Federal Budget: startup wish list, part three
Tue 8 May 2018 - 3:51 pmNews | Startup
Ahead of tonight’s Federal Budget announcement, startups have urged the Turnbull Government to facilitate better access to finance for small businesses, extend the instant asset tax write-off scheme, better support startups with global ambitions, implement sharing economy regulations, expand the R&D tax incentive and incentivise early stage investments.
Beau Bertoli (Prospa), Tim Bos (ShareRing), Mike Rosenbaum (Spacer), Ben Thompson (Employment Hero), Shendon Ewans (Gobbill) and Julian Waters-Lynch (Typehuman) shared their budget wish lists with Dynamic Business.
Small business finance
Beau Bertoli, joint CEO of Prospa said the online SME lender would like the $20,000 instant asset tax write-off scheme extended for small business owners because the popular initiative has “enabled them to invest in their own growth, create more jobs and boost the Australian economy”.
Noting the Budget will include the government’s response to the Review into Open Banking report produced by King & Wood Mallesons partner Scott Farrell, Bertoli said he hoped the government would reaffirm its commitment to the timetable it laid out in last year’s Budget.
“Open banking paves the way for a fairer, more accessible financial system that puts control back into the hands of customers,” he said. “Reducing the scope or delaying the implementation of Open Banking, will only reduce or delay innovation. The Government’s approach needs to balance the clear security imperatives, with making it easier for people – including small business owners – to access new products and services.”
Bertolli said the Budget should also include measures that support the fintech sector to provide small businesses with better access to finance.
“We would support measures that go towards reducing the relative advantage enjoyed by larger banks, in particular around promoting the ability of non-banks to access to lower cost wholesale funding,” he said. “This would mean companies like Prospa could provide small business owners with even easier, lower cost access to finance, and create a more competitive finance market – something Australia badly needs.”
Global startup approach
Tim Bos, co-founder and CEO of ShareRing suggested the Government should rethink its strategy for supporting startups.
“Whilst the Australian government has come a long way in offering grants and tax incentives for the startup community and its investors (i.e. EMDG, R&D tax incentive), it is still very difficult to get the right level of support for a startup in Australia to truly thrive.
“One of the key reasons that I have seen is that the government seems to reward a startup for doing everything in Australia, which stymies our ability to actually grow our companies to a point where we can find the best talent and the most customers. For example, in Silicon Valley, a lot of governments from other countries actually support a company when they decide to relocate part of their business there, because they know that, ultimately, the skills and income will likely flow back to that country’s economy.
“Australia almost got there with their launch of the ‘landing pad’ in San Francisco, but it was an underfunded, half-baked effort to build the Australian startup community there. In Australia, the government needs to do more to fund the overseas expansion or relocation of a startup. In addition to this, whilst we have a great R&D tax incentive, it is only good if you can afford to hire the majority of the skills from within Australia. Sometimes this just is not possible, either because of cost, or resource availability. It would be great to see the government take a more global approach to these types of incentives.”
The sharing economy
Budgetary measures to support Australia’s burgeoning sharing economy were endorsed by Mike Rosenbaum, co-founder of The Sharing Hub and CEO of Spacer.
“Ten years ago, the sharing economy didn’t really exist, so most regulations weren’t written with the sharing economy in mind,” he explained. “Our wish is for the Government to start recognising the seismic shift in how people live, consume and earn thanks to the sharing economy and ensure that this is reflected in future legislation. This will help future-proof regulations instead of creating rules for the old world. For example, if we take a look at strata rules, they currently do not address the flexible way in which we live today and the rapid adoption of platforms such as Airbnb and Spacer.
“With more and more consumers choosing to use the sharing economy to source affordable services and better experiences, Government support is essential. We would also welcome the appointment of a Minister for the Sharing Economy to represent the interests of the sector and promote collaboration, communication, and knowledge sharing between Government, consumers, businesses and sharing economy users.”
According to Ben Thompson, founder and CEO of HR tech startup Employment Hero, the R&D tax incentive should be expanded by the government rather than reduced or capped.
“The government needs to wake up to the tectonic shift occurring in the global economy,” he said. “The biggest technology companies on earth (Apple, Amazon, Google, Facebook and Microsoft) are growing by around 40 per cent each year and collectively they spend $70 billion on R&D. This compares to just $20 billion spent by all Australian businesses combined. This year’s budget needs to help Australian businesses keep pace by opening up, rather than narrowing, the opportunity for R&D subsidies.”
Thompson’s commented were echoed by Shendon Ewans, co-founder and CEO of fintech startup Gobbill. He described the R&D tax incentive as an “important lifeline” for startups, enabling them to continue investing in innovative solutions.
“Gobbill has spent the last three years – and most of our funding – on R&D to develop artificial intelligence in fraud checking and bill payment automation, which has allowed us to file local and international patents and export contract opportunities,” he said. “This is testament to the fact that the tax incentive should remain. Any notion to reduce or cap it may have an adverse effect on Australian innovation.
Ewans said the Early Stage Innovation Company (ESIC) scheme, introduced in July 2016 and reaffirmed in the 2017 federal budget, is also important to foster more early-stage investments.
“After we became ESIC compliant, Gobbill’s angel investor was able to receive a CGT (capital gains tax) free status for his half a million dollar investment,” he said. “ESIC encourages investors to look at higher risk investments differently, with higher rewards on the exit side. It should remain part of this year’s federal budget, to continue to foster and support local entrepreneurship.”
Julian Waters-Lynch, co-founder of Typehuman said the blockchain startup would like to see budgetary measures that contribute to “a well-informed regulatory evolution towards cryptoassets”.
“Just like the internet, the technological revolution that began with the Bitcoin blockchain creates great opportunities for entrepreneurship and innovation, but it requires appropriate regulation to unlock,” he said. “Our interest is in the potential of blockchain technology to unleash a wave of innovation that addresses many current social challenges, and an area we are particularly interested in is regulatory development towards cryptoassets.
“Regulators in the past have attempted to fit tokens and other cryptoassets into existing categories. For example, in 2014 the ATO classified cryptocurrencies as ‘intangible assets’ rather than currencies, which made them subject to the GST and imposed double taxation on their use. The result was Australian based crypto exchanges were more expensive than their overseas counterparts. Whilst this classification was amended in 2017, by this time some Australian startups had already relocated to more favourable jurisdictions such as the United Kingdom and Singapore. Now many places around the world are rethinking their regulatory approaches to blockchain-based innovations. Countries like Singapore, Estonia and Switzerland have led the way here, other countries are catching up. France for example just reduced its capital gains tax obligations on cryptoassets from 45 per cent to 19 per cent.”
Water-Lynch said cryptoassets should be redefined as a novel asset class, with particular clarification of the legal difference between ‘security tokens’ and ‘utility tokens’.
“We are seeing some interesting regulatory innovation emerge on the subject, most recently in the state of Wyoming in the USA,” he said. “In Australia we find many entrepreneurs and startups want to do the right thing, but the regulatory details around how they handle and issue cryptoassets is still a grey zone. This uncertainty can stifle honest innovation locally, but does little to address the actions of bad-faith actors, or offshore activity. We would like to see initiatives in the budget that build spaces for better collaboration between regulators and entrepreneurs and startups proposing new, safe ways of using crypto tokens, so that the community can benefit from the huge promise of innovation in this area.”