Brave New World, or Another Spin on the Policy Merry-Go Round

Impact of 2015/2016 Federal Budget on Australian Innovation

An “innovation based economy” is a concept that is receiving considerable attention in Australia at present, particularly with the release of the 2015/2016 Federal budget. Mining, Services, Agriculture and manufacturing have long formed the basis of Australia’s economic endeavour.  In recent years, factors including tariff reductions, a strong Australian dollar and the rise of Chinese manufacturing have wreaked havoc on the Australian manufacturing sector.  However, Australia has significant strengths in some areas of manufacturing, and in software development, and these have not received the practical support that they deserve. This is starkly apparent when compared to the support available in most other OECD countries for innovative manufacturing and innovation in general.

If Australia is to remain competitive in an increasingly technology-driven global economy, changes are needed to  encourage investment in innovative Australian start-up companies and commercialisation of Australian invention.  As the “mining boom” in Australia declines, the latest budget has laid out measures which are designed to establish an economy based on innovation and technology rather than one so heavily reliant  on the extraction of natural resources.

In an attempt to encourage entrepreneurial activity, tax measures for small business are the single biggest spending items in this years’ Budget. These cuts form the basis of a $5.5 billion “Small Business Package” from the Federal government, aimed at “making Australia one of the best places to start and grow a small business,” according to budget papers. The package includes $3.25 billion in tax cuts, $1.7 billion in accelerated depreciation measures, $70 million to support start-up companies and $40 million on measures that will cut red tape.

A start-up company will be allowed to:

• immediately deduct professional expenses incurred when they launch their business;
• provide access to tax breaks on shares employees receive as part of their salary;
• access finance provided by crowd sourced equity funding, such that start-ups can rise funding through          large numbers of retail investors

Business registration processes have also been streamlined.  Any business with an annual turnover under $2 million will be able to access the following:

• immediate tax deductions for as many sub-$20,000 purchases as they make until June 30, 2017, rather than having to claim those purchases as deductions spread over several years.

This also includes professional costs such as business advice, legal fees and fees paid to ASIC.  This is a significant increase from the current instant asset write-off of just $1,000.

• a reduction in the corporate tax rate from the current 30% to 28.5%;
• removal of capital gains tax for changing company structure (effective from the 2016/17 financial year).

Overall, the total bill for industry support was cut by $1 billion over four years, including $340 million from R&D grants as the government shifted the emphasis from subsidies and assistance for specific industries and innovation activity to broader, and smaller, support programs. It remains to be seen if this is a wise place to seek economies, given the urgent need to develop and grow innovative businesses.

by Peter Franke & Sarah Herbert

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