In one of the most comprehensive reports ever written on reasons for Australia's lacklustre ICT performance, a senior Gartner analyst has pointed to Federal Government policies and, especially, bad tax policies as the major underlying cause.

Gartner senior vice president and research fellow, Bob Hayward, does not pull any punches in his 44-page report titled "How Australia's New Government Can Help its IT Industry Grow". Hayward puts Government tax policies squarely on centre stage as the main inhibitor to the growth of innovative technology companies in Australia. He also points to the procurement policies of both Federal and State governments, the lack of cooperation between the States, the lack of a national broadband vision, under-funded export support programs and the lack of initiatives to stimulate R&D. However, Hayward makes it as clear as glass that tax is the key issue.

"Under current policy, an Australian IT company must pay 30 per cent corporate tax," Hayward says in the report. "In contrast, in many other nations an IT company must pay 20 per cent or less in corporate tax." Hayward points out that Australian tax policies encourage investment in property and large listed companies, while they discourage investment in innovative IT companies. He says that Australian companies can't retain top talent through stock ownership programs, because of the lack of tax benefits for such schemes. He compares employees of IT companies, who pay as much as 45 per cent of their total income in tax, with their counterparts in many other countries who pay less than 20 per cent income tax.

Hayward's report does not stop at recommending sweeping corporate and personal tax reform as goals to give the IT industry a boost. It also calls for zero capital gains tax on IT companies to attract investors, the introduction of attractive stock option schemes, the scrapping of fringe benefits tax, raising the R&D tax offset to between 150 and 200 per cent, removal of unlimited liability clauses in government procurement contracts and allowing IT companies that develop government solutions to own the resulting IP.

In short, the Hayward report says all the things in plain language that technology pundits have been screaming at successive Federal Governments for years, to no avail. Hayward told us in an interview at the Gartner Symposium that the most significant thing the new Howard Government could do to help reduce our greater than $15 billion annual ICT deficit is tax reform. He said, "We don't have a tax system in Australia that encourages people to take risks in order to create intellectual property and an IT business. Instead we reward investors in real estate and in nice, safe, stable companies."

According to Hayward, the Australian tax system has contributed to creating a culture that discourages leaders and encourages followers. He says, "If you sample100 MBA graduates in the US, 90 of them will have business plans in their back pockets. In Australia, the MBA graduates will all have resumes in their pockets. If we reform the tax system, Australia will become a more attractive place for successful people to want to come to live and start innovative companies."

Hayward is hopeful that many of his recommended reforms will be adopted by the new Howard Government, now that it has a majority in the Senate. However, he isn't holding his breath because he believes the Government has not done a good job on selling the Australian public on the need for such reforms. "The average person in Australia is not supportive on reducing taxes for people on more than $100,000 a year, whereas in the US they are."

Despite all the hard talk, however, Hayward is optimistic that the right people are in place in Canberra to push through reforms that will help the ICT industry. He says, "(Senator) Nick Minchin is favourably disposed (toward ICT) and Senator Helen Coonan is a good listener and learner and very effective in cabinet. I'm optimistic that she'll get something done."

We hope sincerely that Bob Hayward is right. His report is a must read for everyone who has an interest in the welfare of the Australian ICT industry and the future financial health of our nation.