Monday, December 07, 2015

Free to fail in Malcolm Turnbull's new $1.1 billion innovation plan

Businesses will be given the freedom to fail and get back up on their feet quickly under new US-style bankruptcy laws announced as part of Prime Minister Malcolm Turnbull's innovation statement. 

The changes will allow businesses to trade while insolvent and cut the period in which bankrupts cannot run other businesses to just one year.

Declaring that Australia placed too much emphasis on penalising and stigmatising failure and not enough on celebrating success, the $1.1 billion package acknowledges that "sometimes entrepreneurs will fail several times before they succeed and will usually learn more for failure than success".

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.

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."

The laws will also relax the "same business test" that denies tax losses if a company changes its business activities, introducing a more flexible "predominantly similar business test".

In an idea borrowed from the Cameron government's successful Seed Enterprise Investment Scheme in Britain, new laws will provide a 20 per cent non-refundable tax offset worth up to $200,000 for investors in startup businesses plus a 10-year exemption from capital gains tax if they hold shares in the company for three years. The changes will come into force in July 2016.

The government will also loosen the restrictions on tax breaks for so-called early stage venture capital limited partnerships, allowing investments of up to $200 million rather than $100 million and no longer requiring investors to sell when the company's value exceeds $250 million...

The Turnbull government will create a $200 million dollar CSIRO Innovation Fund that will more than restore the $110 million removed from the science agency's budget in 2014. It will also establish a Bio-medical Translation Fund to co-invest up to $250 million in partnership with the private sector.

The government will simplify university research funding by collapsing six funding programs into two. Equal weighting will now be given to potential income from commercialisation and research excellence.

In an attempt to deliver an "ideas boom"  the government will spend $84 million over four years, upgrading teachers' skills and introducing new computer coding programs for students in years 5 and 7.

It will set up a new independent statutory board known as Innovation and Science Australia that will report to Industry Minister Christopher Pyne, and a new innovation and science committee of the cabinet that will report directly to the Prime Minister.

Launching the statement, Mr Turnbull said Australia consistently ranked last or second last among OECD countries for collaboration between researchers and business.

"Companies that embrace innovation, that are agile and prepared to approach change confidently and with a sense of optimism are more competitive, more able to grow market share and more likely to increase their employment," he said. "We are absolutely committed to ensuring that our students have the skills to find high-wage and rewarding jobs regardless of their qualifications or career path."

About half of the $1.1 billion in funding over four years will be directed to restoring funding cuts and guaranteeing the future of long-term projects, among them the $520 million Australian Synchrotron nuclear facility and the $294 million Square Kilometre Array multi-nation radio telescope project. 

The government will direct $1.5 billion over 10 years to the National Collaborative Research Infrastructure Strategy, a grant that had been under a cloud as part of negotiations with the Senate over the higher education changes. Universities will receive an extra $127 million in research funding over the next four years.

Mr Turnbull said the government itself was taking a risk in attempting to encourage investors to take risks.

"One of the aspects of the political paradigm I am seeking to change is the old politics where politicians felt they had to guarantee that every policy would work; they had to water everything down so there was no element of risk," he said. "If some of these policies are not as successful as we like, we will change them. We will learn from them. Because that is what a 21st century government has got to be. It has got to be as agile as the start-up businesses it seeks to inspire."

In The Age and Sydney Morning Herald