Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Hansard source

I thank Senator Chapman for that question. I will note in passing that there has been some further good news on the economic front for Australia in the last 24 hours with the ASX hitting a new record, with 22,700 new full-time jobs created in the month of April. It has been reported that we have been elevated from ninth to sixth place in the world on the world competitiveness index league table—very good news for Australia.

But the key to strengthening that economic position is to encourage investment and productivity, and I think these are things which the opposition can actually support. One way that the budget has done that is by introducing new incentives for investment in early stage venture capital so that Australian ingenuity can be commercialised here in Australia. The reforms we announced in the budget are in response to the review we established into venture capital which was led by Mr Brian Watson. And I want to congratulate Mr Watson and his committee on a very good report which we have adopted almost in full.

As a result of that report the government will establish a completely new investment vehicle called the Early Stage Venture Capital Limited Partnership, and such partnerships will be exempt entirely from tax on income and on capital gains. And, of course, that very concessional tax treatment will be subject to the requirements that the fund be no larger than $100 million, that an individual investment be no larger than 30 per cent of the total committed capital and that the assets of the investee company be no larger than $50 million prior to the investment.

This new vehicle, which we estimate will result in foregone revenue when it is up and running of about $10 million per annum, will progressively replace the existing pool development fund arrangements. We are also providing a further $200 million for another round of the Innovation Investment Fund program, and we are amending the operation of the existing venture capital limited partnerships to remove restrictions on the country of residence of investors.

All these measures are part of our plan to boost investment in early stage commercialisation where I think it is widely acknowledged there is currently a gap. We do have a lot of R&D activity in the public sector in particular, and also in the private sector and in a growing and thriving private equity sector but it is focused on more mature businesses. So we do want to get it much more focused on this early stage and that is what this initiative is about. It builds on our previous rounds in the Innovation Investment Fund program, the introduction of the Pre-Seed Fund program in 2001 and the introduction, as I say, of the venture capital limited partnership in 2002. These are very much aimed at the long term. It takes a long time to get a venture capital industry up and running and it has taken the US decades, but they are now bearing the fruits. We need to adopt a similar approach to ensure that innovation in this country benefits from equity capital.

We also announced in the budget a spur to business investment, with $3.7 billion in tax cuts over four years delivered via a boost to the diminishing value method of depreciation for business. Our current growth is clearly being driven by enormous business investment in this country. There is very substantial growth in business investment, which is driving the whole economy. But it is true, as I think is recognised on both sides, that our long-term economic prospects are going to be a function of the extent to which we do boost productivity. That is going to be a function of the extent to which we expand our capital stock and encourage new investment and innovation. That is what the initiatives in the budget on Tuesday were all about.