Startup Analysis

Are you listening, Josh? Here’s what startups want from the Federal Budget 2019

Stephanie Palmer-Derrien /

Dr Silvia Pfeiffer Coviu

Coviu chief executive Dr Silvia Pfeiffer. Source: Supplied.

The federal budget is upon us, and as debate about the AA bill rages, confusion over R&D tax incentives remain, and automation threatens jobs, the startup community wants its collective voice to be heard.

Even as Australia’s tech sector grows stronger — just this week Airwallex was crowned as the latest Aussie unicorn — there’s a prevailing feeling that it’s just not the government’s first priority.

But, what is it that startups want to happen, exactly? At StartupSmart, we put a call-out to startup founders and industry leaders, and the response was overwhelming, to say the least.

We’ve collated the responses from 22 founders, investors and startup gurus, who are making some specific and some not-so-specific requests. But, for those of you who are short on time, here’s the TL;DR.

Several topics cropped up again and again, including more focus on science, technology, engineering, mathematics and medicine education, as more jobs are likely to require these skills in the future. In particular, there were calls to encourage more girls and young women to embark on STEMM careers.

In fact, more support for women entrepreneurs in general was also a theme, with several commentators calling for more support for women running businesses, and for more accelerators and support programs targeted at women.

Somewhat predictably, there were also calls for clarity on the R&D tax incentive scheme. In February, proposed changes to the incentive were shelved, meaning more uncertainty for a sector that has previously relied on such benefits.

More generally, people have called for additional tax breaks and incentives for startups and small businesses, to help them get off the ground. Some called for more help in accessing grants and funding, and simply more help when it comes to practical management of finances and accounting.

Finally, there seems to be a sense in the industry that, as a nation, we are moving towards an economy rooted in tech. But that the government isn’t supporting that, or helping make it happen.

Many view intellect and software as the primary export of the future, and feel the government should be moving away from a reliance on mining.

Equally, to support the growth and success of the tech sector, there is an argument for migration, and changes to the visa schemes that make it tricky for startups to get the best global talent on board.

Some call for teacher training, some for early-stage investment schemes. One even calls for a sharing economy minister. In an ideal world, this is what the startup industry wants from this year’s budget.

Josh Frydenberg, are you paying attention?

StartupAus Crossroads

StartupAus chief executive Alex McCauley.

Alex McCauley, chief executive of StartupAUS

Technology and high-growth tech startups have never been more critical to the country’s economic future. We have seen fantastic stories of success over the past half-decade — startup formation rates have exploded and our next generation of world-class, global technology leaders have blossomed including Aconex, Wisetech Global and Atlassian, along with growth companies Envato, Canva, Culture Amp, Airwallex and Afterpay.

Treasurer Josh Frydengurg has signalled that the government wants to create 1.25 million jobs over the next five years. StartupAUS is keen to see how startups will factor into that plan and will constructively engage with the government on measures in the budget designed to achieve this outcome.

Existing core initiatives that encourage growth and expansion like the Research and Development Tax Incentive and the Export Market Development Grant are already critical to many Australian startups. Improvements in these areas would be widely welcomed by the startup sector.

A strategic plan towards supporting the growth of technology businesses is critical for Australia’s prosperity. Technology globally is the largest creator of new, desirable jobs and a strong wealth generator. Australia should be looking to support and grow its own home-grown technology sector to secure our economic future.

Adrian Bunter, Sydney Angels committee member and executive director at Venture Advisory

My wish for this year’s federal budget can be summed up as ‘clear certainty’.

I would like to see clear certainty for R&D incentives for startups and high-growth companies that support the software industry and the way it operates today — being lean and agile and using iterative processes.

Software and technology are going to continue to be a growing part of the economy and can create more jobs and boost productivity while raising wages and increasing export revenues if appropriately supported.

I’d also like to see support for high-growth companies when they seek to hire people from offshore to help build and develop the nation’s talent pool.

If we don’t get this right, companies will outsource or build development teams offshore, where costs are lower and guaranteed.

This is already starting to happen, so we don’t have long to fix this. And other markets are starting to compete more aggressively on R&D incentives.

However, I’m not at all confident that this will happen, as the current government seems to be more interested in short-term thinking, supporting old technologies like coal-fired power and not at all interested in jobs for the future.

