BUDGET RESPONSE: 'It’s budgets like this that force us to question whether we should tell other founders to start a business here'

Businesses across the country have told Business Insider Australia what they make of Treasurer Josh Frydenberg’s first ever budget, which was unveiled on Tuesday evening.

The treasurer, who hailed small businesses as “the engine-room” of the economy, cut small business tax from 27.5% to 25% and increased the instant asset write-off threshold from $25,000 to $30,000. In total, there was $9 billion in funding pledged by the government for tech, science and research across space, innovation, R&D and digital transformation.

Angering many Australian business leaders, the wildly popular research and development (R&D) tax incentives were cut by $1.35 billion. The R&D tax credits were cut last year by $2 billion. There are now concerns from business leaders that Australian businesses will struggle to innovate in the ways that they once used to.

While former Prime Minister Malcolm Turnbull made innovation a top priority, some are concerned that Scott Morrison’s government isn’t doing enough to help them thrive.

Business leaders believe there were many other things missing from this budget that would have helped their businesses and the economy to grow. Here’s what they had to say.

Stuart Stoyan, MoneyPlace founder

Stuart Stoyan, MoneyPlace founder.

The $1.35 billion cut to research and development tax is very disappointing.

With over $4 billion in cuts to R&D tax incentives over the last two budgets, you’ve got to wonder if the Morrison government has any long-term growth and innovation agenda at all? It seems as if the innovation agenda of former Prime Minister Turnbull has been long forgotten.

Australia is a nation of makers, and risks losing the very DNA that makes us internationally competitive.

We really need leadership from the federal government to differentiate between startups who rely on the tax incentive as a key source of funding versus corporates who are just looking for a cost saving and will do the research anyway.

The budget cut to overall funding means restricted access to a key source of non-equity based funding for startups.

Grace Wong, cofounder, Liven

Grace and William Wong, the cofounders of Liven.

We find it interesting that blockchain isn’t even mentioned once in the federal budget. This is not surprising given DTA’s Chief digital officer Peter Alexander told a Senate inquiry 6 months ago to wait for a ‘standardised blockchain’. In my opinion that misses the point, like waiting for a universal mobile operating system before ever buying a phone.

The problem lies in the government thinking it is in a pretty similar state to most progressive governments looking at blockchain and trying to understand it but that’s not the case. Governments and industry alike around the world are racing to reap the benefits of this technology, from delivering productivity to security and efficiency gains.

Blockchain is regarded by many as a foundational pillar to the “Fourth Industrial Revolution” and the new government policy roadmap intends to establish Australia as a ”global leader” in blockchain but this budget has left industry with more questions than answers mostly about how serious they are in becoming a leader. Sitting on the sidelines waiting for other countries to make breakthroughs is not innovation.

Dhruv Singh, CTO of Australian influencer marketing provider, Hypetap

When it comes to encouraging innovation and R&D, especially for startups and SMEs, Australia is lagging behind. Whilst there is progress underway, we are not even close to being competitive on a global level — incentives in the UK, for example, allow SMEs to claim up to a 230 per cent deduction.

Recent changes and guidance to R&D incentives mention that companies must ensure their work meets the definition of R&D that exists in the Income Tax Assessment Act of 1997. But the internet and software built to leverage it was still in its infancy when this was drafted, so referring to this definition is outdated. The current R&D scheme is skewed for a different time and needs to be adapted to meet the needs of new businesses that should be able to better leverage the R&D incentive scheme.

The process itself to claim a tax incentive under the R&D scheme is also no easy feat. Current documentation requirements are onerous, pose a large administrative cost, and cannot be easily adapted to the internal development methodologies used by most modern software teams. Processes must be simplified for smaller and new start-ups.

Detch Singh, Co-founder and CEO, Hypetap

We’d like to see the government get serious about innovation and entrepreneurship. This means looking at more ways of incentivising potential entrepreneurs to start businesses here in Australia. Currently, we have incentives for investors who invest in Early Stage Innovation Companies (ESIC) for example, but not much for the entrepreneurs who are actually building the businesses.

