After being grilled by the senate inquiry into multinational tax avoidance last week, Google Australia boss Maile Carnegie today expanded her argument that the federal government’s R&D incentives needed to diverted from big tech companies like hers and allocated to startups.
In front of the inquiry last week, Carnegie said the government would be better served using the initiative to fund startups because, of the $4.5 million the company banked in local R&D entitlements, it would’ve invested regardless.
In an interview with the AFR Carnegie said Google Australia would be “remiss” if it didn’t bring new ideas to the discussion about tax.
One of those ideas was to pay credits quarterly rather than annually, which she said would help startups with cashflow. Another idea was streamlining the bureaucratic process companies have to go through to access the R&D grants. There’s too much paperwork.
“The government should consider cutting down spending on ‘business as usual’ activity … and it needs to look at how the process could be more streamlined. The administrative burden on small start-ups could well be off-putting. This shouldn’t be a credit that’s only available to people with enough staff and contractors to fill in a lot of forms,” she said.
Google Australia is a big investor in the local startup scene, it supports Sydney co-working space Fishburners and recently paid for its garage renovation. It’s also a big supporter of the StartupAUS advocacy group.
So with such a big tech company infiltrating the country’s startup scene, here’s what local companies think of its ideas around tax and incentives.
Airtasker co-founder and CEO Jonathan Lui said for start-ups, the R&D payment is crucial for cashflow and really helps with business growth and dishing it out quarterly could be a crucial cash injection for many.
“We’re aware of a lot of startups that have had to shoestring their budgets purely from a cashflow basis to extend their runway until the end of the financial year,” he said.
“This is done in anticipation of receiving the R&D tax concessions in the following months to further extend runway, however it’s not great for a startup if they need to spend in order to grow. Managing a startup from a cashflow perspective will often artificially limit its growth potential but quarterly payments will greatly support them during those times they need cash the most.”
But he warned the timing of R&D payments can sometimes be unpredictable because it can take up to two months to be approved.
Dominic Bressan, co-founder and CEO of AirService agreed with Carnegie’s comments that the copious amounts of paperwork can be prohibitive but said making the payments quarterly could cause havoc for startups as critical resources are diverted to filling out forms.
“Quarterly payments would be nice from a cashflow perspective. But there is a substantial amount of paperwork that goes along with the annual payment — I wouldn’t want to have to do that on a quarterly basis,” Bressan said.
LiveHire co-founder Antonluigi Gozzi thought Carnegie’s comments were spot on and thought allocating millions in incentives to global corporates was ill placed.
“If we want to build the next Google, we need to give R&D rebates to small innovative companies that invest in our future technologies and services,” he said. “What is the point in giving hundreds of millions of dollars of tax payers incentives to the largest national and global corporates, who already make billions in profit?”
But Gozzi had some ideas of his own: “In terms of improvements we would welcome increased support for small companies and start-ups, having more frequent payments, and being able to claim more like 2/3 of R&D expenditure.”
MoneyPlace CEO Stuart Stoyan said the tax incentives should be directed to Australian startups that are hiring within Australia. As for payment timing, he said quarterly would’ve given the company an opportunity to invest in its product at an earlier stage.
“Cash flow is absolutely critical for a start-ups and for that benefit to be provided at an early stage it needs to be provided regularly,” he said.
Engagement Innovation founder Tim Clover said big businesses will invest in R&D anyway — especially if innovation is at the core of how they operate. He said small business needs the investment, especially in the early days to extend the runway.
“It has a ‘double whammy’ effect in that it makes the business less risky for investors to invest in (up to 43% less risky from a cash perspective) and it allows startups an opportunity to try more and prove more with less cash,” he said.
“The trick for startups is to time the cash runway with this bonus in mind – it’s got to be factored in throughout the year and should be budgeted as an inbound payment on the radar as soon as the financial year is closed.”