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Tuesday, 09 May 2017 23:02

Tech start-ups find little to cheer about in budget Featured

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IT start-ups and small businesses have generally not found much to cheer in the federal budget, with some lamenting the lack of any direct support for start-ups and entrepreneurs.

Other tech companies were disappointed at the fee that they would have to pay for each foreign worker they hired.

Commenting on the lack of investment for start-ups, Trevor Townsend, managing director, Startupbootcamp Internet of Things & Data Melbourne, an industry-focused start-up accelerator, said while it was good to see further changes to crowd-sourced equity funding in the budget, it looked like the new economy was no longer a priority for the federal government.

His sentiments were more or less echoed by Nazar Musa, chief executive of Medical Channel, who said: "As far as I can see, there is no direct focus on trying to support start-ups and entrepreneurs. Any focus on start-ups would have supported tech entrepreneurs, or at least slowed down potential talent leaving Australia and going to the US and Europe. Now, without any further government support, this talent may not come back."

On a similar note, Mike Pritchett, chief executive and co-founder of always-on video production solution firm Shootsta, said: "It is a disappointment; there is no push for extra funding or anything to do with start-ups, which is a massive oversight. Once again, the innovation hype has been all talk. It was pushed and pushed as being so important, and it hasn’t been reflected in the budget. If you compare Australia's attitude towards start-ups as compared to the rest of the world, it’s typical. It’s just a joke."

Weploy's head of growth Tony Wu said while the hiking of taxes to recoup costs might seem like a good short-term solution, the budget lacked investment into the future.

"Tech is the future," said Wu, whose company provides an online platform that connects businesses looking for short-term support staff with prospective employees. "If you neglect that, you're not motivating people to innovate. Small-business tax breaks are nice, but that mainly targets 'mum and dad' SMBs.

Graphic.

"If we want to create businesses of global scale, global reach and solve global problems, we need to create much stronger policies to support this. This budget shows how much tech is talked about but not properly backed up. We need more action, and action means cash."

The Turnbull government abolished the 457 temporary work visa system in March and instituted a new Temporary Skills Shortage visa system; under this, businesses witrh turnover of more than $10 million will have to pay a levy of $5000 for each foreign worker they employ on the four-year visas. Those who hire foreign workers on the two-year visa will have to pay $1800.

In the case of businesses with turnover of less than $10 million, the levies are $3000 for four-year visas and $1200 for the two-year visas. The levy will be put towards a fund to train Australian apprentices and trainees.

Reacting to this, Shootsta's Pritchett said start-ups were being penalised and made to pay the government money for the fact that Australia has a skills shortage. "I’m not sure how this is logical," he said.

Tim Parker, the chief executive of professional solutions firm Gruden Group, said: "Hopefully it won't apply if there are simply no local candidates. Otherwise it's just an extra tax on us. It just feels like we're being punished for Australia's inability to train suitable candidates."

Ewen Malcolm, co-founder of MiSale, said: "We are so far behind and we need to bring in foreign workers to fill holes and meet expertise requirements. Drastic improvement was required yet this budget has tip toed around a small room with several elephants in it."

Malcolm, whose company provides a real estate platform that puts the buying and selling of homes into the individual's hand, added: "The foreign worker levy will be a real Homer Simpson 'dohhhh' moment that future generations will look back on with dismay and a lot of question marks.

"It's a rather devastating blow for tech start-ups and Australia at large. The reality of it is, we don't have access to the qualified engineers we need, we are forced to source overseas as it is. There is not enough funding for local companies, and now the government wants to force us to pay more money, or dip into a smaller pool of people with inferior skill-sets. It's not ideal for the agile environment we need to create here in Australia."

In contrast, Jeff McAlister, chief executive of ticketing and registration company TryBooking, was supportive of the measure.

"We have long claimed that we could not hire enough local workers to grow our business - also we were unable to meet the training requirements for 457 sponsorship," he said.

"It it good to hear that this will be replaced with a levy per foreign worker per year. This will help us grow our local workforce and global business aspirations."

Luke Taylor, managing director of Mpire, was critical of the measure. "Creating a fine, which in essence appears to support apprenticeships, will do nothing in terms of helping grow the kinds of skills that we need to develop technology talent in Australia," he opined.

"For us, this fine is a wasted cost, we are still a young company and are frugal about where we spend our money and this is essentially charging us for being unable to access local talent.

"Like many start-ups, our fast growth trajectory means we just can't afford to wait to train (people), and hiring from overseas remains essential to our growth.