One major way this can be done is to provide Capital Gains Tax (CGT) relief for entrepreneurs, similar to what is done in the UK with ‘Entrepreneurs’ Relief’. The status quo where business owners are hit with significant CGT at a liquidity event really dampens the upside of starting and running a successful business.

Bede Hackney, ANZ Country Manager of cybersecurity company Tenable

The pledge of over half a billion dollars to boost Australia’s defences including its cybersecurity capabilities indicates that cybercrime is firmly on the government’s agenda, as it should be. Rising geopolitical tensions and an expanding attack surface have left governments and businesses vulnerable to targeted cyberattacks. Cybercrime is relentless. In fact, the 2018 Global Business Risks report from the World Economic Forum ranks cyberattacks as the No. 3 global risk in terms of likelihood, behind extreme weather events and natural disasters. A recent report by the Ponemon Institute on behalf of Tenable found that 60 per cent of organisations represented in the study had suffered two or more business-disrupting cyber events in the last 24 months alone.

The threat of a major cyberattack in Australia cannot be overstated. This funding will bolster Australia’s cybersecurity capability and go a long way in delivering the solutions which ensure the safety of its businesses and citizens. Cybersecurity must be a strategic focus and the government should be commended for acting now.

Adam Biviano, senior solutions architect, ForgeRock

I’m excited about the potential opportunities and continued improvement that citizen facing digital experiences can offer. Fast, easy and secure access to essential services through online channels will serve to boost confidence and accelerate Australia’s future prosperity.

Building trust among the user base is key to the success of any online service that houses sensitive information. Providing transparency about how data is being used and delivering granular consent controls is critical to building this trust.

Rafael Moyano, managing director, Modis Australia

Modis Australia

At a time when we should be significantly investing in Australia’s innovation system, it is a little disconcerting to see that technology has taken a backseat in the government’s agenda.

Without stability and clarification on the R&D tax incentive scheme, our industry and wider economy is at risk of stagnating. Many Australian tech companies rely on the initiative to help grow their businesses. Without dedicated financial support, it impacts our nation’s ability to support emerging innovation, propel global growth and build a favourable business environment.

Ahead of the election, we need our political leaders to champion R&D in Australia by implementing effective programs to encourage the development of pioneering products and services. In a world where technology is driving unfathomable, brilliant transformation across countless sectors, it has never been more vital for the government to prioritise the tech ecosystem. This will go a long way in fostering greater benefits for the wider Australian economy.

That said, we are pleased to see the introduction of Skill Organisations. We hope that this development of training packages for high demand skills will help in fostering a more needs based approach to skills development, particularly for disadvantaged job seekers and those starting their careers. This is a welcomed announcement, ensuring that students have a wide range of employment opportunities available, regardless of their location, access to training or advantage.

Rebecca Schot-Guppy, GM, FinTech Australia

Rebecca Schot-Guppy.

Fintechs and startups will be disappointed by this budget. It’s supporting the jobs of today, but not the jobs of tomorrow. Whatever happened to Australia becoming the innovation nation?

We continue to say it, the R&D tax incentive is incredibly important for the growth of the fintech ecosystem and technology sector. Easy access to it consistently polls as the number one issue for growing a fintech in Australia. Now, fintechs will be forced to compete with major companies for a dwindling pool of capital. Considering all the turmoil this policy has gone through, this could not be a worse outcome.

We are heartened however to see progress on the e-invoicing front, expansion of the export development grant and also support further tax cuts and the increase to the asset write-off. All of these initiatives are great for emerging businesses.

Tim Moylan, co-founder and CTO, Shootsta

ShootstaTim Moylan, Cofounder and CTO, Shootsta

It’s budgets like this one that force us to question whether we should tell other founders to start a business here.

Being based in over five countries now, we have a very good understanding of the landscape when it comes to government-funded business incentives.

None of the cuts and incentives announced for small business – and as part of that, startups – come close to what’s on offer overseas.

Australia’s leading incentive in this regard is the R&D tax break. And now this policy is under fire, being cut for the second year in a row.

