Ed Husic (Chifley, Australian Labor Party, Shadow Minister for the Digital Economy) Share this | Hansard source

I thought I would let you know that I'm reading a wonderful book. It's called Thank You for Being Late by Thomas Friedman. It's a great book. I commend it to anyone who's got an interest in innovation. I'm sure the member for Greenway has already poured through it. The back reads:

We all sense it: something big is going on. Life is speeding up, and it is dizzying. Here Thomas L Friedman reveals the tectonic movements that are reshaping our world—

technology, globalisation and climate change—

how to adapt to this new age and why, sometimes, we all need to be late.

I thought this is appropriate given that we are now debating the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. Inadvertently, the Turnbull government has managed to be quite late, but not through design, on an issue that is supposed to support innovation in this country—equity crowdfunding. It introduced this bill in September—there's nothing dizzying about this—and we're debating it in February. And that's not the end of it, by the way. We're finally getting to debate this—a very dizzying speed indeed!

The government tell us all the time that this is a game changer. They tell us that they are the game-changing government and everything is being done to help support innovation in this country. There is the application of technology and new ways to help the economy. They're always telling us how great a government they are—and, if you want a second opinion, you can ask them again and they'll tell you. They'll let you know how they're going on this front and how they're reshaping the country. When it comes to actually doing anything then we have exhilarating glacial speeds. Again it has been a long and tortured journey to this point of just getting this legislation debated.

While this is not a bill that is going to capture the minds or attention of many Australians, it is going to be something of great interest to many start-ups and small businesses that are looking for new ways to raise funds to support their ideas. This bill finally removes a stack of regulatory burdens stopping proprietary companies from using crowdsourced equity funding. Those burdens weren't there beforehand and the government woke up to them and decided to pull them apart; they were actually put in place by this government, who then realised they had to pull them apart. That's why we're here. In a nutshell, for those who are unfamiliar with this concept, equity crowdfunding uses the internet to harness the financial support of investors to back a business, usually through what's called an online intermediary or a crowdfunding platform, and in return those investors get a stake in the business seeking the funds.

The government says this bill, like all of its bills associated with innovation, is a game changer, a boost for innovation. All the cliches get recycled for the purpose of a ministerial speech or media release, but, as is often the case with the coalition, it takes its sweet time to create or reach outcomes. Given the years it's taken to get to this point with this one bill, it seems more appropriate to stretch back in time and reach for that old Shakespearean one-liner: you speak an infinite deal of nothing.

When we're contemplating the history, let me remind you of this bill's protracted journey. In government, Labor tasked the Corporations and Markets Advisory Committee, in about May 2013, to start scoping out a framework for equity crowdfunding. A year later they finished their report and in May 2014 handed it up to the coalition. Any action languishes. It's jammed in a loop of seemingly perpetual consultation. I think there were three different consultation phases through 2014 and into 2015. In the meantime, government report after government report was issued identifying the potential of equity crowdfunding to improve access to finance for innovative businesses. Let me run through them.

For example, the government's Industry Innovation and Competitiveness Agenda, released in 2014, talked about equity crowdfunding. The Murray inquiry into Australia's financial system, released by the government in 2014, also talked about equity crowdfunding. There was the Productivity Commission's Business set-up, transfer and closure draft report, released in May 2015, and the subsequent final report. The government's National Innovation and Science Agenda, NISA—we only got one of them, NISA 1.0—released in December 2015, talked about equity crowdfunding and said it would be something that would be happening. It took its time again. The government's own fintech statement was released in March 2016. All these reports talk about the value of equity crowdfunding. After all this, a bill was finally introduced in 2015 but widely panned for being a dud, too cumbersome, too unwieldy, user unfriendly. After withdrawing that bill, the government introduced another bill, in 2016, with exactly the same fatal flaws they had been told time and again would prevent businesses from being able to access equity crowdfunding efficiently. In March last year they used their numbers to force the bill through this place. They signed into law an equity crowdfunding framework that they knew deep in their heart would have to be fundamentally reshaped in the future. At the time, I labelled the framework 'ScoMo's dodo', and people thought I was being harsh. But the reality is this framework was racing towards one milestone and one milestone only—extinction.

Sure enough, we are right back here again in 2018, nearly 12 months to the day, with the government trying to fix the fatal flaws in its 2017 legislation that it knew were there. I do admire the innocent way in which the Treasurer slipped this line into the second reading speech introducing this bill in September, where he referred to its rationale emerging from stakeholder consultation and he described it in the following terms:

Submissions expressed widespread support for the extension of the crowdsourced equity-funding framework to proprietary companies.

Really? 'Widespread support'—it was like they'd just woken up one day and discovered this. The only time they'd heard of the energetic desire of stakeholders to have proprietary companies included within the equity funding framework was limited purely to the consultations around this bill that we are discussing now.

