There is an urgent need for a bipartisan national FinTech strategy and a suite of targeted reforms, according to FinTech-focused co-working space Stone & Chalk.
In a submission to the Select Committee on Financial Technology and Regulatory Technology, the incubator slammed current FinTech policies as “inadequate”, saying policy decisions are being made too slowly due to a “dislocation” between departments and agencies.
Stone & Chalk called for a number of new policies and reforms, including major changes to the research and development tax incentive, new investor tax incentives and the establishment of a co-investment fund.
The submission, which Stone & Chalk says is a collation of the views of 250 resident FinTech companies and alumni, said political parties on both sides of the aisle need to lift their game to ensure Australia doesn’t fall further behind the rest of the world.
“The FinTech sector in Australia has suffered from a partisan approach marked by partial analysis, ad hoc solutions and a failure to thoroughly invigilate the successful strategies other countries have developed,” it said.
“This can be seen as a dislocation between government departments and agencies: there is no effective central clearing house for the FinTech and RegTech sectors.
“While the Department of Treasury has been heavily involved in multiple policy debates and changes, it is clear that a huge competence gap exists with regards to the nature and importance of FinTech and RegTech to increase the competitiveness and productivity of the entire Australian economy.”
Government should consider creating a bipartisan National Emerging Technology Strategy for the Future of Australia along with a national independent advisory body providing advice, the submission argued. This would include a suite of policy and regulatory changes focused on five “clusters”: capital and funding, taxation policy, skills and talent, culture, collaboration and partnership and regulation.
“Further reform is essential if the FinTech sector is to remain globally competitive and to be able to attract international investment and international talent,” it said.
“The Australian FinTech and RegTech sectors will not reach their full potential and deliver their greatest benefit to the Australian economy if they are forced to concentrate on domestic markets at the cost of successfully developing international markets for Australian FinTech innovation and products.
“If an effective, comprehensive strategy to encourage technological innovation and the ability to support emerging companies is not implemented as a matter of urgency, Australia is at risk of losing the regional race in positioning itself as a market of choice for FinTech and RegTech resources – natural, human and financial.”
In terms of capital and funding, Stone & Chalk said a gap in seed funding in Australia is one of the most pressing issues. To address this, incentives should be made for individual taxpayers to invest in startups, with a 100 per cent capital gains tax relief and 100 per cent tax loss offset with a cap of $400,000.
“Previous proposals along these lines have been dramatically eroded by the Department of Treasury, with the result that the current arrangements are demonstrably inferior to the tax regimes in other countries such as the United Kingdom and consequently have had little uptake or market impact,” it said.
The $1 billion Business Growth Fund, which will provide “patient capital” to SMEs, needs to be refocused to emphasise seed funding as a priority, it said.
“If the focus of the Business Growth Fund is not corrected and appropriately directed, it will continue to fail to address the current market failures associated with seed-stage funding,” the submission said.
The organisation also called for the establishment of an Early Stage Co-Investment Fund with a “significant proportion of funding” coming from AUSTRAC, ASIC, the ACCC and existing funding for research.
Stone & Chalk also argued for the reversal of the planned “blatant and broad brush $1.35 billion budget cuts” to the research and development tax incentive (RDTI) and a major revamp of the scheme to make it a three-tiered system.
These tiers would be for startup companies covering a wide range of research and development, for scale-ups, with software development limited to experimental enhancement of existing solutions or new product development, and for corporates with annual revenue of more than $500 million, with a requirement that 10 per cent of any eligible R&D claim to be spent with local companies.
“Such a suite of reforms will increase the early-stage survival rate of startups, while the caveats on corporate involvement will not only help prevent smaller, emerging companies from being crowded out but will enhance the development of a collaborative commercialisation ecosystem within Australia,” Stone & Chalk said.
There also needs to be significant improvements to a range of skilled migration programs, along with efforts to better open up government procurement to FinTech firms.