As a global growth company, we are however, supportive of the government’s Export Market Development Grants Scheme. Cracking new markets can be incredibly tough and government support here is appreciated.

Victor Zheng, cofounder and co-CEO, Assembly Payments

Assembly PaymentsVictor Zheng, co-founder and co-CEO, Assembly Payments

This is the second year in a row the government has taken the knife to the R&D tax incentive scheme. So, in a year where everyone feels like they are getting a tax break, startups feel like they are getting worked over.

All the tax cuts introduced to help small businesses are short term, and help them on a micro level. Startups and fintechs on the other hand, are working to transform the way we do business and the way small businesses around the country operate. Investing in the startup ecosystem and industry will flow on to improve other areas of business.

The government aren’t interested in SMEs, they are buying votes.

The R&D tax incentive gave us an incredible leg up in a global race to innovate. How are we supposed to compete with Silicon Valley and China now?

Will Richardson, managing partner, Giant Leap Fund

Will Richardson: Supplied

The R&D tax incentive cuts are disappointing, but can be weathered by the industry provided the government exclude larger firms for accessing this scheme.

Given the pool of funds in it is dwindling, there’s more reason than ever before for the government to limit access to their incentive to smaller firms where their spend will have more milage and impact.

There’s a number of other fantastic initiatives in the budget such as $737 million being put towards mental health. But, the government doesn’t have to shoulder these problems alone.

There are businesses out there that want to tackle these issues, but just need the initial support to get off the ground and make a real impact. We’d advocate that government look at alternative ways of instigating change with health, environmental and social issues including funding the innovation ecosystem in Australia rather than only throwing grant funding directly at the problem.

Sascha Kara, CEO and cofounder, TechDirect

TechDirectSascha Kara, CEO and cofounder, TechDirect

As an early stage business, we’re set to benefit from many of the tax breaks and reforms included in this budget. But we can’t look past the cut to the R&D tax incentive.

It is a clear step in the wrong direction. Cutting the R&D budget is going to force more jobs offshore as start-ups would look to emerging markets as a cheaper way to find skilled resources. Shouldn’t we be incentivising start-ups to use local talent instead of stripping away any funding they have? Based on last year and this year’s R&D budget cuts it looks like death by 1000 cuts for start-ups.

While our state governments are introducing more support for startups, our federal government is retreating. Yet, startups and Australia’s tech industry is not a state issue. It’s national. We’ve had mixed messages from federal government in the past about its support for startups. It was only a few years back that the government announced its “Innovation Agenda”.

This budget sends a clear message: We can’t rely on their assistance.

Yohan Ramasundara, president of the Australian Computing Society (ACS)

Technology jobs are the jobs of the future. Many of the high paying jobs of the next decade are going to be technology jobs, and a large proportion of the funds allotted to skills have been targeted not at technology jobs, but at trade skills. Much more investment should be made to improve the technology skills of the Australian workforce.

ACS’s Australia’s Digital Pulse 2018 revealed that Australia will need 100,000 new technology professionals over the next five years just to keep up with current demand. This skills package should help deliver those jobs, and we’re pleased to see that the government has been listening to the calls for workforce reform, but what is in this budget is inadequate for that purpose.

It’s no secret that the technology industry has a significant gender imbalance. Females make up on 28% of the ICT workforce, compared to 45% of the workforce as a whole. Addressing that imbalance is a key issue that we have needed to address in Australia for some time. However, $850k per year won’t go too far in narrowing the gap.

The government’s commitment to the cyber uplift for federal government systems for the 2019 federal election is commendable. It has been clear that foreign actors including governments are now more than happy to interfere in elections, and the government should be doing everything it can to ensure that Australian elections remain safe and fair.

Sam Ghebranious, ANZ country manager for behaviour-centric cyber security firm, Forcepoint

ForcepointSam Ghebranious, ANZ country manager, Forcepoint

The Australian government has shown real commitment to cybersecurity in tonight’s Federal Budget, with the funding for a whole-government cyber uplift.

Not just that, but there will also be greater investment to future-proof Australia’s skillsets, particularly in digital and cybersecurity skills. I welcome this as cyber attacks will continue to be a major threat for Australia and Australians.