The government should stop with the mock innocence and the game playing. The harsh reality is this: in the four years it has taken to get to this point, the government was told their previous equity crowdfunding regime was a dud—it was highly restrictive and unlikely to get business support—and that they needed to bring in a regime that would be usable by proprietary companies and one where they weren't forced to contort their structures for the sake of accessing crowdfunding. In case the government would like to play dumb on this, let me read into Hansard the range of warnings they were given years ago on this. The University of New South Wales Faculty of Law said that 'the bill that they were putting forward excluded over 99.7 per cent of companies from accessing crowd sourced equity funding. The current proposed model in front of the parliament is too restrictive and excludes the majority of Australian companies from relying upon it'. The Law Council said: 'The committee is concerned that the bill is too complicated to be easily understood by start-ups and early stage companies.' The firm BDO said: 'The requirement to become a public company is likely to be daunting and costly to start-ups and businesses.' Employee ownership Australia and New Zealand, reflecting on the issue about the public company requirement, said: 'Significant costs for a smaller organisation from $15,000 per annum. The financial statement and content requirements also may cause some concerns for entities that do not wish to give full disclosure for competitive advantage.'

When I previously said that this would lock out small businesses and start-ups from using this, I had some in the start-ups space challenge me on it. So they went away and, on Twitter last year, I saw that they started to add up the costs of what it would involve to go through the audit and legal contortions to be able to potentially participate in the government's crowdfunding platform that they put forward. I remember a lot of them scoffing at the idea that it would lock them out, and they certainly scoffed at the notion that $15,000 might be the cost. At the end of it all, one person I am very familiar with who had wanted to genuinely test the outcome and see if it was true, Adrian Stone, found out in the end, through all the discussions they had had online, that, yes, it could cost up to $15,000. So to raise money you had to pay $15,000 to go through the government's crowdfunding platform. Even their own Small Business Commissioner, Kate Carnell, said exactly the same thing: the costs and structure would be prohibitive. Their own adviser tells them this and they still press ahead with it through various forms of legislation put forward. So it costs $15,000 before you even raise a dollar through equity crowdfunding.

Pitcher Partners, another group, told the government that 'significant restrictions for eligible participants, customers, and eligible securities, products, under the regime will ultimately result in very limited demand for the regime.' Let's come back and check how many firms in my contribution actually used their regime in the time that they had it in—since March last year. You will be staggered as to how many. But just remember what was said there. Pitcher Partners, years ago, said the regime will result in very limited demand. I'll come back to that point later. 'Accordingly,' they said, 'we believe it will be difficult for CSF platform operators to create platforms that will, from a business perspective, be economically viable.' That was their point.

Crowdfunder, that actual platform, said that 'in its present form the bill would not be attractive to start-up companies due to the onerous requirement'. So when the Treasurer gets up here and says there was a lot of interest—he had just woken up one morning and basically been smacked on the head with all this sudden interest by proprietary companies to access this—this is not the case. They had known for ages. He knew this was the case. Even when they brought in the legislation that they put to this place last year, they were told by Veromo's Andy Giles that 'the thought of switching to a public company to avail ourselves of a potential wider investor base is unthinkable. Everyone told the government don't lock out small firms.'

The co-founder of crowdfunding platform Equitise, Chris Gilbert, decided he would read the riot act to the opposition last year claiming, 'It's very disappointing to see the Labor Party be disagreeable—after everything that I have read out, we are the ones that are being disagreeable!—'at this stage in the process when they had such vast amounts of time to work with the coalition to get this legislation right.' True, we did want to work with the coalition on this. Not only had we urged the government privately to bring in laws that would fix this, but we would give them the space to do so. We would not criticise them if they took it off, and I've said that in the House constantly: we would not chip the government if they decided to take this off the books and fix it up. It was the government's choosing to knowingly proceed with a flawed bill, stating it wanted to pass that bill and fix it up later. So they pass a dud bill and say they'll fix it up down the point. That's their approach. That's the business-friendly approach that they'll put in. It was the Treasurer who admitted that he'd need to fix this up.

Not content with the delays and the dysfunctional process it employed, the government introduced this bill, as I said, in September last year, and we're now debating it in February. That's after two weeks of sittings have already preceded the debate. In the meantime, what have we seen? In January this year, 10 months after the last lot of equity crowdfunding laws passed, ASIC got around to licensing the first crowdsourced funding platforms. Seven companies were issued with an Australian financial services licence authorisation to act as intermediaries. Australia trails other countries we compete with in the global marketplace. In the US, the UK and Canada, for example, they're discussing and offering opinions on the top 10 crowdfunding platforms in this space. Such are their platform numbers. But what do we have here? We have seven. It's great that we've got seven, but how much time has been wasted in which we could have built those numbers?

