A series of FinTech-friendly reforms are needed to help Australia reach the next phase of tech investment, according to the Australian Investment Council.
In a submission to the Select Committee on Financial Technology and Regulatory Technology, the AIC called for an expansion to tech visa programs, the creation of a co-investment initiative based on the Biomedical Translation Fund, and slammed the proposed changes to the research and development tax incentive (RDTI).
While there had been improvements in venture funding for Australian FinTechs, there is still “considerable room for growth”, the AIC said, with Australia ranking a modest 21st in the world in terms of VC investment as a percentage of GDP.
“The future growth of deeper pools of VC funding will depend on the success of existing Australian startup and early-stage businesses backed through VC investment, as well as ongoing growth in the pipeline of institutional-level asset class venture investment from large investors such as superannuation and pension funds,” the AIC submission said.
“Currently, the vast majority of domestic VC funding is raised from Australian investors. However, as FinTech continues to grow and mature, foreign sources of capital may become as important to the companies that benefit from venture funding, as it already is for private equity and other sectors of the economy.
“The right policy settings will be essential for a smooth transition to the next phase of funding growth and to support the continued growth in FinTech and RegTech investment domestically.”
A stable regulatory framework was crucial in achieving this, the Council said.
“Differences to international practices, or unexpected policy changes, typically make Australia a less attractive investment location in the eyes of those offshore institutional investors,” it said.
“The global marketplace to attract offshore investment into Australia is highly competitive. Smaller and more dynamic jurisdictions have the potential to out-manoeuvre Australia when given an opportunity.”
The current complex concepts and structures around private capital investment in Australia are having a “direct negative effect on the nation’s capacity to attract higher levels of foreign investment”, with the AIC pointing to the suite of collective investment vehicles and ASIC’s new product intervention powers.
Another troublesome policy change is legislation currently before Parliament making a series of changes to the “critically important” research and development tax incentive (RDTI). The proposed new $4 million cap for SMEs claiming the RDTI would have “potentially significant consequences” for the capacity of startups and FinTech firms to invest capital into R&D in Australia, the AIC argued.
The proposal to publicly reveal details about companies’ RDTI claims would also risk “diminishing the appeal of the program and result in a loss of commercial-in-confidence- information that could impact on the competitiveness of early-stage businesses who are often seeking to build scale in niche areas of the market”, the submission said.
The AIC also called on the government to extend its equity co-investment schemes to include FinTech and regtech sectors, using the Biomedical Translation Fund as a model. This would continue to “foster local talent and nurture the growth of startups and scale-ups”, and could be tailored to address partial market failures, it said.
The Council welcomed recent government initiatives focusing on making it easier for tech companies to attract overseas talent, but said the Global Talent Employer-Sponsored scheme should be broadened to allow startups to provide more than five visas per year.
A number of submissions to the FinTech inquiry were released over the Christmas break, including from ASIC, the ACCC and the Department of Industry, Innovation and Science.