David Coleman (Banks, Liberal Party) Share this | Link to 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.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

Is the motion seconded?

Lucy Wicks (Robertson, Liberal Party) Share this | Link to this | Hansard source

I second the motion and reserve my right to speak.

Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

It is very good that we are right here on the floor of the Australian parliament talking about the value of start-ups to both the nation and to the economy. It is a discussion that is long overdue and I welcome it. To give you a sense of how much things have changed, at the start of the year, I had start-ups say to me that if you were a farmer or a miner and you knocked on a minister's door, you would get through quick smart but if you were a start-up or a small enterprise, you had very little chance of getting attention. Now the perspective is completely different. I think it is a good thing that both sides of politics recognise that this is an area that demands, deserves attention and that we should be doing whatever we can to make sure we have an environment where start-ups emerge because these are the enterprises that in the future will create the jobs and the wealth of this nation, and we need a longer term view of how to support them.

We have a lot to be proud about when you look at all the start-ups in this country that have achieved on a global scale, not just on a local scale. I think of Campaign Monitor, I think of ingogo, I think of Invoice2go, I think of Nitro, I think of carsales.com.au, I think of SEEK, I think of Atlassian and I think of Freelancer to name a few. We also have Catch of the Day, REA Group and 99designs. There is a stack of these companies that have emerged in the Australian environment that are doing tremendous things both here and overseas and they should be recognised. The reason I list them here is because they should be recognised on the floor of parliament and thanked for their contributions.

In this place, politicians tend to think that they change the world one page of Hansard at a time when in actual fact a lot of these entrepreneurs are changing the world one app at a time. We need to work out how we get more of them and it is critical. From the Labor perspective, from the federal opposition perspective, we get it. We have been in this space for a number of years consulting with start-ups about what it will take to ensure more of them emerge so that we see more green shoots. From there, the big companies, the big players that will create the jobs emerge. There is a sense of urgency on our part because we know technology is going to churn through jobs. It will have an impact on 13 out of 19 industry sectors in this country and we need to be prepared.

From our discussions we have been thinking about what we need to do to make sure that we can create the jobs of the future. There is a sense of urgency, particularly for Labor representatives, because the people that we represent, by and large, are going to be affected by technology. We need to make sure that we are prepared. Instead of investing valuable energy and resistance, we need to embrace that change and see what we can do to look after those affected and those who are vulnerable on the way through. What we have done is think, 'Well, we have got an economy in transition. We do not necessarily get the same bang for the buck out of resources and the mining boom that we once did. We need to recognise the role of start-ups and champion their economic and employment potential. How do we do it?' It is all about flow. It is about the flow of people, skills and talent. It is about the flow of capital. It is also about the flow of ideas in an environment and in a culture that supports that type of entrepreneurial activity.

From our side of the fence, we have released two waves of policy starting with the budget in reply speech given by the Leader of the Opposition through to recent announcements as well. We have looked at: skills and the flow of talent; coding in schools to make sure we get young people already thinking about computational thinking; building the STEM teacher base; getting STEM graduates to put back into the community by teaching the ones that are coming through; establishing a national coding in schools centre; providing 100,000 STEM award degrees of which many students will have their HECS debt written off on graduation; a start-up year to address the low rate of start-up formation in this country to ensure that university graduates stay on an extra year, build an enterprise and be able to draw off an income-contingent loan from the government. We would get to see more start-ups created and, as I said, address this very low level of start-up formation in this country. These are all great ideas that we have put forward, inspired by the start-up sector, which said it wants to see this happen.

We have also encouraged visa reform with the creation of a start-up entrepreneur visa that would bring people to these shores with ideas and capital to support the local ecosystem, and a graduate entrepreneur's visa to make sure that overseas people who are trained in our universities have an incentive to stay on and build an enterprise here. We have also bound all of this through a proposal on the Labor side to establish a national digital workforce plan that will address the massive skills shortages that are affecting this sector, ensure that we get more women and more mature-age workers into a sector that is crying out for more support and also ensure that our small and medium enterprises get on the digital bandwagon and start changing their businesses as well. Again, we have put that forward.

