David Coleman (Banks, Liberal Party) Share this | Link to this | Hansard source

I want to talk tonight about the importance of growing a vibrant start-up culture in Australia. Prior to entering parliament I spent 14 years in and around start-ups. I was both an executive in start-ups and an investor in start-ups on behalf of Australian businesses. In the start-up community, the government's focus on innovation is incredibly welcome. There is no doubt that we need to build a more entrepreneurial nation, and start-ups are a very important part of that.

Creating a more entrepreneurial culture is a critical and complex issue. Our business culture tends to gravitate towards safer options, and we certainly do not embrace failure in the way that, say, the United States does. Most of our top businesspeople aspire to work for a household name. Generally, our best and brightest focus on Martin Place and Collins Street, rather than a little office of their own somewhere. We need to be more entrepreneurial, because the degree of volatility in the economy is increasing at a rapid rate. Paul Kelly said that in politics the 1980s represented the end of certainty as old conventions faded away—and he was right, while the ALP held its nerve, at least for a decade or so. In a similar way, old certainties about industries are changing at a rapid rate.

This is an immense opportunity for Australia. It is now more plausible than ever for Australian businesses to take on the world. But we are unlikely to succeed simply through a heavy emphasis on the big end of town. It is very hard for big businesses to genuinely transform an industry. The risk of trying to do so often outweighs the benefits of reaping the windfalls of a strong existing market position. It is superficial to criticise big companies for taking that approach. They are just doing what they believe is in the best interests of their shareholders. While every big company has a strategy about disruption, history shows us that it is generally the small attackers who really bring it about. We need to be honest: the boldest, most radical, most profound economic changes are rarely brought about by incumbents. They are brought about by outsiders, who have nothing to lose.

In Australia, our business culture is overweight the establishment. Our small market size tends to lead to a relatively small number of players, with high domestic market shares. I believe that, without picking winners, the government can play an important role in creating the right environment for start-ups to grow. This will enable the pursuit of more bold, innovative, radical ideas—and some of those radical ideas will succeed in ways that none of us can foresee today.

The biggest issue that start-ups face is raising capital. Without capital, you cannot do anything. Through the tax system, we can encourage investors to allocate capital to the start-up sector. I believe that a critical area to focus on is capital gains tax. At the moment, investors who invest in start-ups through what is known as an Early Stage Venture Capital Limited Partnership obtain a number of benefits, including a complete exemption from capital gains tax. But this ESVCLP structure is quite complex and not accessible to most investors. As a consequence of this, there are only 24 ESVCLPs registered in the entire nation. In my view, it is unfair that ESVCLP investors get an exemption from capital gains tax in start-up companies, while other investors in start-ups do not. There is no tax incentive with regard to CGT for the average Australian individual or business to put money into a new enterprise. If it does not work, they will lose their money, and, if it works, the government will collect CGT. That CGT will be paid on a start-up investment at exactly the same rate as if a more conservative approach, such as investing in property, had been pursued.

I believe that our laws should include a general principle that investments in start-ups are exempt from capital gains tax. This would be a powerful incentive for investors and could create a new army of venture capitalists. The exemption should not be available simply to sophisticated or wealthy investors. It should be available to anyone who invests in a start-up.

I asked the Parliamentary Budget Office to look into this issue, and I defined a start-up as a business that was less than two years old and had less than $1 million in revenue in the last 12 months. The PBO determined that, if this policy were implemented, the cost to the budget would be $50 million over the forward estimates period. To put it in perspective, that represents 1/34,000th of the circa $1.8 trillion that the federal government expects to raise over the forward estimates period. I believe this is an important proposal. I believe it is proportionate and affordable. I believe it is something that should be pursued, with appropriate balances in place and enforcement through the ATO. I believe this could have a very powerful impact on helping the Australian start-up community to grow.

Tony Smith (Speaker) Share this | Link to this | Hansard source

It being 8 pm, the debate is interrupted.

House adjourned at 20:00