage of equity in a company) have been reformed, changing the limit requirements for offer documents to be made publicly available.
Previously, disclosure rules – demanding that offer documents be made publicly available – created concerns about commercial sensitivity for some companies. This reform aims to encourage the development of employee share schemes in order for businesses to attract and retain valuable employees.
2) New limits on depreciable deductions
This allows startups to claim depreciation of an intangible asset over the assets’ economic, rather than statutory life, boosting the ability to take advantage of depreciation allowances.
3) A 'New Entrepreneurs' visa scheme
Following the likes of Israel and France, the visa aims to encourage innovators to bring their ideas and startups to Australia. This allows startups to tap into a highly skilled and educated pool of global talent.
4) Global innovation strategy
The agenda allocates an investment of $36 million over 5 years for the establishment of landing pads in Silicon Valley, Tel Aviv and three other locations (yet to be decided) to assist Australian entrepreneurs and startups.
Australia’s success in an increasingly globalised society demands strong innovation. We need an innovation ecosystem that allows innovative thinkers to pursue and develop new ideas that can be promoted internationally. This new agenda provides much hope for startups, entrepreneurs and researchers and is a solid step in the right direction.
Australia’s future prosperity in large part relies on the ability of our innovation system to translate research and development outputs into innovative new products and services. Embracing new technologies early and investing in research and development projects that work with innovators has benefits for all involved and will help to secure the continued growth that Australia needs.
Valeriia Minigoulova is the International Trade and Economy Fellow at Young Australians in International Affairs.
Image Credit: CeBIT Australia (cropped) (Flickr: Creative Commons)