Tech leaders call for national plan, software R&D and IP tax cuts

March 16, 2021

Australia has survived the COVID-19 crisis in admirable fashion, but is at risk of squandering its advantage unless more steps are taken to propel the nation’s fast-growing technology sector, according to industry leaders.

The sector proved to be one of the most resilient throughout the pandemic, with venture capital funding deployed in start-ups soaring to more than $2 billion for the first time, according to KPMG’s annual Venture Pulse report, and despite a drop-off in February, the S&P/ASX All Tech Index is still trading up more than 60 per cent in 12 months.

While the government’s $1.5 billion investment in advanced manufacturing as part the budget was applauded across the board, but for the country to be competitive in the digital age, tech experts, including StartupAus chief executive Alex McCauley, Salesforce Australia CEO Pip Marlow and Brandon Capital’s Chris Nave, say more needs to be done.

Speaking to The Australian Financial Review, Marlow said it was critical for more support to be provided to small businesses to help them adopt digital technologies.

“SMBs are the engine room of the economy and we need to create a model that addresses how we help SMBs move into digital and flourish in this new world, because we cannot leave that market behind,” she said.

“And then do we have the right skills for a digital innovation workforce of the future?

“I’d also love to see the government… role modelling digital [adoption] themselves and helping to harmonise regulations across the states.”

National plan

Marlow was appointed the CEO of Salesforce in Australia and New Zealand in August 2019, having previously been an executive at Suncorp and the local boss of Microsoft.

She said to properly leverage the country’s position, the government also needed to implement a national plan.

“We need to be deliberate in having a national plan to help us build back better,” she said.

“Let’s take all of this momentum and be very deliberate about what we want to do. If we’re going to be a country that drives innovation and research more, we have to consider what the settings are to drive more of that.”

Thanks to the rapid digitisation of workplaces as employees across Australia were forced to work from home, Minister for Industry, Science and Technology Karen Andrews announced that innovation was back on the government’s agenda, after the term had been booted from the government’s rhetoric following the 2016 election.

As well as the $1.5 billion dedicated to advanced manufacturing in last year’s budget, the government dedicated $153.6 million to growing the country’s cyber security skills and supporting the cyber security needs of small and medium-sized businesses.

The government also announced more than $120 million of spending on more than a dozen new initiatives designed to help business adapt to technology.

As well as these initiatives, StartupAus chief executive Alex McCauley said he would like to see the states, as well as the federal government, think more clearly about their key strengths and invest in amplifying those.

“We’ve seen successful tech ecosystems focus in on a strength and really invest,” he said.

“David Cameron said he wanted London to be the biggest place in the world for fintech and he made it happen. That’s been a huge boost for the UK. People in fintech go to London and even if they leave one company, they stay in London and work for another.

“If a few more Australian jurisdictions double down – like South Australia with space and defence – it would be a smart move.”

But while more investment in technology fields where Australia has potential to bat above its weight would be beneficial, McCauley said the most important thing the country could do to leverage its current position was to attract more talented people to its shores.

He was supportive of the government’s decision to up the intake under the global talent scheme from 5000 to 15,000, as well as opening up another 13,500 spots for the business innovation and investment immigration program.

But, McCauley said effort now needed to be made in actively promoting the visa programs and Australia as a desirable place to work.

“We have a window of opportunity – which will be fairly narrow given how quickly the vaccinations are happening elsewhere – where we have a strong economy, a strong lifestyle and its business as usual,” he said.

“If we can attract people who are interested in moving to Australia… we can amplify our economy and our tech sector quite substantially.”

The Australian Information Industry Association’s remuneration report published in September revealed nominal base salaries had increased 1.7 per cent in the 12 months prior, with the average yearly base salary for the tech sector being $121,825.

While this was the lowest base salary increase in five years, it came during a time when employees of many professional services firms were made to take pay cuts and there were mass job cuts in sectors like travel and hospitality thanks to COVID-19.

Tax initiatives

McCauley, alongside CEOs of companies such as Atlassian, Airtasker, Brighte, Canva and CultureAmp, wrote to the Australian Taxation Office earlier this month asking to convene a meeting to discuss the treatment of software innovation under the research and development tax incentive (RDTI) scheme.

McCauley was hopeful that the ATO would consider loosening its restriction on software claims.

“A lot of the issues have been generated by a shift in interpretation, and I think a shift back would be enough,” he said.

“The other option would be a bespoke standalone program for software RDTI that calls out the types of software applications that are allowed, targets young companies that have the primary purpose of developing tech products and software.

“[The problem was that] pretty much every company is developing an app or something, which isn’t value additive R&D. But how do you stop those claims? That would be easy with a bespoke program.”

Another tax initiative that would help propel innovative companies, Brandon Capital partner Chris Nave said, would be the introduction of a patent box, which would enable profits from intellectual property generated in Australia to be taxed at a lower rate.

Patent boxes have emerged in at least 20 countries globally, including in Europe where 14 out of 27 countries have one.

“It’s crazy that we have this research-intensive country and the government spends so much on that, but we don’t have the same benefits for companies that go onto commercialise that,” Nave said.

This view was supported by the CEO of $13 billion medtech success story Cochlear, Dig Howitt, who told The Australian Financial Review on the back of the company’s half-year results the government should introduce a 10 per cent taxation rate for profits stemming from IP.

“Australia has one of the highest tax rates in the world on profits generated from IP and if we want more companies with IP creating jobs and profits here, we need to be careful we don’t have a tax regime that’s too punitive,” Howitt said.

“With a 30 per cent corporate tax rate and no reduction for profits on IP like a patent box, it does make us an uncompetitive country.”


Yolanda Redrup
The Australian Financial Review
16 March 2021

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