The government needs to have a vision for growth and for future jobs, so we can build more companies like Atlassian, Canva and Airwallex, and numerous others coming through the pipeline — companies that people like Sydney Angels are actively trying to help.

Girl Geek Academy

Sarah Moran and the Girl Geek Academy team. Source: Supplied.

Sarah Moran, chief executive officer and co-founder of Girl Geek Academy

My budget prediction is the government will step up with this budget and fund a vision for the future of Australia to inspire people to vote for them in the upcoming election. They will inspire women, families, people dealing with climate anxiety and those trying their darndest to build a future we want to be a part of.

Josh Frydenberg will fund programs for young people to secure their economic futures by increasing funding for STEM education and teacher training, as AusIndustry’s own data says 75% of jobs will require workers with STEM skills by 2026.

To address the lack of women in STEM he will address the broader fact that many families face caring hurdles as a major barrier, excluding women from the workforce.

I predict he will show he understands the gender equality issues facing all families, that skews caring ratios for workers across all industries. He will have learnt Australian women account for 68% of primary carers, 70% of primary unpaid carers for children, 58% of primary unpaid carers for the elderly and people with a disability or long-term health conditions. He will have learnt this harms men too and that there are economic opportunities we are all missing out on by undervaluing the role of care for all workplaces.

He will realise the economic value in funding programs to increase the inclusion of women in the workforce, education programs that foster entrepreneurship and STEM skills and the supplementary care required so we can shift the balance.

He will rectify the social consequences stemming from the average superannuation balances for women aged 60 to 64 years being just over half (58%) those of men, and how that relates to the increase in women’s homelessness of that age category we are seeing.

Josh Frydenberg will step up as a champion of women in this country, and communicate to the rest of Australia how this investment in our women will have a multiplier effect across every Australian community and industry.

And if this prediction does not become a reality, in a few short months I predict we have the ability to vote him out.

Bede Moore, managing partner of Antler ANZ

In the upcoming federal budget, I’d like to see the government embrace the tech conversation more confidently. The federal government needs to engage much more substantively with the tech industry — tech is a major driver of high-skilled jobs and exports, and the development of a powerful local technology ecosystem will underpin Australian affluence in the coming decades. I hope to see a budget that goes some way towards acknowledging this vision, and I worry that recent issues like the AA Bill and the R&D clawback instead demonstrate that stimulating the tech industry is not a policy priority.

The Treasurer has talked about wanting to boost job creation. The tech industry is already one of the biggest drivers of job creation and more jobs will certainly result from building a globally-competitive tech industry in Australia. The government is a persuasive force in the community and can help Australians understand how and why the tech industry is important in creating jobs. Canberra should play a leadership role by advocating for the importance of R&D and innovation expenditure and explaining why this will lead to better jobs for Australians.

Finally, it would be great to see more money to support STEM-related talent development, and the temporary migration visa restriction adjusted to allow skilled international workers, such as developers, help plug the skill gap and reposition Australia as and attractive destination to relocate to.

The Volte co-founder and chief Kym Atkins. Source: Supplied.

Kym Atkins, co-founder and chief executive, The Volte

We’d love to see more investment into startups, more tax breaks for startups and sharing economy businesses, which is the way of the future. We’d especially like to see tax breaks around technology upgrades to the sharing economy sites and apps, which are constantly needed. We’d also like to see more support for startups, particularly for women who juggle motherhood and business.

Shane Hodgkins, co-founder and chief executive, Matrak

As a successful recipient of the Federal Government’s Accelerating Commercialisation grant, Matrak would encourage continued commitment to the program in the upcoming budget so that other innovative business in Australia can benefit as much as Matrak.

Beyond the matching funds, the process itself was incredibly beneficial by forcing the business to focus on the key elements that make a successful enterprise.

Kieran O’Neill, general manager of Hometime

Ahead of the federal budget next week, we are hoping to see more clarity from the government on what is deemed ‘new knowledge’, specifically regarding R&D rebates.

R&D rebates massively affect emerging companies and startups, such as ourselves. Greater clarity will allow us to confidently pursue fresh, innovative ideas without the fear of having these rebates rescinded. R&D is an incredibly important element of our business, and in order for us to continue to grow and expand, we believe it’s necessary to have more assurance in this space.

