The 2014 Federal Budget delivers the first real insight into how the current Government will support innovation. First impressions suggest that it will treat innovation as a cost, with similar political spin from previous Governments.
The following budget outcomes support this position:
- approximately $1 billion cut from innovation support programs (Commercialisation Australia, Enterprise Connect, Innovation Investment Fund, R&D Tax Incentive, Cooperative Research Centres (CRCs), etc.)
- $484 million allocated to a new Innovation support program called Entrepreneurs Infrastructure Programme (EIP). With the small amount of information available about the program at the moment it sounds like a rebrand and merger of existing programs rather than a new one.
- while numerous programs have been slashed, a new specialist program for medical research was added, in opposition to previous statements that there are too many industry specific grant and support programs.
The build up to the Budget release included the message that there are long-term deficits in the economy. The Government has taken a cost cutting approach as a first step in addressing this problem with potential tax reform for future budgets. This has fundamentally left innovators with the R&D Tax Incentive as the only program to support them. It puts innovators in limbo waiting to see what the EIP will hold and whether there will be any future tax analysis that will provide support for innovators and entrepreneurs.
There is no doubt that innovation has the potential to provide future economic growth and assist raising more tax revenue for future budgets with multitudes of economic positions and studies that confirm innovation builds future prosperity for economies. This goes back to the early 20th century when economist Joseph Schumpeter established the role of innovation and entrepreneurship in economic growth.
Recently there has been a lot of commentary from people within the innovation community about different ways to support innovation. There have been suggestions for better tax mechanisms, more grants, continuation of venture capital support, and better collaboration between public and private sectors. For example, a recent detailed report, Crossroads, prepared by StartupAus, contains analysis (and substantial supporting data) regarding programs that the Government can adopt (that are proven in other economies) to support Australian innovation.
Internationally there are many papers and reports that provide analysis and recommendations on mechanisms Governments can, and have, employed to support innovation. A recent paper, From White Heat to What Works (Gill & Parnell), summarises UK public policies supporting innovation from 1964 to 2014. This paper covers the evolution of innovation and entrepreneurship programs in the UK. And the Kauffman Foundation released a report in April 2014, titled Think Locally, Act Locally: Building a Robust Entrepreneurial Ecosystem that analysed the behavioural patterns of entrepreneurs.
With a wealth of available knowledge in reports such as these the Government has significant opportunity to learn and apply the most effective and appropriate solutions for Australia’s needs and it suggests that the future potential of Australian innovation support and growth is positive. Unfortunately it is naive to assume that those who are developing innovation policy access and utilise this knowledge appropriately.
The challenge for innovation policy development is not just from within the Government, but also from industry groups that have their own positions to promote. For instance, recently there have been suggestions that Australia should consider introducing the Patent Box program, a new UK tax program to support innovation. This tax program provides a tax benefit for companies that are gaining revenue from Intellectual Property (IP). It has only been in place for one year in the UK and there is no data to assess the costs or benefits of the program. During a recent national conference for the IP community, LESANZ, Patent Box was discussed. Within 30 minutes the room of IP experts had identified a number of significant concerns with the program and potential unintended impacts.
There is certainly a place for tax programs to support innovation. However, adopting new and undeveloped tax programs such as this Patent Box, before introducing tax programs that have been developed and are working in areas such as angel investment and employee benefit programs, would be highly risky.
The conclusion on the current situation is that Australian innovators are hamstrung with a lack of Government support that other countries take for granted. Apart from the R&D tax incentive, Australia has no grant or tax support for owners, employees or investors. One only has to listen to podcasts from Stanfords, Entrepreneurial Thought Leaders Seminar series to quickly realise the benefit start-ups in the US have regarding employee share programs compared to what start-ups cannot do in Australia.
However, innovation and entrepreneurship continues to be strong in Australia. With the lack of Government assistance I would encourage would-be investors and innovation supporters to employ more resources to assist and grow successful innovators. Finally, my hope is that Australian innovation policy developers under the new Government, consider the significant amount of existing knowledge and expertise and do not take much longer to create and implement complimentary innovation programs for Australia.