The long awaited innovation statement was released yesterday by the Federal Government, and probably the most important change will be the streamlining and revamping of bankruptcy laws.
While some of the other measures and the $1.1 billion tagline grabbed the headlines, it’s the changes to the bankruptcy laws covering companies and individuals that will have the longer-term impact (for good and bad – the latter as the usual shonks exploit the changes for their own benefit).
Launching his government’s 16-page innovation agenda, Prime Minister Malcolm Turnbull said the “statement is an absolutely critical part of securing our prosperity.”
"The big gearshift here is a cultural one – if we can inspire people to be innovative…I promise you our opportunities are boundless.”
But he also made clear the package was the greenlight for allowing people and companies to fail and return for second and third chances at success.
The insolvency laws will be overhauled in 2017 (as urged by the Murray Inquiry into the Financial System) to allow businesses to take greater risks.
At the moment most bankruptcies last three years, in which time the directors are unable to start another company.
Directors are at present personally liable for insolvent trading. The new law would allow trading while insolvent where the business appoints a restructuring adviser to work on a turnaround plan.
The bankruptcy period will be reduced from three years to one and firms will be allowed to enter a legal “safe harbour” to develop a turnaround plan (in other words to trade while insolvent).
But they will have to have appointed an advisory to develop such a plan – that is a milder version of Chapter 11 bankruptcy in the US, with its debtor in possession finance which allows for money to be borrowed by failing companies while they work their way through their problems and emerge with a recovery plan.
Mr Turnbull said the change would take Australia "some way, but not all the way" to the American Chapter 11 bankruptcy code.
"It [Chapter 11] has a very heavy involvement of the courts," he said. "We generally don’t want to be as legalistic or materialistic as the Americans, but this is something that’s been very carefully considered over many years, most recently by the Productivity Commission."
Mr Turnbull quite rightly said that Australia placed too much emphasis on penalising and stigmatising failure and not enough on celebrating success,
He said that the government’s package acknowledges that “sometimes entrepreneurs will fail several times before they succeed and will usually learn more for failure than success”.
The policy includes a special cabinet committee to put innovation and science at the heart of policy making and a new board to be known as Innovation and Science Australia.
The new body’s first job will be to review the existing research and development tax incentive programs.
Businesses will have improved access to the $5 billion spent by the government on IT each year via a new digital marketplace.
A new $200 million CSIRO innovation fund (that replaces the money stupidly stripped out by Joe Hockey and Tony Abbott in the 2014 budget) will co-invest in new spin-off companies and existing start-ups that will develop technology from the science agency and universities. Medical research will benefit from a $250 million biomedical translation fund.
Two major science projects – the Australian Synchrotron and the Square Kilometre Array – will be funded over the next decade to the tune of $814 million as part of a $2.3b billion plan to build world-class research facilities. Both are already either up and running, or underway.
Two programs will replace the existing six research block grants which go to universities, topped up $127 million of new funding over four years. Schools will also benefit from $48 million over five years spent on a range of programs from science prizes to encouraging preschoolers to explore maths and technology.
The measures include concessional tax treatments for investors who support innovative startups, including a 20% non-refundable tax offset based on the amount of their investment capped at $200,000 per investor, per year.
Investors will also be able to get a generous 10-year capital gains tax exemption (currently tax is paid on gains on any investments made, except on the family home which is exempt) if the investment is held for three years.
It will mainly target companies that have incorporated during the last three income years, are not listed on any stock exchange, and have expenditure less than $1 million and income less than $200,000 in the previous income year.
The government scheme also enable companies to claim back prior-year tax losses by relaxing the current ‘same business test’ and instead replacing it with a more flexible ‘predominantly similar business test’.
Companies will be also able to enter into new business activities and transactions without facing a tax penalty. The test will apply to losses made in the current and future income years; current tests will continue to apply to existing losses.
The change is aimed at encouraging entrepreneurship by allowing loss-making companies to seek out new opportunities to return to profitability (This should encourage the use of company shells via backdoor listing).
The plan also allows greater venture capital investment in Australia, including by introducing a 10% non-refundable tax offset for capital invested in new Early Stage Venture Capital Limited Partnerships and increasing the cap on committed capital from $100 million to $200 million under this scheme.
The Government will also remove rules that limit depreciation deductions for some intangible assets such as patents. It will now allow them to be depreciated over their economic life as occurs for other assets.
The Government intends to introduce legislation in the first half of 2016 on Employee Share Schemes that give employees shares or the options to buy shares in the company as part of their remuneration.
The Government also said it would allow otherwise non-disclosing companies to offer shares to their employees without having to reveal commercially sensitive information to competitors.