We are also a big fan of the R&D rebate being a self-assessment program as we feel this works well within our business structure. However, we would welcome a more regulated assessment process, if it would provide greater confidence to the result that was decided. We have seen too many stories of rebates being deemed not eligible, years after they were lodged, for what seemed to be legitimate R&D.

Lauren Brown, founder and chief, Nanager

I would love to see an easier navigation system about how everything works when you’re establishing yourself. That information was a surprise. Even if I’d looked I don’t think I would have been able to find it.

There should be more in the way of support services for small businesses or startups, and financial relief for us to talk to professionals.

I felt very much on my own. In the early days, it would approach BACS being due and I didn’t have the education to do anything about that.

I would also like to see better company tax rates. I’m being taxed the same amount as large organisations. They have more money and more power, they can outsource and find loopholes they can use to prepare themselves better.

There should be some government incentives for small businesses and startups that do the right thing — maybe cashback for smaller companies that are creating jobs. We’re all trying to make a difference to society, we’re all trying to create positive change, but there’s no incentive or reward system in place.

Mike Rosenbaum, co-founder of The Sharing Hub and chief executive of Spacer.com.au

This year we hope the budget will include more support and tax breaks for Australian businesses. By investing in our homegrown businesses we can boost our international prominence as an innovation nation that’s home to exciting startups and tech companies, which ultimately contributes to our overall economic prosperity.

The sharing economy is a mainstay that’s improving the way many live, earn and work. As such, it warrants the need for government to work closely with industry to learn how to develop effective regulation, which is why we hope to see the government introduce a minister for the sharing economy.

Dr Silva Pfeiffer, chief executive of Coviu

It’s no secret that there’s a shortage of doctors in many rural and regional communities in Australia. The situation of having too few doctors in rural towns is understandably hard to change, particularly for specialists and allied health professionals, since the population density isn’t quite there to open up such a practice.

I’d therefore like to see a federal budget that focuses on modernising Australia’s healthcare sector. This should include reimbursements for telehealth. Research has shown that up to 80% of clinical visits can be provided online via video consultations with comparable clinical outcomes, which would result in fairer access to healthcare for all citizens, regardless of their location. One of the ways this can be achieved is through improving support for non-face-to-face healthcare delivery, which telehealth makes possible through covering a larger area without having to travel more. I’d also like to see private health insurers get on board with it too.

BlockTexx

BlockTexx founders Adrian Jones and Graham Ross. Source: Supplied.

Graham Ross and Adrian Jones, co-founders of BlockTexx

We would like to see more investment programs that support businesses who are post-concept but pre-commercialisation, effectively companies that have a minimum viable product but are pre revenue. There is a significant funding hole across federal and state government funding avenues at this time. We recognise that this business stage is risky, but without financial support, many innovative companies will continue to fail to grow from an idea to revenue.

At BlockTexx, we would like to see a mandatory procurement policy for recycled products across government departments. This initiative will achieve two critical things: it will recognise the opportunity and importance of recycled product to mitigate environmental impact from consumer products and stimulate the investment community to support early stage businesses that may have long term contacts for supply.

This country needs a textile recycling industry that matches Australia’s mature plastics recycling industry. Remarkably, every year, we send more than 369 million kilos of clothing to charities or landfill. Companies like BlockTexx can divert waste from landfill and recycle into products for use in Australia, reducing imports or the need to send waste overseas.

Investment in advance manufacturing is critical to the future wealth of this nation. Long-term employment options for the current and future workforces will stimulate economic growth across industries and re-align Australia’s skilled and unskilled workforce currently reliant on industries with uncertain futures. We would like to see a stronger acknowledgement of the importance of making products in factories rather than an investment mandate focused technology companies.

Carl Hartmann, co-founder of Shortlyster

Australia needs to double down on supporting the growth of its technology sector. While some great progress has been made, the two biggest issues facing the technology sector today are insufficient early-stage capital, and a lack of skilled talent for key roles.

On the capital front, I think Australia should look to implement a scheme similar to the Seed Enterprise Investment Scheme and Enterprise Investment Scheme in the UK. It has been wildly successful there, and I would argue that the abundance of early-stage capital in the UK is having a material effect on attracting companies to set up there (plus all the job creation benefits that come with it).

