2011 Federal Budget: Start-up Business’ Wish List

Start-ups’ Federal budget wish list

By Oliver Milman
Monday, 09 May 2011

The 2011 Federal budget, set to be unveiled this evening, isn’t, alas, expected to deliver a windfall of goodies for start-up businesses.


The headlines will invariably focus on Australia’s deficit figure – expected to blow out to around $50 billion for this year compared to previous predictions of $41 billion – and ‘tough’ curbs on spending.


With the Government grappling with the carbon tax, not to mention its precarious grasp on power itself, those hoping for a series of bold policy initiatives to boost small businesses may be left disappointed.


However, the steady drip-feed of pre-budget information, such as a new $5,000 vehicle tax write-off for SMEs, suggests that small firms haven’t been completely overlooked.


With this in mind, we’ve compiled a wish list for start-ups ahead of the budget announcement. Hopefully, Wayne Swan is planning to tick a few off the list.


1. Widen tax write-offs


As mentioned above, the tax write-off for vehicles has been welcomed by small business groups, but the reality is that the move will be largely pointless for many start-ups.


Budding entrepreneurs who start-up online, or from home, are unlikely to require a new car to conduct their day-to-day business activities. The write-off will be of little benefit to them.


A more tangible boost to start-up businesses will be an increase in the value of assets eligible for write-offs. The Henry Review set this level at $5,000, adopted by the Government last year, but the Council of Small Business of Australia has called for an increase to $10,000.


This would help start-ups that invest in everything from furniture to computers, not just cars.


2. Encourage investment


Caution still pervades the business angel market in Australia. Start-ups looking for investors are struggling to find people who will back good, but unproven, ideas.


Swan could help turn this situation around by providing tax incentives that compensate angel and early-stage investors for the risk they take on start-ups.


This will help reticent investors put their hands in their pockets and allow start-ups to unleash their innovation onto the market. Australia needs to invest in these start-ups before they wither away or decamp to Silicon Valley.


3. Overhaul the grant system


Similarly, the Government’s grants system needs scrutiny. How can the Government claim to be supporting early-stage companies while there are odd requirements such as having $500,000 turnover before being able to access help with your business plan?


Commercialisation Australia offers up to $2 million in funding, but entrepreneurs have to match this dollar for dollar with this own money. It’s time for the burden to be shifted a little from the shoulders of start-ups and onto less risk-adverse government agencies.


4. Create a new skills agenda


A lack of skills is becoming an increasing headache for all businesses, not just start-ups. Arguably, however, the issue is most pressing for new businesses as they usually can’t afford the large pay packets offered by larger rivals.


The Government is planning to introduce 16,000 skilled migrants to regional areas, although an idea to allow up to 30,000 Indian graduates take up positions in Australian companies has been mooted.


The Australian Industry Group has come up with perhaps the most detailed proposals to address the problem, calling for the establishment of a Workforce Development Agency that would oversee the government skills strategy, reform apprenticeships and pump an extra $660 million into the vocational education sector.


5. Eliminate needless red tape


Red tape is a year-round complaint voiced by small businesses and it’s unlikely that regulation will ever be at a level that doesn’t bog down entrepreneurs in some way.


That said, there are several areas that could be easily revamped in order to lessen the burden on start-ups. The Employee Share Scheme, for example, is a perfect candidate for reform.


Marc Peskett, leading business advisor at MPR, says that the scheme could become “more user friendly for start-ups by simplifying the valuation rules and addressing the current tax treatment so that start-ups can employ management talent without triggering prohibitive tax events.”


Another, long-running, red tape bugbear is the collection of superannuation. Swan will be lauded by small businesses if he takes measures to simplify the system.

6. Raise the concessions ceiling


Concessions under the Small Business Entity Tax Regime are very welcome, but the turnover limit of $2 million in order to qualify can rule out many fast-growth businesses.


Why not increase the limit to $5 million to help these start-ups grow more quickly?


7. Increase R&D assistance


Government tax incentives for R&D were altered two years ago, only for the implementation to be delayed by last year’s Federal election.


Some clarity around the R&D issue would be useful, as well as some changes to the original reforms. The system offers a 45% refundable tax offset for small companies with turnover less than $20 million, that undertake certain R&D activities. Innovative start-ups that operate in structures other than as a company would welcome the extension of this scheme to other entity types.


8. Provide help for exporters


With the Australian dollar recently bursting through the 110 US cent barrier, it’s clear that Aussie exporters are set for some long-term pain.


This could be eased by a funding injection for the Government’s commendable Export Market Development Grant Scheme, which reimburses up to 50% of export promotion expenses above $10,000, as long as the total expenses are at least $20,000.


An increase of the percentage reimbursed, or a lowering of the expenses threshold, would be very welcome.


9. Scrap payroll tax


The arguments have been made time and again to abolish payroll tax, and this budget will be no different. Any kind of signal from Swan that he will work with state governments to abolish a tax that is widely seen as a disincentive for small businesses to employ staff will be widely applauded.


10. Look to the long-term


Alongside measures that will improve the immediate prospects of start-ups, Swan’s budget will ideally help businesses cope with longer-term challenges.

A key factor in the growth of start-ups in the coming years will be the impact of the National Broadband Network.


In its budget submission, the Australian Information Industry Association has called for Swan to back Australia’s ‘digital economy’ by making “targeted, strategic” investments in schemes that boost eCommerce and broadband take-up in remote areas.


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