Skills and share schemes: What startup founders want from this year’s budget
Tuesday, May 1, 2018/
In just over a week from now, the federal government will hand down this year’s federal budget, which is likely to be full of funding and cost cutting as it tries to funnel the right money into the right places, while reducing the budget deficit.
And while last year’s budget delivered a few juicy tidbits to the Australian startup scene, such at the removal of double GST on cryptocurrency purchases and an expansion of the crowdsourced equity framework, it largely failed to live up to the sector’s expectations.
This time round, not much has been given away by Treasurer Scott Morrison as to the potential contents of the budget for those in the startup scene, apart from a poorly-received proposal to cap the R&D tax incentive, and potential income tax cuts.
The former was canned by members of the startup ecosystem, with MOVUS founder Brad Parsons saying the R&D tax incentive scheme had been “crucial” to the establishment of his business.
But as for the rest of the budget, it’s all still up in the air. Some founders are even questioning if there will be much offered to Australia’s startup scene at all — a departure from the innovation agenda of 2016. We asked startup founders from a number of different industries what they want in this year’s budget, and here’s what they said.
On education and upskilling …
Penny Locaso — Founder of BKindred
“The first thing I’d like to see is the government investing in education and skills training to help people reinvent themselves. We know what industries will be seriously affected by AI and tech in the next 5-10 years, such as driverless cars, and at the moment nothing is being done to help people be change-ready.
We need to teach people to be change-capable and resilient, and I think we need to start taking action now. You only have to look at the numbers out of Stanford and Harvard — their report suggests a 35-57% displacement in the workplace thanks to automation. In the Great Depression, unemployment was 25%.
Also, anxiety is at an epidemic proportion, and people feel more overwhelmed than ever, and loneliness is higher than ever. We’re very vulnerable, but we keep creating more and more change, but I don’t think society is capable of taking on much more change. I don’t think the government has a choice.
I’d like to see them partner with organisations who are out there and already helping people to build these skills and educating them. It needs to be modern educators also, as traditional means of education are proving themselves to not be as effective in this space.
I’m one of the most optimistic people you’ll ever meet, but I think we need to wake the hell up.”
Sarah Moran — Co-founder of Girl Geek Academy
“With Turnbull backing the blueprint for Gonski 2.0, I’m hoping to see a big focus on this in Budget 2018. A major investment is needed within our education system if we want to fill our workplaces with local talent in the future. We need to be globally competitive with schools overseas, where a native focus on building entrepreneurial mindsets and technology skills is built into curriculums.
“What’s also important for Budget 2018 is innovation budget items and how they are delivered and sold back to the general public. We know that the number of everyday Australians who actually care about innovation is small while the money needed to advance the space is quite large. While it may appease voters to decrease budget across innovation, it’s not healthy for Australia’s economic future in the long-term.
I hope this year there is budget allocated to innovation and R&D projects within the areas of public concern, such as education, job creation, health care and national defence. This is one way to repackage the budget around technology and innovation and help get Australians to back spend in this area.”
On employee share schemes …
Romain Bonjean — Founder of Tyde
“Australia is developing a thriving startup scene across a growing range of industries. I have no doubt the budget will continue to build on the excellent progress to date in helping promote an entrepreneurial working culture and supporting all businesses.
The tax concessions for startups who reward their staff through employee share schemes has been helpful as have other initiatives. Ultimately the role of government is to help enable innovation by providing the infrastructure for innovation, a key part of this is education and helping equip all Australians with the ongoing skills development needed for high wage, high productivity jobs.”
Mark Njavro — Co-founder of FlexCareers
“Some changes that the government could make in future would be to implement a more attractive tax treatment of ESS (employee share schemes) for employees of startup companies.
There are situations where the employees (non-founders) of the company would prefer to receive straight equity in lieu of salary. This can also be quite attractive for companies trying to control their cash expenses. While stock options are a popular tool, there are some issues around their understanding, valuation, vesting and ultimately being able to afford to purchase stock when the options are exercised (especially if there is no secondary market to sell their shares into).
Being able to grant ordinary equity in lieu of pay (at estimated unlisted market values) is a simpler concept. Unfortunately, this creates a taxable income event, whereby the employee will receive shares which they can’t sell (as there is no secondary market), but have to pay tax to the ATO based on the value of those shares. The employee is in a situation where they have foregone a cash salary (part thereof or entirely), which is a significant sacrifice, but then have a have to find funds somewhere to pay the tax bill.
By bringing in a solution (perhaps a tax deferral until the company has a secondary market for its shares), it would be more attractive for employees in early-stage companies to choose equity over cash, giving them more alignment with the company and potentially giving companies more flexibility with their cash expenses.”
On R&D incentives …
Jennifer Maritz — Chief executive officer of Nvoi
“We’d like to see the federal government take bigger risks for small businesses. As a small business ourselves, we’ve always been supportive of the government’s R&D tax incentive program but more needs to be done to help us deal with every day challenges, such as cash flow. Is there an opportunity to offer quarterly incentives, not on a yearly basis, to help small businesses tackle these everyday challenges?
From an industry perspective and as we experience dramatic shifts in the way we work, we’d like to see the federal government introduce more incentives and benefits to ensure businesses are positioned to easily and quickly find, attract and utilise top talent amid these changes. One way of approaching this is by championing short-term and temporary work arrangements to ensure businesses increase the minimum wage growth beyond inflation and continue to be productive.
In many ways, we think the federal government already sees small businesses as an engine room for innovation and job creation in Australia. But there is still plenty to be done to ensure that consistent policies are put in place to keep the wheels in motion, and allow us to grow and prosper.”
Tony Wu — Co-founder of Weploy
“Specific R&D incentives for startups would be welcome. It’s R&D that will power the next generation of global competitors based in Australia. Weploy has invested over $1 million in its first year on R&D activities and continues to invest heavily to help achieve our mission of creating an empowered and fearless future of work.
This investment has allowed us to attract and empower a world-class engineering team and in addition help us capture innovative leaders that are helping us disrupt the recruitment marketplace in Australia and abroad. Our goals are global, but expansion and growth will rely heavily on R&D, with any barriers to funding having to be carefully assessed as to how we could compete on a global stage. Unfortunately, Scott Morrison’s comments about the current system being ‘taken for a ride’ are quite concerning to us — we (and I’m sure the wider startup community) will be looking for more clarity around the revised tax incentive as soon as possible from the Treasurer.
When we look at the sector from a global point of view, I believe if Australia wants to be a serious contender within that global landscape, then the budget policy needs to be seriously re-looked at and considered. Our sector is what drives the future of Australia, yet with the conversations around the budgets and what’s been presented in the past, there is a pretty obvious misalignment of priorities.”