Australian startups have been “collateral damage” in the global backlash against Big Tech, with some urgent reforms needed to support the sector, according to the Crossroads 2020 report.
The annual StartupAUS report, which provides a snapshot of the Australian startup sector and provides policy recommendations for the future, has put significant focus on the collateral impact of clumsy attempts to regulate dominant tech titans on smaller companies.
It also reinforced a number of policy areas it has been urging the government to act on for several years, including the research and development tax incentive (RDTI), skilled migration and the employee share scheme.
Last year’s iteration of the report warned that the widespread political attitude towards big technology firms presented a significant risk to Australia’s emerging startup sector. StartupAUS chief Alex McCauley said this has played out over the last year in the form of the encryption powers, online violent content legislation, and cuts to the RDTI.
“We’ve had governments around the world trying to grapple with how technology and tech companies interact with populations and with people and those are really legitimate questions to try to grapple with it,” Mr McCauley told InnovationAus.
“Governments are tending to want to regulate those companies and those issues a bit more seriously, but we need to keep in mind that those regulations don’t just affect big global tech companies in strong market positions, they’re also impacting emerging Australian companies trying to establish a foothold.
“We have to be really careful when we’re thinking about those pieces of legislation that we take into account that companies here could be unintended collateral damage.”
The Australian government is currently formulating its response to the competition watchdog’s landmark report on digital platforms, which recommended a series of significant reforms. But many of these recommendations could make it more difficult for smaller local companies to compete with the more entrenched tech giants, Mr McCauley said.
“The irony of some of those measures is that while they might intend to increase competition they often increase regulation which decreases the ability for new entrants – big global players have lots of resources to meet regulatory burdens, new entrants don’t,” he said.
Governments need to better consult with the tech sector and treat technology as an opportunity rather than just a threat, he said.
“When we’ve talked about tech over the last year in a legislative sense, it’s been with a security lens or a privacy or monopoly lens. We need to add to that picture an opportunity lens, so we’re always focused on how we can ensure Australia can build a sector that grabs a significant chunk of the global economic opportunity presented by technology right now,” Mr McCauley said.
“If we don’t have that lens then we’ll really miss out on some of that huge wave of economic opportunity, and that could cost Australia.”
For regular readers of the Crossroads reports, the policy recommendations included in the 2019 edition will make for familiar reading. Eight of the main recommendations are the same as last year, with a similar emphasis on the RDTI, skilled migration and accessing better data.
With this year’s report released on the fourth anniversary of the National Innovation and Science Agenda, the repeated recommendations are the result of a policy cycle that is now coming to a head, Mr McCauley said.
“The government moves pretty slowly. We have seen movement across things like visas, we’ve seen bits and pieces come through on incubator support and a range of other initiatives to target different areas of the sector,” he said.
While StartupAUS is pushing for most of the recommendations, including tweaks to the employee share scheme, angel tax incentives, Export Market Development Grants and copyright rules, to be included in the government’s next policy cycle, there are some more pressing issues that need to be addressed now.
Most prominently is the RDTI, which Mr Mccauley said is still in crisis
“We need to be supporting software R&D or we could undo all the good work done in the sector over the last five years. Since it got into crisis it hasn’t got much better. We still don’t have a lot of clarity around the ability of software companies to rely on the RDTI going forward,” he said.
The report found that the new scheme is now often seen as “risky” for startups, with many starting to self-censor and not even attempt to claim it. Tech firms with significant R& claims are also seen as risky by investors, it said.
With the government likely to reintroduce in the new year its major legislative changes to the scheme which were sent back to the drawing board last year, there is an opportunity for some positive reform.
“Those changes are intended to free up more of the RDTI for really high intensity businesses, and that’s really tech companies. Tech companies have some of the highest RDTI intensive activities across the economy,” Mr McCauley said.
“It’s important those changes be accompanied by a clarification of the place of software in the RDTI. We’ll be working with government on how we can achieve that outcome, and that’s a good move for the RDTI.”
The report calls for startups with annual turnover of less than $20 million that are claiming the scheme in good faith to be given a moratorium on audits unless their claims vastly increased. It also recommends a separate scheme entirely focusing on software.
At a state level, StartupAUS also wants innovation ambassadors to be appointed who would be tasked with attracting global tech firms to conduct research and development in Australia.
While the talent gap and struggles to attract overseas workers has been a primarily element of previous Crossroads, this situation is improving with the launch of the Global Talent Independent scheme and the formalisation of the Global Talent Employer-Sponsored program.
“All of a sudden we’ve got an immigration system that values high-skilled new economy jobs and understands that those jobs need to be filled by the best people all over the globe, as well as the best Australians. That’s a really positive story about the increasing access of Australian companies to the best talent in the world,” Mr McCauley said.
To help prove the worth of the sector and better map its growth and areas of concern, the report calls for Commonwealth funding to these projects to address fragmentation and a lack of information entirely.
“Unless this paucity of data is rectified we cannot reasonably hope to make good decisions about how to bolster the sector and won’t fully understand its impact or the opportunities a thriving domestic technology sector represents,” the report said.
The government’s tax incentives for angel investing have been in force for three years but haven’t led to an “explosion in uptake”. This scheme needs to be expanded to allow a broader range of startups to qualify for it, in an effort to assist with the lack of early-stage capital in Australia, Crossroads found.
In the report, StartupAUS also urged the government to improve the speed and certainty of the Export Market Development Grant, introduce copyright safe harbours to protect tech firms from “damaging lawsuits”, amend the highly controversial encryption legislation and expand the startup exemption for employee share schemes.