On the issue of the flow of capital we have recommended, for example, the $500 million smart investment fund that would partner with VCs and licensed fund managers. We want to work with industry on start-up finance, which will be a partial guarantee scheme to improve access to finance for microbusinesses. We have also recommended an innovation investment partnership—in fact, we kicked it off in parliament two weeks ago—bringing together superannuation funds that represent the fourth largest pool of national savings on the planet to try to work out a way to build investment bridges between them, venture capital and early stage innovation to see the emergence of more companies. We did that here because we think innovation should start now; it should not wait for an election to happen. Culture is the most important piece. We need to have as a nation an ability to celebrate entrepreneurism, dilute the stigma around failure and be more accepting of a heightened focus by government and business in this area.

Politicians can play a huge role right here. I will go back to that miner or farmer example I mentioned earlier, where start-ups felt they were being ignored. They were also saying to us, 'It's great that both sides of politics are talking about start-ups, but how come you talk about it in different rooms? You're not working as one.' There is a hunger within the start-up community to see both sides of politics working actively together. They do not want to see one idea torn down by the other side, and vice versa. That is why Labor has said that we are prepared to work with the government on this agenda. We prioritise it on the national list of things that need to be tackled in this country in terms of supporting the economy, jobs and the future. We are prepared and we have demonstrated our preparedness, for example, to work with the government on employee share option reform. We have extended to the government a commitment to work in a bipartisan way on equity crowd-funding. The test is that we are prepared to do it because—as I said—innovation does not wait for a federal election. This is a long-term agenda and we need to start working on it now.

Obviously, we wait with interest—as do others—for the innovation statement that is being prepared with the government. We have extended our commitment to work cooperatively with the government on it. We are also interested to see in this statement if the government are prepared to work with us. If we are supposed to be leaving by the kerbside the old politics, and if we are supposed to be able to work together, I would make this modest recommendation to the government: if they want to innovate in this statement, demonstrate in the statement the list of things we have put forward as a result of our consultations with the start-up sector. We extend this invitation to the government: in the innovation statement, when you list your ideas, also list what you are prepared to work with the opposition on—be it on visa reform, be it on bringing in a start-up year, be it on working together on a national digital workforce plan, or be it on issues of finding ways to get super and VC working together. We are happy to do this, but it does take commitment from both sides. If it is just a statement that represents all that the government wants to do and then demands that the opposition basically fall into line on it, that is not what is expected by the start-up sector. The start-up sector expects us to come up with ideas that we can work with one another on to advance the national interest. It will be interesting to see what happens on that front.

I do have to say this, if I may in one element reflect on something that I am concerned about: I previously had very fruitful discussions with the former Minister for Small Business, Bruce Billson, on equity crowd-funding. We had a number of meetings and we were prepared to work collaboratively on that. We have not heard that from the new minister. I wrote to her—the Assistant Treasurer—last week, extending a commitment to work with them on equity crowd-funding because there are concerns that exist in the start-up community about some of the proposals that have been floated that would, for instance, see equity crowd-funding limited only to public companies. If companies are listed already, they have gone through the process of getting their equity that way. This is for start-ups. Start-ups need to be able to get money, and they need to be able to do it in a way where they are not constrained by the restrictions imposed by corporations law. Again, we as the opposition are very concerned about these proposals and we wait with interest to see whether the government are serious—if they are talking about bipartisanship—about meeting with us, briefing us on their thinking and being able to work together on this matter. It is important.

This is too important a platform—the whole area of early-stage innovation, the creation of new businesses and new enterprises, the creation of jobs into the future, the training up of young people in this country and opening up opportunity. This cannot be a victim of the old politics; it demands a new approach. We hope this parliament will be able to usher in that new approach.

Debate adjourned.