Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Hansard source

I want to follow on from the remarks of the shadow Assistant Treasurer in relation to this bill. The Treasury Laws Amendment (2017 Measures No. 1) Bill 2017 forms part of an ongoing review, if you will, of what can be done to help support the emergence of innovation in Australia. In particular, it deals with one of the things that has been problematic for a lot of younger and newer companies that have been looking to establish themselves and to progress the work that they are doing within their enterprises. A lot of firms need to rely on money to survive. In Australia, it has been one of the things that has held back the development of a very vibrant start-up ecosystem in this country. There is already one in place, but it has ambitions to grow and to be one of the world leaders in terms of start-up activity. I think this is an absolutely critical objective and a very important ambition for the nation, because this is where jobs and future economic growth are likely to emerge. We will be either left behind and simply import ideas or see enterprises created in this country through the smart supply by the next generation of Australians.

Two things hold back that growth. The first is having the skills and the talent to be able to push ideas forward. The other is access to capital, which is why this legislation, in its own way, is important. It forms part of the process of seeing what can be extended in terms of capital support for the sector. Notably, you have venture capital providing a critical plank towards start-ups being able to access vital capital. You have angel investors that provide their support. And there are incentives like those that are at the heart of this legislation that also support those two endeavours—in terms of venture capital and angel investment. On the face of it, these measures are uncontroversial. They are important measures. But you need to make sure that experience matches expectation—that the legislation that the government put in place last year will actually behave in a way that provides support and, importantly, that it is done in a proper way so that people are not using this law simply as some sort of tax minimisation platform and that people are doing the right thing. As the shadow Assistant Treasurer has said, we understand the need to be vigilant. We understand the intent behind this legislation. And we understand that it is important that we have these types of measures in place.

The ATO have a hard job to do. We certainly respect their role as the guardians of revenue in this country. It is not easy to do. They have to, basically, kept their eyes on tax laws that are so thick you could actually mistake them for a house brick. Being able to interpret those laws and apply those laws is not easy. So we do have huge respect for their role. Sometimes they have to keep a closer eye on things simply because they suspect that there may be the prospect of people abusing the various supports in place to support, in this instance, early-stage innovation. This bill enhances oversight, but it is not the only instance where oversight is being applied in a much more clinical way in this sector. In the other area I mentioned, these laws form part of an overall network of being able to support the flow of capital into the sector to ensure the start-up enterprises can emerge and emerge strongly.

The other form of support that exists is the R&D tax incentive. One thing that the start-up sector has said and drummed into me is: if politicians are going to look at the R&D tax incentive, we want you to do one thing—that is, to keep it. The start-up sector enormously values the benefit of the R&D tax incentive to their businesses. In fact, I would dare say it is one of the things that keeps a lot of start-ups onshore. This incentive plays such a huge role and a huge part in supporting their businesses that they want to ensure it continues. The ATO recently announced that it was putting the magnifying glass on claims for the R&D tax incentive. You can understand why it does it. From time to time it sends a signal—'We're taking a closer look on these claims and we're going to make sure that nothing untoward is going on. We'll stamp out claims that are out of line.' The opposition certainly supports that; I imagine the government does. Bearing in mind, the ATO is an independent authority; it makes its decisions at arms-length from government and from politicians, generally. We certainly appreciate that.

I am compelled to speak on this matter in the context of what this bill is doing generally, which is keeping a close eye on incentives and the way that they are applied in the taxation space. I am compelled to speak because of a very powerful piece I saw in The Australian Financial Review today by the CEO of the start-up sector's peak body, StartupAUS. Alex McCauley has written a very important piece, I thought, highlighting that on 20 February the ATO issued an alert relating to the R&D tax incentive. Bear in mind, as Mr McCauley points out, that this is the single biggest program delivered by government to support innovation in Australia. According to Mr McCauley:

… in the alert the ATO notes that most software development will not be considered eligible for support under the R&D Tax Incentive. It is part of an increased focus on compliance …

This bill is talking about compliance measures. There are other regimes that are impacting on compliance. I think it is important to draw attention to this. It is seeking to limit the growing cost of the R&D tax incentive, a program that, as StartupAUS notes, has been central in driving the growth of innovation in this country. The government says nothing has changed and that alert simply restated the existing rules. But as StartupAUS points out:

But rather than clarify, this line confuses: if nothing has changed, why release an alert?

Its view is that there has been a change and that the scheme, which at a technical level is focused primarily on encouraging research, has evolved in recent years to involve development—the other half of R&D. As Mr McCauley writes:

That evolution has largely been the result of a pragmatic approach to which activities qualify for support under the scheme.

The point that stood out to me is:

If they take the ATO's advice at face value—

and it would be brave for a start-up founder not to—

digital startups around the country will have to re-think their capitalisation, relying on less support from government and nervous investors.

I think that is an issue; I am very concerned about this.

An update to the alert was issued on Friday to clarify the operation of the advice but, as StartupAUS points out, there are other confusing elements as well. Limiting software company access to the scheme was not one of the recommendations of the review that was recently carried out into the operation of the R&D tax incentive. They are pointing out that this seems to go against what has previously been flagged in terms of reviews. Certainly there is a concern about that. They are also concerned that reinterpreting the scope of the most important innovation support mechanism in the country threatens to more than undo all the support the government has provided so far for innovative Australian businesses. If that was not the intended consequence, it needs swift and clear remedial action which explicitly brings digital start-ups back into the fold.

I think the sector is sending a very clear message that, while they appreciate that the whole arrangements around the R&D tax incentive are being reviewed and that there has been a degree of clarification in relation to its application, there is a big concern about what this will do in terms of software development and the support that it provides to start-ups. Frankly, if we do not speak up on this, the concern is that it will just go through and will have a big impact on start-ups.

This is not a partisan point I am making. It is easy for me, as an opposition spokesperson, to make this comment; it is lot harder for those opposite to do so. I respect that they have limitations on being able to speak up on these matters. But I note that the minister is here at the table. I would hope that she takes into account the views of the sector and I genuinely believe she will. I would hope that the ATO would acknowledge that any move in this space in dealing with this very important tax incentive would have impacts on start-ups. I would urge them to take into account the words of StartupAUS as expressed in the Financial Review today to ensure that the important work that the ATO does to ensure that tax incentives operate in the way that they are intended continues, but that there is not overreach to the extent that it impacts on some of our smallest, most innovative firms being able to conduct themselves in a way that is adding huge value to the economy, seeing a huge growth in jobs and ensuring that we are best positioned to grow into the future.

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