"As a high growth technology company, Mpire needs to hire people with a niche skillset that is largely unavailable locally. As a result we have been lucky to attract foreign talent to our team. This, in turn, has enabled us to hire graduates and invest the up to 2% back into their training and further growth of our business."

Weploy's Wu felt the visa and levy move was a negative measure. "This policy is just a limitation that will make it harder for foreign workers to find work and make it harder for the businesses who desperately need skilled staff to hire," he said.

"It sends a message that Australia does not value the skills of foreign workers. Weploy will pay the levy either way because we need to be able to hire skilled foreign workers (alongside local Weployees) so we can provide the best talent available to our clients. It's just an unnecessary tax that will not be beneficial to many businesses including our own."

Yanir Yakutiel, the chief executive and founder of Sail Business Loans, termed the foreign worker levy the thin end of the wedge and one that created uncertainty for small businesses.

"The government says implementing an annual foreign worker levy will generate $1.2 billion to support local skills development. While it sounds good in theory, governments seem to forget that businesses change their behaviour based on legislative changes," he said.

"Businesses will be discouraged from hiring skilled foreign workers, with resulting revenue likely to fall short of expectations. A levy would effectively be passed onto foreign workers' salaries, discouraging them from coming to Australia in the first place and making it more difficult for Australian start-ups and businesses to attract top talent."

Yakutiel said he recently had to pull two offers to potential employees when the 457 visa changes were announced "as it wasn’t clear how it would impact our business moving forward. This can be a significant setup for a growing startup like us".

"As a small technology-focused business, we rely on very specific skills for growth. Unfortunately, these skills are in short supply in Australia. Surely, skilled migrants are the last people we want to deter from immigrating to Australia."

"On the contrary, we need to make Australia as attractive as possible, as we are competing globally for the brightest minds. The multiplier effect of imported skills is enormous. The best way to skill Australians is to expose them to global expertise. Shielding the local labour market from foreign skills is a protectionist policy that is going to have the exact opposite result that what it is intended to achieve.”

HearMeOut chairman Howard Digby said the tightening of foreign worker visa policy to increase jobs for Australians may work for some areas (e.g. trade and technical) but have the reverse effect for others (such as senior executives).

"Bad handling of this policy will end up being counter productive for Australian jobs," said Digby, whose company produces a voice-based social network app. "New policies must allow for key people in strategic positions to be hired from overseas if it is deemed by the board of a company to be in the best interests of that company.

"Having blanket restrictions for industries or job titles could restrict that. The right person in a strategic role may mean the difference between great or poor performance of a company. This has the most impact on the growth of Australian Jobs by far. Successful and growing businesses create jobs, not governments."

Julius Wei, the co-founder and head of Investment Analysis at BMY Group, said: "Some of the biggest losers in today’s budget are foreigners, especially those skilled people working in Australia, with the new levy on businesses hiring foreign employees on a work visa.

"Adding to the turmoil caused by Malcolm Turnbull and immigration department’s earlier announcement of closing 457 visas all of a sudden, this budget again shows the message that Australia doesn’t welcome talent.

"We are talking about people who can bring skills and talents to the country, the people who contribute to the nation’s culture and economy, people who pay their taxes and spend money on consumption – hence 'making a net profit' from the Treasury’s point of view."

Siobhan Hayden, the chief operating officer at HashChing, an online marketplace for home loans, said a better way would be for the government "to implement initiatives for small businesses that enabled them to recruit local resources and develop them over time with supportive funding".

Karen Taylor-Brown, the chief executive and co-founder of Refraction Media, found the budget a disappointment, especially after the energy and excitement of the announcement of the National Science and Innovation Agenda in December 2015.

"This budget has completely shied away from the future skills-conversation," she said. "We've seen in the US how technology and innovation became a political pariah, but I expected more from a Turnbull government, especially with a prime minister who made his money in the heady dotcom boom days of the 1990s.

Taylor-Brown said 44% of jobs were expected to be at high risk of being affected by computerisation and technology in less than 20 years.

"Yet our children are still not required to learn computational thinking in schools," she lamented. "Industries based on technology will be the major employers of our future and I worry that not only our children, but more immediately, and our existing workers don't have access to the skills to help them succeed in a digital future."

The federal government had said it was focused on backing innovation and start-ups and this was highlighted in the "ideas booms", said Anna Rooke, CEO of QUT Creative Enterprise Australia. But it had been diluted down in the budget.

"It's disappointing, but this is a budget built around traditional skills and traditional industries like housing and transport infrastructure," she said. "We need a plan that focuses on enabling our start-ups to compete globally, and that empowers companies to capitalise creative industries contributes which contributes $90 billion to the Australian economy."

