Eugenia Karanikolas
The measures relating to business assistance programs in this budget appear to reflect a number of the recommendations made by the National Commission of Audit report.[1] Briefly, the underlying message that comes out of the report was that assistance to industry would need to be limited and provided predominantly where there is a ‘genuine market failure’ case to be made.
Consistent with the Commission’s recommendations for the abolition of programs, the Government has decided to cease a number of business assistance programs and essentially roll them into the newly created Entrepreneurs’ Infrastructure Programme (EIP). At this stage there is no publicly available information outlining how the Government’s business support flagship program will actually work, other than that it will ‘focus on supporting the commercialisation of good ideas, job creation and lifting the capability of small business, the provision of market and industry information, and the facilitation of access to business management advice and skills from experienced private sector providers and researchers.’[2]
The language used by the Government appears to indicate that its new EIP will be a hybrid of many of the existing business measures, albeit with substantially lower funding, including:
- Enterprise Connect—this is designed to provide business skills services to small to medium sized enterprises (SME) and bridge one of the key sources of ‘genuine market failure’, information gaps, faced by SMEs in accessing reliable information.[3] In the context of its report into the not-for profit sector, the Productivity Commission, recommended that the program be expanded because of its success in providing ‘highly relevant business support services to SME’ and engendering the trust of SME.[4]
- Innovation Investment Fund and Commercialisation Australia—these are designed to address market failures faced by innovative start-up companies by linking them to finance and commercial advice as well as providing funding for the commercialisation of their product, service or process. Evaluations of the programs have found that they have been effective and are widely supported by stakeholders. [5]
- Industry Innovation Councils and Precincts—set up in 2013 they are designed to foster collaboration between research institutes and industry with high export growth potential.
- Australian Industry Participation—a long standing program designed to increase opportunities for Australian businesses to compete for large private projects and government procurement in Australia by addressing information asymmetries.
- Enterprise Solutions Program—set up in 2013 the program is designed to assist innovative SME to build capacity and participate in large government projects.
The Enterprise Solutions Programs, which is broadly based on the successful US Small Business Innovation Research program, previously had a budget of just over $24 million.[6] In the 2013–14 budget, the Government announced that it would provide $2.8 million (including $0.5 million in capital expenditure) to fund a new program, the Improving small business access to Commonwealth contracts initiative, to be spear headed by the Department of Finance.[7]
The estimated savings from abolishing Enterprise Connect, Innovation Investment Fund, Commercialisation Australia, Industry Innovation Councils and Precincts, Australian Industry Participation, the Enterprise Solutions Program plus the Textile, Clothing and Footwear Small Business and Building Innovative Capability program, are $845.6 million over five years.[8] Part of the savings will be redirected to funding the new EIP. In particular, Budget Measures: Budget Paper no. 2: 2014–15 mentions that a total of $484.2 million over five years will be provided to establish the EIP. This figure however, appears to also incorporate funding for the programs that are closing, including $45.2 million for Enterprise Connect, $29.4 million for Industry Innovation Precincts and $24.4 million for Australian Industry Participation. The actual funding provided for the EIP is $342.6 million over four years.[9] As a result when taking into account the abolition of the eight programs and the establishment of the EIP, the net saving over four years is estimated to be $455.6 million.
So far the Government’s industry package has received a mixed reception by industry. Whilst for example the Australian Chamber of Commerce and Industry (ACCI) has welcomed the Government’s attempt to ‘rein in spending and get the budget back on a credible path to surplus’, others, including the Australian Industry Group (AiG) have stated that they are ‘deeply concerned’ about the abolition of successful SME and innovation programs and hope to see the better features of these programs retained and integrated into the new initiatives.[10],[11]
Start-up firms and the venture capital sector have been critical of the Government’s approach to innovation and ‘perverse’ attitude towards digital infrastructure, arguing that Australia will fall further behind in fostering a start-up culture than other developed economies.[12] Capturing the sentiment, Yasser El-Ansary, chief executive of the Australian Private Equity and Venture Capital Association, the national body representing private equity and venture capital sectors, stated that:
Everyone was expecting to see plenty of short-term pain for businesses in this budget – and that’s exactly what we got. But what we were also expecting to see tonight was a plan which set out the longer-term vision for what the Australian economy will look like in the next five or ten years – the short-term strategy of deep cuts to expenditure only makes sense when you can line it up against a picture of where we are trying to get to.[13]
[3]. Information gap or information asymmetry is when one party has more information about crucial aspects of the transaction than the other.
[5]. For example a 2012 review of Australia’s venture capital and entrepreneurial skills programs found that whilst it was difficult to evaluate the effectiveness of venture capital support programs given the relatively short time they had been operating, it nevertheless noted that ‘Australia’s venture capital industry has largely developed over the period that these programs have been active’ and that ‘some of Australia’s successful innovative companies were originally launched with the help of government backed venture capital’. The report also stated that ‘international venture capital is unlikely to be drawn to Australia in the absence of domestic venture capital capacity.’ For more information see Australian Treasury and Department of Industry, Innovation, Science, Research and Tertiary Education, Review of Venture Capital and Entrepreneurial Skills, Final report prepared for the Australian Government, 2012.
In addition, a 2008 review of COMET, the program superseded by Commercialisation Australia, found that it was ‘effective in improving the ability of the majority of its customers to commercialise their innovation’ and it improved the customers’ ‘potential to be sustainable and high growth businesses’. For more information see ACIL Tasman, Evaluation of the Commercialising Emerging Technologies (COMET) Program , report prepared for the Department of Innovation, Industry, Science and Research, April 2008.
[10]. See for instance the Australian Chamber of Commerce and Industry (ACCI), Business backs the budget that we had to have, media release, 13 May 2014, which welcomed the Government’s attempts to ‘rein in spending and get the budget back on a credible path to surplus’.
[12]. For more information see M Bailey, ‘Roads, roads, but where are the nodes? Tank Stream Ventures slams Budget’, BRW, 13 May 2014, and C Fitzsimmons, 'The reason we kept the company here': Commercialisation Australia recipients like Omny tell what we'll lose’, BRW, 14 May 2014, accessed 16 May 2014.
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