Australia could implement something similar and encourage the general population to invest in growth industries like the technology sector, not just ‘safe’ low-growth public stock and housing.

If this were the case, we could move early stage companies from being undercapitalised with higher risks of failure, to having sufficient resources to build things best-in-class and global from day one. This would materially increase their chances of success (and eventual exits — all of which flows back into our local ecosystem).

However, this only works hand-in-hand by increasing skilled migration. Anyone who has an anti-immigration viewpoint needs to pick up the phone to any tech chief executive they know, who will gladly tell them just how difficult it is to find high quality, technically experienced talent locally.

As a result, we are driving job growth offshore to places with larger talent pools. This is a shame, as even a couple of skilled, imported superstars can lift the quality and output of an entire team, which has a knock-on effect of creating local jobs, driving wage growth and even increasing our GDP. In addition to this, there now exists data driven platforms like Shortlyster, which can help government agencies validate how a skilled migrant compares to local talent, and help prove the case of why someone is suitable under skilled migration schemes.

Dipra Ray, managing director and chief executive of mPort

This federal budget I’d like to see a renewed focus on improving existing schemes such as the R&D tax incentive and the Export Market Development Grant (EMDG) scheme. In particular, the EMDG scheme has significant merit, but would benefit from more funding allocated to it. In the past few years, total funding for the scheme has been frozen, making it more of a lottery for participants.

It would also be positive to see some well-targeted tax relief for consumers as the economy in Australia is now finely balanced. Given the general global slowdown (the housing market in particular), a bit of breathing space for consumers would be very welcome.

Bruce Mackenzie, founder and chief executive at Humanforce

I’d like to see more support for technology companies to help them innovate. The tax system should be positioned to support innovation, primarily through the restoration of R&D tax concessions to minimise current difficulties in qualifying R&D.

The capital gains concessions should continue to reward tech companies for creating capital growth. Maintaining the 50% capital gains tax discount for non-corporate entities is vital to a buoyant tech sector.

Skilled staff from overseas are being delayed entry as bureaucracy has slowed to a point where a visa application that previously was being processed in one to two months can now run out to a year.

Simon Murphy, founder and chief executive, RefLIVE

RefLIVE would like to see the federal government continue to focus on startups and assist in driving innovation. The tech and startup industry in Australia continues to grow, creating employment opportunities and solving complex problems with simple solutions.

The R&D tax incentive and ESIC investor incentives have been great for the industry, but further assistance for early-stage companies will go a long way to establishing Australia as a startup destination of choice on the global stage.

Michelle Gallaher, chief executive of ShareRoot

First, I predict there will be a continued focus on developing and encouraging more women coming into STEMM entrepreneurship. There is an alarming deficit in the number of women who are chief scientists or company founders in the Australian STEMM sector. We have seen excellent investment over the past five years from government into women in STEMM but the vast majority of that funding has been placed into programs that support mostly women in the academic or public sector.

Accelerators and incubators are very important but still attract far more men than women. I’d like to see more programs such as Springboard Australia funded and supported by the government, until they are well established and able to reach self-sustaining status. We will see increased investment in more opportunities to help more women enter into STEMM entrepreneurship, gain skills, attract and access global sources of capital and ultimately build jobs, revenue and export products.

Second, we will see a continued focus on investing in digital transformation with increasing intensity moving from big data and big business towards small data and small business.

Ensuring small businesses across Australia can embrace the digital economy and access digital skills and tools is critical in ensuring our small-business economy can compete in a global marketplace. Even the smallest businesses in Australia are now born global because of the digital and data-driven environment. I think the government will be heavily investing in small-business digital transformation. I hope it will be via a voucher program, which will, in turn, provide smart support for the many excellent service providers who will benefit from policy and program settings that offer a two-way growth opportunity.

Third, I predict there will be increasing investment in digital health technologies and opportunities for new business growth and data-driven technologies that are health and medical research accelerators. Australia has banks of digital health data that could save lives. The health and medical research ecosystem is currently comprised of complex funding and ethics approval processes, as well as ad hoc policies and data governance strategies that differ across state and federal boundaries. I hope the government see the need to invest in reducing barriers and red tape and encouraging transformative technology solutions that can drive economic, health and social benefits.