Rooke added that while the further reduction of red tape was welcome, more clarity was needed to ensure start-ups and small businesses knew how to maximise the use of these new schemes.

"The extension of the small business instant asset write-off of $20,000 is helpful and it's good news that this has been extended by a further 12 months given this is exactly the investment start-ups and small businesses need in technical infrastructure to remain competitive," she added.

The extension to crowd-sourced equity funding was welcomed by Rob Hango-Zada, the co-founder and co-chief executive of Shippit.com, a firm that makes it possible for anyone to track the location of anything, sent anywhere, at any time.

"I think it's a massive win," he said. "Basically it allows small-time investors to get in on the start-up book in Australia and also allows start-ups to benefit from a consumer investor market without the need to find angels (investors) and high net-worths (investors) to help them bridge funding gaps or make a break.

"It's the opportunity for the market to take that forward though, i.e. start-ups which will help create these marketplaces. Allowing consumers to invest will mean better valuations if they share the vision and want to participate in start-ups without needing to go all in."

Michael Jankie, chief executive of PoweredLocal, a company that markets a simple wireless marketing automation system, was also enthusiastic about this measure. "The crowd-sourcing framework may well come out as the greatest announcement for innovation in this budget. Extending this to proprietary companies should see a larger amount of uptake and growth in innovative ideas that become companies," he said.

"Bitcoin and the entire cryptocurrency markets are exploding, the real effect of this awareness is a closer look at blockchain technology. There is no doubt that there are huge innovations ahead in this technology. The long-overdue change in the double-taxation of cryptocurrencies is a giant leap forward in adoption and innovation here. Very glad to finally see that this has been resolved."

Rendevu founder Reuben Coppa said venture capital investors generally had a large minimum investment and that could put them out of reach in the first few years of a company's life. "Extending the crowd-sourced equity framework to proprietary companies won't just make funding more available to early-stage companies, it'll also open up the sector to mum and dad investors."

One measure announced in the budget will force banks to share the data they hold on a customer when requested by that customer.

HashChing's Hayden said of this: "Customer data belongs to the customers, and currently lenders provide little to no analysis or ongoing education to consumers about their financial affairs, even though they have access to their earnings and spending behaviour.  

"Fintech solutions already exist, and more will follow when banking data access is provided. Businesses will use this information, following approval by customers, to gamify their spending and financial affairs with the goal of delivering better outcomes for consumers.

"The Productivity Commission inquiry into the financial services industry will help identify how the industry can improve its services to customers."

Commenting on the same measure, Sally Tindall, RateCity Money Editor, said creating greater transparency for customers was the basis of increasing competition.

"Putting a more powerful spotlight on the alternatives in the banking sector will help empower customers to make better financial decisions and should be supported," she said. "It means customers are more likely to be put ahead of profit margins."

Tindall said, however, it all hinged on whether the Productivity Commission could help deliver this outcome in a timely manner, "or whether it's a band-aid fix for a political wound that is still hurting the government from the last election".

The budget has introduced a levy on the five biggest banks in the country, and Tindall said while it sounded good on paper, it was more than likely that the new fee would be passed down to customers.

"Which means the big bank levy could end up being a big bank tax on their customers, which is about three-quarters of all Australian mortgage holders, many of whom are already struggling with record levels of debt," she added.

Sail Business Loans' Yakutiel said, given the hold the big four banks had on the market, "we certainly welcome efforts to increase consumer choice and competition in the financial sector. It is sad that we need to force their hand to refocus their businesses to put customers first".

"There are still many factors that make it less enticing for emerging small businesses to engage with the big banks. Their legacy approach to lending, including requiring small business owners to put up their home or car as collateral, strict business history requirements, and lengthy loan processing times, is just one example."

In this milieu, he said, the introduction of an open banking regime was a critical point for fintech businesses like his. "This move empowers consumers to use their data to shop around for a more competitive deal instead of allowing the banks to essentially hold their customer’s hostage. Like anything, the devil is in the detail. It is imperative that banks don’t drag their feet and use other means to prevent challengers from accessing the data."

The budget also included some measures to get multinationals to pay more tax and TryBooking's McAlister said the government needed to further crack down on multinationals not properly adopting current GST obligations.

"We are competing against foreign ticketing companies with a clear base in Australia that are dodging fair GST obligations by passing the payment and reporting obligations onto their customers. We seek a fair playground in this regard as our quoted prices always include GST while foreign competitors may not include the tax," he said.

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Sam Varghese

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Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.