However, there is a skills gap today. While this investment in skills training and development is a step in the right direction, there needs to be a solution to dealing with sophisticated cyber attacks, immediately.

I’m calling on the federal government to implement new cyber strategies that focus less on the granular threats and more on behaviour-traits that underline these threats.

To truly protect Australia, we need to stay a step ahead of our attackers and put defences up to specific threats before they’ve even been carried out.

MYOB CEO Tim Reed

MYOBMYOB CEO Tim Reed.

This is the first time we have seen a surplus budget in over 10 years and it is to be commended.

Business, particularly small business, does well when the economy does well. We are reassured by the health of the economy today and going forward. As every small business owner needs to balance their budget, so too should the government.

What is most pleasing is that this commitment to running a surplus appears to be bi-partisan, with Labor also stating their commitment to run a budget surplus. This bi-partisan support provides certainty and builds confidence for small business owners, which in turn builds their confidence to invest.

The increase in the instant asset write off to $30,000 is welcomed as it provides a significant opportunity for small businesses to grow and stimulate the economy.

It would be a welcome commitment to see the government make this a permanent feature of the small business tax system.

The personal income tax cuts are welcomed as not only do personal income tax cuts provide much needed relief to household budgets, they stimulate the economy with small businesses right across the country benefiting from renewed consumer confidence to spend.

We know that the type of measures introduced in the budget will encourage more people to start a business and for those already in business, to invest and create more jobs.

It is great to see the substantial investment in infrastructure announced. It not only provides the construction and infrastructure sectors with certainty for work over the long term, but it also provides a boost to employment and the related sub-contractors, particularly in regional areas where many of the projects will be completed.

Moving into the election campaign we hope to see continued support for small businesses in the form of practical policies that assist with cashflow, encourage digitisation through initiatives such as e-invoicing, and ensure SME owners are setting themselves up for a prosperous future with adequate superannuation.

These are of critical importance to small business owners and we strongly encourage our government of the day to push ahead for change that matters the most.

Sharryn Napier, VP and regional director A/NZ at Qlik

QlikSharryn Napier, Vice President & Regional Director A/NZ at Qlik

The digital economy relies on equipping the workforce with the skills to succeed, and data literacy – that is the ability to read, work with, analyse and argue with data – must be placed front and centre. The government’s $62 million commitment to improving digital skills – such as data literacy – and its $9 billion to science, research, and technology are sure ways of protecting our economy and driving growth.

Without the right skills in place, the commitment to create 1.25 million jobs over the next five years, could be mistaken as a case of the Emperor’s new clothes. Right now, Australia needs an extra 200,000 technology workers to become a world leader in the digital economy. But it’s not enough to create jobs, it’s about the skills for success, which is why it’s reassuring to see the $62m commitment to better connect industry and schools through training hubs.

Craig Howe, managing director of APAC, at global technical consultancy Contino

ContinoCraig Howe, Managing Director – APAC, at global technical consultancy, Contino.

Digital investment is always about removing friction. From a citizen’s perspective, the additional $67.1 million allocated to the GovPass program, the government’s digital ID project, will be welcomed to speed up interactions with government services, which have traditionally been quite laborious. If executed well, streamlined services such as the MyGovID project will create substantial cost savings and help propel Australia further towards a digital future.

To foster public adoption of any digital service, however, the government must work hard to build trust in the system. To do this, the government must provide a clear opt-in/op-out process, optimise the service across all platforms (mobile, web, tablet etc.) and most importantly, build awareness through widespread education on its value and applications.

Without this, uptake will remain low, and the service risks becoming yet another capability that is superseded before it’s begun.

Michael Alp, VP of Asia Pacific and Japan, at Pure Storage

Michael Alp, Pure Storage.

Continued investment in science, research and technology ($9 billion package), is essential for boosting Australia’s economy and competitiveness on the world stage. The government should not forget about the critical role of data in both the execution and management of its digital plans. Without the right infrastructure in place (e.g. for data storage, backup and recovery etc.), digital strategies will remain just that – strategies.

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