Shendon Ewans, co-founder and chief executive of Gobbill

Small-business cashflow is tightening and many owners are drawing down on cash reserves to meet their payables. The federal budget urgently needs to address this to avert more windups later this year.

We hope the federal budget will quickly inject a stimulus to increase spending directed especially to small businesses.

It’s also important to increase and extend the instant asset tax write-off for small businesses. Local small businesses are doing it tough.

Trevor Townsend, chief executive of Startup Bootcamp Australia

We would like to see the ESIC rules simplified to provide more certainty around eligibility and status at the time of investment.

At present, the test is rather complex and it is causing startups to either pay accounting firms to certify them as ESIC compliant and/or seek tax office rulings. There should be a budget set aside to build a simple online ESIC evaluation tool run by the ATO and also the additional budget allocation made to cater for the increased number of startups who would qualify.

However, the number one issue that we would like to see the budget tackle is measures to accelerate the adoption of electric vehicles into the Australian market. This should take the form of the removal of the luxury car tax and/or subsidies that take into account the reduction of carbon emissions from the vehicles.

Mark Jones, chief executive of SocietyOne

We want federal government support for fintechs to be an explicit part of the 2019-20 government policy — especially given that 2018-19 saw delay after delay in government initiatives that would help fintechs provide genuine competition and better outcomes for customers.

Promoting competition is the best way to keep the banks honest — which has been highlighted by the Hayne royal commission as sorely lacking.

One example of this is the delay to open banking.

The regulators are actually helping the big banks strengthen their position by treating us all as bad apples, not just the big banks.

Megan Avard, founder and chief executive, SurePact

Regardless of the government of the day, continuing support for the Accelerating Commercialisation Grants to help provide businesses with the access to expert advice and matched funding to help them grow and cover eligible commercialisation costs is paramount to their success. We should ensure that this program is supported and continues.

Mark Fletcher, chief executive of Cohort Go

Number one is to provide clear support and increased funding for the R&D tax incentive program. Recently, the R&D tax incentive has made it increasingly difficult for software companies to access this support. The government should state its intention to more clearly support software R&D. We have had a number of countries pitch to us to move our business, given their significantly broader definition of R&D.

Allowing this program to operate quarterly would also significantly improve cashflow concerns for early-stage businesses. With the government expecting a windfall in this budget, which will bring it back to surplus earlier than expected, this would be a fantastic way for the government to continue to drive the engine room of the Australian economy.

We would like to see support and continued funding for the global talent scheme. The current pilot to offer startups access to global talent runs until June 30 and there is no certainty about it continuing after this date. There are significant shortages in the skills set required to grow a leading edge business. This is a fantastic program and should be continued.

Patrick Sargent, co-founder and chief executive of Pop Tax

[I would like] a simplified tax regime where people understand what their tax obligations are. Right now, individuals have no idea what their tax is or should be, due to the complexity and convolution of the tax system (unlikely).

The company tax rate should be reduced to 20%, which would improve wage growth and stimulate business growth. Right now, they are looking at 25% which is still too high. There should also be a standard company tax rate for all businesses regardless of trading vs passive income (unlikely, as this will reduce to 25%).

The small-business instant asset write-off of $20,000 should be increased to $25,000 and extended for a further year (likely).

If the company tax rate is reduced, a higher minimum wage should be implemented. The superannuation guarantee should also be increased to 11%, but only if the company tax rate is reduced from current levels (potentially).

Franking credit refunds for retirees should remain unchanged. These are individuals who have paid tax their whole lives and are now being dealt a tax that contrasts the basic principles of tax (likely)

CGT discount should be reduced to 33%.

We would also like to see more independent reviews of how the tax capital is allocated and the value derived from the current and proposed allocations. There is no accountability for wastage of taxpayers’ funds and we would like to see more evidence-based results of the allocations between health, defence, public amenities, infrastructure, education and other (unlikely).

NOW READ: Budget 2018: All talk on innovation, but funding falls short

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Stephanie Palmer-Derrien

Stephanie Palmer-Derrien is the editor at StartupSmart. You can contact her at [email protected].