Funding levels in Australia have continued to increase, although more can be done to be on par with the world’s leading fintech ecosystems. Recognising that many Early Stage Innovation Companies (ESICs) face stiff competition for investor capital, just under one third (30%) of Census participants agree that further improving tax incentives to investors who acquire shares directly from fintech start-ups would allow greater capital to flow.
It will be important to provide enhancements and certainty on ESIC incentives, the framework for Early Stage Venture Capital Limited Partnership (ESVCLP) and Venture Capital Limited Partnership (VCLP) programs, and make them globally competitive to attract investments into Australian fintechs and other emerging sectors of the economy.
Over one quarter (26%) of Census participants believe changes to ESVCLPs would allow greater capital flow into the fintech sector. In Australia, the law has not kept pace with the evolving definition of financial technology and where it converges with mainstream financial services businesses. Under current legal interpretation, restrictions are placed on investments made by ESVCLPs and VCLPs into fintech companies. The Government is currently reviewing these tax incentives to ensure current arrangements are fit-for-purpose and support genuine early stage Australian start-ups.
Although our total investment in R&D as a country is in decline, government expenditure on R&D as a percentage of Gross Domestic Product (GDP) is actually slightly higher than that of the OECD average. In other words, it is actually business investment in R&D that is lagging behind other comparable countries.
While there may be several influences, R&D investment from business requires systemic stability and innovation policy consistency. Significant R&D investment often takes many years to achieve commercial outcomes and requires a long-term view, backed by a stable and predictable policy and incentive framework. Now is a pivotal time to support the structural modernisation of our economy and to grow our nation’s investment into innovation through world-class business and investor incentives, serving to attract talent and capital.
Current incentives and regulation administration, consistent with intent, could also be optimised with other tax and financial measures designed to give cash or allow businesses to retain more cash. These could include targeted financial services technology based grants and differentiated levels of support based on maturity, with tailored cash incentives and grants for established fintechs looking to go global, compared with incubation and commercialisation support for start-ups and collaboration projects.