The delay in providing approvals raised the question: what happened before January 2018 in terms of campaigns? How many successfully completed equity crowdfunding campaigns have there been? Remember, Pitcher Partners said, 'We think this regime will be so limited it'll hardly get used.' So I inquired: how many have they had? How many successful equity crowdfunding campaigns have there been? Three—three in 12 months. Why? They introduce the legislation in March. They then say they'll wait six months as they build in the delay in their last lot of legislation and wait for royal assent. That kicks in in about October. They take three months to register the platforms through ASIC, and then there are only three crowdfunding campaigns that come through—a game changer, we were told by those opposite! That's what's happened. They continually build in delay.

There have been some good ones, and this is why a lot of people on that side and this side believe in the promise of equity crowdfunding. I noted on the weekend that there had been a great example that was reported in the Financial Review: there had been more than 350 investors that had crowdfunded the country's first crowdfunded pub. They got some investors offering as little as $50 and some as much as $10,000, committing a combined total of $1.2 million to become part-time owners of the latest sports-themed pub developed by US-style chain The Sporting Globe. Good on them. This is good. This is what it's providing. It is providing an opportunity for business to get access to capital in that way and creating ownership opportunities. But how many opportunities did we miss out on because those opposite wanted the headline and the style rather than the substance? I look forward to potentially visiting that pub, shaking their hand and trying the brew.

Ms Rowland interjecting—

I don't know. I think he does his own internal crowdfunding of his pubs. But I'm being generous. They're very successful. They operate one in my electorate. I'm very happy about the Plumpton Inn. But, putting that aside, the changes to the crowdfunding platform framework that this bill provides are the same as those requested many times over many years. So now they've come up with a bill to plug the gaps. In fact, after all that time trundling along, it'd be no surprise if that 2017 ledge turned into a pumpkin. The government that publicly pinned all this expectation provided the sector with so little, so late.

So, while we'll support the bill in its current form, I lament the opportunities lost and what we've had to go through to get to this point. Among the changes that are made is that, as we said, proprietary companies wanting access will no longer have to convert to a public company type. Many of the features of the existing framework which the government introduced previously, such as the obligations on intermediaries and the process of making those offers, will be the same; and to let the PTY companies access crowdfunding without breaching the current 50 shareholder cap. Investors acquiring shares through crowdfunding won't be counted towards the cap.

This is an elegant solution, dare I say. I commend the government on that. It is good way forward. It just took them four years to get there, despite all the people asking for it. Proprietary companies with shareholders who acquire shares through the crowdfunding offer won't be subject to takeover rules, and there are a stack of other changes in there as well. But what was also interesting to note is that there would be a regulation-making power to help the government act quickly, apparently, when something goes wrong. Given their performance to date, we would be very interested to see how quickly the regulation-making power will be enacted by the government. As he said, there is this sluggish pace of change, and you would think on the one hand that this has been the end of that delay—that they've finally got their act together and we'll see some changes. Wrong, because what we're picking up from the fintech sector and many others is that they are concerned about how long it's taking for core elements of this regime to be put in place. In particular, there are those that are bridling at the exceptional conservatism of ASIC in putting to bed the key measures required. People are worried about the disclosure regime that's been put in place. On the one hand people understand that if you have something that will potentially affect investors in adverse way, you have to advise potential investors accordingly. We support that. They are also told that campaigns might be held up because of positive news. You might have to delay a campaign because there is positive news that needs to be reported. They've been raising this with ASIC and Treasury to say, 'Why are we going through this process?' They're bridling at the fact that some to the disclosure requirements are tougher than the type of PDS requirements you go through for an IPO.

Certainly, everyone appreciates that crowdfunding is going to be a bit different. At the same time, you can't have the regime that's being brought in that's quite different from the IPO process, liberate the general 50 shareholder cap, and then have that reaction from businesses telling us—and I shall I'm sure they're telling those opposite—that they're making it even harder to go through this process and that they are bridling at some of the conservatism that ASIC is embracing.

