Budget 2014: Govt rolls Commercialisation Australia, IIF into new group


news The Federal Government has made good on the threat delivered this month by its Commission of Audit to “abolish” key early stage innovation industry support vehicles Commercialisation Australia and the Innovation Investment Fund (IIF), with the pair and others to be rolled into a new body dubbed the ‘Entrepreneurs’ Infrastructure Programme’.

Commercialisation Australia offers funding and resources to accelerate the business-building process for Australian companies, entrepreneurs, researchers and inventors, with grants of up to $50,000 to access specialist advice and services, up to $350,000 to engage senior executives, up to $250,000 to establish proofs of concept for new intellectual property, and up to $2 million to take a new product, service or process to market.

For its own part, the IIF was set up to co-invest government venture capital into early stage companies, matching contributions by industry funds such as Carnegie Venture Capital, GBS Venture Partners and Innovation Capital Associated. It has existed for around 14 years and has helped successful companies such as job site SEEK get established.

Both were severely criticised in the Government’s Commission of Audit report released earlier this month. At the time, the report recommended both be abolished.

It stated: “Commercialisation Australia assists Australian businesses through the process of turning new ideas into commercial outcomes. The intellectual property, and any profits arising from these new ideas remains with the business, and there are no clear public benefits arising. The process of commercialising new products can often be a difficult one. However, skills and finance can be acquired from the private sector, and there is no clear reason for the Commonwealth to provide this assistance in competition with private sector providers.”

“The Australian venture capital sector is small and relatively new,” the CoA report stated. “While there are definite private benefits to Australian companies from the commercialisation of their intellectual property, the public benefits from commercialisation and support through the Innovation Investment Fund are less clear. The venture capital sector receives government support through existing tax concessions.”

Tonight the Government made good on the Commission of Audit’s recommendations regarding both programs. The budget papers made clear that the following industry support programs would cease operations from 1 January 2015: Australian Industry Participation; Commercialisation Australia; Enterprise Solutions; Innovation Investment Fund; Industry Innovation Councils; Enterprise Connect; Industry Innovation Precincts; and Textile, Clothing and Footwear Small Business and Building Innovative Capability.

“The Government will start by abolishing a range of industry assistance programmes, saving over $845 million. We will refocus our effort on innovation and self‑reliance,” said Treasurer Joe Hockey in his Budget speech. “Businesses should stand or fall on their ability to produce the goods and services that people actually want.”

In their place, the Budget will provide $484.2 million over five years from 2013-14 to establish a new project dubbed the Entrepreneurs’ Infrastructure Programme.

“The programme 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,” the Budget papers state. “The programme will be delivered through a single agency model by the Department of Industry to achieve efficiencies and reduce red tape.”

The recommendations of the Commission of Audit to axe the two groups focused on in this article were immediately heavily criticised by the Australian Private Equity and Venture Capital Association, which issued a strongly worded statement on the issue. The recommendations were “flawed and demonstrate a lack of genuine commitment to fostering a stronger Australian economy in the future”, according to the association.

“The Commission of Audit has got this wrong – abolishing key support programmes such as the Innovation Investment Fund and Commercialisation Australia is not going to help our economy to become more innovative and more competitive into the future,” said AVCAL chief executive Yasser El-Ansary.

“A small open market economy like ours has to focus on assisting Australian businesses to compete on the world stage, and that’s hugely important to bringing about productivity-enhancing reforms that will create more jobs and more economic growth in the years ahead. The Commission of Audit recommendations to abolish the Innovation Investment Fund and Commercialisation Australia have been made without there being any credible or compelling argument in support of the conclusions.”

“What we wanted to see from this review was a comprehensive analysis of how government spending obligations can be re-prioritised to deliver greater economic efficiency, and better long-term outcomes for Australian businesses. In the context of Australia’s innovation system, the Commission looks to have fallen into the trap of taking a short-term view on cutting expenditure that will have a potentially devastating impact on our long-term prosperity.”

The Government will achieve further savings of $124.7 million over five years by reducing funding for the Clean Technology (Investment and Innovation) programmes and Cooperative Research Centres.

I am on record as supporting the abolition of Commercialisation Australia and the Innovation Industry Fund. As I wrote earlier this month:

“Hmm. This is a tough one. On the one hand, there have been demonstrable outcomes from both of these organisations over the years. Both have played a role in strengthening Australia’s fast-growing innovative (including technology) business sector, and both have an established position actively helping Australian industry. Many people will be upset to see them cut by the Abbott Government.

However, on the other hand, the Commission of Audit is completely right: Private sector structures already exist to serve the same purpose when it comes to capital (just look at the sheer amount of money raised recently by several major Australian technology firms, as well as the bevy of companies getting funding from the local stockmarket), and it seems quite absurd for the Federal Government to be tilting the business playing field by granting some companies money for purposes such as hiring an experienced chief executive, when other companies won’t get the same assistance.

There are valid views either way. But personally, my view is that the Federal Government should abolish these institutions. Both represent quite an ‘activist’ approach to intervening in Australia’s business sector and economy, while as a fan of small government and minimal government regulation (and as a business owner), I would prefer if the Government kept out of business as much as possible and let the market sort itself out through taking a very neutral, stable, minimalist approach.

There are some areas which will never successfully be wholly served by the private sector: Education, public transport and health, to name some of the more obvious ones. However, there are other areas, such as IP commercialisation, business growth and venture capital which clearly will be served by the private sector. It is my strong feeling that the Government should get out of those areas and leave private industry to itself.

What should the Government do instead? Fix the employee share scheme mess in Australia and apply sharp tax cuts to the early stage, fast-growing startup sector in Australia, as well as applying further tax cuts for venture capital and angel investors to incentivise them to invest more. These would be much more powerful structural changes appropriate for a Government wishing to stimulate this area of the economy, and ones that would have a much more wide-ranging effect than merely picking individual growth winners, as Commercialisation Australia and the IIF are substantially wont to do.”

From tonight’s budget, it appears as though some of the functions of Commercialisation Australia are likely to continue in the new body, while it is unlikely the IIF will continue in any form. I guess we’ll find out more closer to the organisations’ closure date.

Image credit: Office of Joe Hockey