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

I move:

That this House:

(1) recognises the importance of start-ups in driving innovation in the Australian economy;

(2) notes the critical role that start-ups will play in creating the industries and jobs of the 21st century;

(3) acknowledges that in order to be internationally competitive in the future, the Australian economy must be agile and fast moving;

(4) welcomes the close engagement between the Government and the start-up community through events such as the recent policy hackathon; and

(5) encourages the Government to further build upon its existing innovation agenda through the implementation of additional policies to create a vibrant start-up environment in Australia.

We need to build a start-up society. Good start-ups change economies and the world. They solve problems that the rest of us have not even thought about yet. They create high-wage jobs. Start-ups make us more entrepreneurial, more global, more interesting. We need more of them.

I spent the 14 years before I entered parliament in and around start-ups. I have seen the Australian start-up scene evolve during that time and strongly believe that its future and that of our broader economy are closely linked. An Australia with a world-leading start-up economy is likely to be a world leader in its overall economy. That must be our aim.

The great disruptive innovations usually come from start-ups. Of course big companies can innovate, but economic history shows us that major change is usually brought about by challengers, not incumbents. 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.

There are several reasons why start-ups, not big incumbents, tend to make the breakthroughs that create new industries. Incumbents, by definition, are already successful. They have real world profits to protect today. Those real world profits will generally get more attention at board meetings than the potential projects of the distant future. Usually, the impact of disruptive change is negative for incumbents, even if they succeed in embracing it. The disruptive world of tomorrow usually looks worse for incumbents than the more certain world of today. So it can be hard to marshal enthusiasm for a process that is likely to lead to a worse overall outcome. When cars were introduced, the winners were start-ups—not horse-and-buggy manufacturers. Candle makers did not create the electricity industry. Railroad companies did not create the aviation industry.

There have been examples in more recent years that demonstrate this same point. Around the world, yellow pages businesses had far more relevant assets for internet search than anyone else did. They possessed huge databases of commercial and household information and, logically, should have been better placed than anyone to lead in the new world of providing information online. But fresh-faced innovators completely outdid them and now the yellow pages business model barely exists. In retail, incumbents had incredible advantages: brands, stores, warehouses, distribution systems and millions of customers. Yet the most valuable retailer in the world, Amazon, is an internet start-up that did not exist until the mid-nineties. Amazon is now worth more than US$300 billion, more than US$100 billion more than its closest competitor—the giant traditional retailer Walmart.

Of course big companies can innovate, and the research and development that takes place in them is not to be underestimated. But revolutions are rarely initiated by royalty—and revolutions matter because not all kinds of economic activity are equal. When new industries are created, the value they generate cascades down through the generations. Companies that create new industries are generally far more valuable than companies that simply participate in long-existing ones. The value that these start-ups generate means wealth that can be invested into further development—and lots of jobs.

When start-ups create new industries, they tend to bring with them follow-on opportunities. Think of the enormous industry that has sprung up around Google, servicing the needs of its advertisers and people who want to appear in its search results. Successful start-ups create new industries and the supporting infrastructure that needs to go with them.

Start-ups have always been essential to economic success, but they are more essential now than ever before. The economy is always changing. A century ago, one in three working Australians worked in agriculture. Now it is about one in 40. So change is nothing new. What is new, though, is the pace of change. The internet means that everything in the global economy happens at a much faster pace than ever before. That is a challenge but a huge opportunity as well.

The biggest issue we face is the need to change our culture towards one which better embraces risk. If you were to describe Australia's business culture in one word, that word would probably be 'pragmatic'. There is nothing wrong with pragmatism, but 'pragmatic' is not the first word you would generally associate with great entrepreneurs. I think that our pragmatic business culture has a few sources, some of them linked to our broader national personality and some of them a practical response to the historic realities of the Australian market. As a nation, we do not take ourselves too seriously and we are not given to grand boasts or outlandish pronouncements—and that is a good thing. But sometimes start-ups need to embrace radical or seemingly over-the-top goals in order to crash through the existing orthodoxy. So we need to develop a culture where it is okay to say, 'We are going to be the best software company in the world'—because if you cannot say it out loud you are unlikely to pursue it as a goal.

Our reluctance to fully embrace a start-up culture also has some solid grounding in the traditional realities of the Australian market. We have a small population and we are isolated. Our small population has tended to lead to industry structures with two or three big players and limited room for challengers. As a result, our business culture is overweight in the establishment. But that is starting to change, as technology lowers the cost of entry for new businesses, and small overseas players enter our market. The old certainties about a few big businesses dominating each industry will gradually fade away.

Because we are geographically isolated, with tough time zones for the US and Europe, Australia has historically not been the most logical place on the planet from which to launch a global business effort. But that is changing too: barriers to trade are, thankfully, breaking down; communications are instantaneous; and consumers are looking for the best product no matter where it comes from. So the geographical constraints of Australia are less significant than in the past.

All of this means we have immense opportunities. We are a highly educated, prosperous, democratic nation with attributes that the world admires. The world is ready for us. We need to be ready for it. So what is the role of government? Let us not pretend that government will come up with winning commercial ideas—it will not and it should not. Those ideas will come from the restless energy of a new generation of entrepreneurs. But, in order for those entrepreneurs to turn their ideas into reality, they need strong underlying foundations in the surrounding economy. That is where government comes in.

For me, a critical area that must be addressed is access to capital. Across the entire period when I was involved with start-ups, the relatively weak domestic environment for raising capital was a constant issue. At times the environment improves for a while, but generally capital for early-stage ideas is hard to come by. I think there is a role for government in encouraging investments in start-ups through the tax system. I believe that all investments in start-up companies should be free of capital gains tax on exit. While there would be a cost to this approach, the PBO estimated it at $50 million over the forward estimates period—which is about 1/34,000th of estimated government revenue in that time. That change would mean that an entrepreneur who is trying to raise those critical early funds could say to a prospective investor, 'This may or may not work, but if it works there is no capital gains tax.' This would be a powerful incentive and help to encourage some investors to shift assets from classes such as investment property into start-ups. This tax exemption should be available to all investors in start-ups. Last week the Assistant Treasurer announced reforms which will enable crowd-funding to become a reality in Australia. This will enable entrepreneurs to access a whole new class of potential investors. I believe that those crowd-funded investments in start-ups should be free of capital gains tax.

Another area we must further develop is technical skills. We need to become a nation not just of technology consumers but of technology creators. We are great at embracing the latest devices but less great at inventing them. We want our brightest kids thinking about software, engineering, and IT more generally. It is noteworthy that, although there has been a strong demand for these skills in the workplace for some years, the local education system has not produced enough sufficiently skilled employees to meet all these needs. This suggests that there has been some market failure in this area and that government should take a long view in implementing policies to encourage greater take-up of these courses.

Directors' duties matter a lot too. Australia's laws are onerous for directors. Generally that is a good thing—we want directors to safeguard the assets of investors and ensure that businesses do not trade while insolvent. But there is an argument that Australia's laws are too strict, with the consequence that directors can be unwilling to support management in pursuing risky goals. It is worth reviewing this area to see if we can better encourage risk-taking in smaller companies while continuing to maintain strong safeguards against insolvent trading.

As a nation we need to build a culture that celebrates the radical idea, the big concept, the heroic failure. We should embrace policies that push our economy more down the start-up path. We all know that the jobs of tomorrow will come from industries not yet created. And we know that those new industries are likely to be created by start-ups somewhere in the world. Our goal should be for those industries to be created right here, with our expertise exported to the world. The opportunities are immense. We should seize them.

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