I certainly appreciate that ASIC has a tough time. If you try to liberate things too quickly and do what the sector wants, the sector isn't the one that's there and has to clean up afterwards—it will be ASIC. I appreciate that. But the question is, why keep building in delay? This bill builds in delay. Remember, the bill came in last year in March. It then already factors in a six-month delay waiting for royal assent. Then they only got round to starting the accreditation process for the crowdfunding platforms in October. This bill wants to put another six months in. So all the work that had been done by ASIC to gear itself up for equity crowdfunding wasn't enough—they want to put in another six months on top of that. That's why we'll be moving an amendment here that calls on the government to bring forward the start date. They've had enough time to bring in their regime. They've had enough time to bring in things within ASIC. They can certainly bring forward the start date from royal assent from six months to three months. We don't think that's unreasonable, based on our consultations with stakeholders. We think, if the government is so confident in its regime and so confident in all the time that it's taken and all the protections they've put in place, why put in another six months delay? Halve that delay and make sure it's three months. Accordingly I move the following second reading amendment, which I've had it seconded by the member for Gellibrand:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House:

(1) notes with concern the extraordinary amount of time taken by the Government to introduce a functioning equity crowdfunding regime within Australia; and

(2) calls on the Government to bring forward the start date for this legislation by ensuring that the proposed changes take effect from the day after the end of the period of three (3) months beginning on the day this Act receives Royal Assent".

We know that the sector will welcome this. We know that there will be people saying, 'We need to get moving on this.'

We on the Labor side started a process in 2013 to look at what is required to bring in equity crowdfunding. It's now 2018. Half a decade has passed, and we still don't have this regime in place. We saw its potential. We saw, in the example that I read out, $1.2 million raised. That capability is there to do this, but we should not be held up by further delay—and we certainly need to find a better way to clear up issues between the sector and the regulator, which have been raised by the sector, to speed up the way this is being done.

This isn't the only thing. In a few weeks time we'll no doubt be debating proposals to liberate the regulatory sandbox that's been applied to fin-tech, where exactly the same thing's being said. There's all this talk about regulatory sandboxes. Three companies have just gone through using the equity crowdfunding platform, and there've been roughly the same number that have used the fin-tech regulatory sandbox. Again, the talk is there about doing all these things differently, but the regulations absolutely crush the ability of companies to get things done and to achieve anything.

This is exactly the problem with this government when it comes to the issue of innovation. They're all talk. If you pull back the curtain, you see the true nature of their commitment to innovation and the importance it places on accelerating economic activity. It's all talk—style over substance. Their hearts and minds aren't properly engaged in the mission to build a country that works smarter, performs faster, generates wealth and jobs, and spreads the innovation dividend for the benefit of many across the economy and community.

As I said, we're not going to oppose the bill, but we are certainly going to be recommending amendments to improve it and accelerate the way in which this is introduced, because otherwise we will just be mired in more delay. We will see more people frustrated that a government that have talked up the prospect of this regime coming into place have done very little to actually fast-track its implementation. It is completely unacceptable.

As I said, we were prepared to work with the government on this, right from when this bloke called Bruce Billson, who used to be on their side, had been looking at what to do on this. I certainly had very constructive conversations with him about it. We said we appreciated the complexity, because you're reforming Corporations Law in a way that is quite different from its conventional operation to accommodate this, but we knew there was potential. We're seeing it in very limited circumstances now.

While we wanted to give the government room to move to explore options—and they've finally, as I said, come up with an elegant solution in terms of what can be done to provide for equity crowdfunding in this country—they also did things like lift the asset and turnover cap, which we recommended and pushed for amendments to. Those opposite said they only wanted to have $5 million capped. We doubled it. They came in with $25 million, and good on them. But we'd said this stuff could be done.

The recommendation put forward by CAMAC for an unlisted public company vehicle—we'd argued that way back then. We have been absolutely consistent saying that, while we could appreciate why CAMAC wanted to introduce some of these vehicles, we thought we needed to find a better way to do it. We'd said all along there's got to be a better way to do this. We said all along we've got to liberate some of the caps put in place.

We said all along we would work with the government to allow this to happen, and they wouldn't do it. They brought in legislation they knew was flawed. They knew from day one this legislation that was brought in last year was flawed at its heart and they still brought in, because they're show ponies. They're not serious about bringing in legislation that gives meaningful effect to the words that they bandy about. This is why they should be condemned, and this is why they've been found out.

People within the broader start-up community have worked this government out when it comes to the issue of innovation, that all they were there for was to accept the applause way back when but, when it came to stumping up, they weren't there when it all got too hard to explain the importance of innovation to the community. For those people who were concerned about the impact on jobs and their economic future, this government was completely unable to explain that. And, not only that, they were unable to come up with solutions to help people out.

In an environment where we know technology will change jobs and where the requirement to invest in human capital is paramount, what have they done? They've cut funding to schools. They've cut funding to vocational education. They've cut funding to universities. They've slowed down the process of getting these reforms in. They talked a big game about what they wanted to do and then failed to deliver. They are being found out by the broader community. Look at the reaction to the release of the ISA report and the way that's gone down. People are thinking, 'Yet another report, but more excuses for inaction.' It's not good enough.

Like I said, I commend the amendments to the House. We remain committed to supporting a viable regime. But we are not about building in further delays as a result of the government's inability to get its act together.

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