Startups react to budget 2020: What works, and what doesn’t?

Last night’s budget was tipped to be “all about jobs”, and Treasurer Josh Frydenberg announced a swathe of measures designed to give small businesses a fighting chance.

But, how did startups fare in all of this?

One of the most significant items was the reversal of some of the more controversial changes to the R&D Tax Incentive scheme. While this marked something of a win for the tech sector, there was no mention of whether software R&D will or will not be counted under the scheme. So, while some uncertainty has been straightened out, the matter is by no means settled for everyone.

Elsewhere, there was a $459 million funding boost for CSIRO, which has been widely welcomed.

As LiveTiles co-founder Karl Redenbach said: “You can’t have a tech-led recovery unless your leading scientific and research body is well funded and pushing the boundaries.”

But, beyond these measures, here’s what industry leaders and startup founders are talking about this morning.

JobMaker

One of the budget’s headline policies is the $4 billion JobMaker hiring credit, which will give businesses a $200-per-week incentive to hire workers aged between 16 and 35.

But, the subsidy is only available for young workers who have received JobSeeker, Youth Allowance or a Parenting Payment for one of the three months before being hired.

Render founder and chief Sam Pratt welcomed this initiative.

“With working remotely now the norm, this group is at risk of having their graduate jobs outsourced overseas.

“This is enough of an incentive to steer those decisions back towards employing young Australians,” he said.

But, others suggest the measure may not actually do much to support startups.

It doesn’t holistically address the unemployment problem, Shortlyster founder Carl Hartmann suggested.

“The JobMaker hiring credit will be paid at a rate too low to seriously help any business pay the wage of a skilled worker, of which, there is high demand for among small to medium businesses, and this ranges from everything from tech engineers, accountants, marketers, IT and business professionals,” he said.

“To get Australians back to work we need to get more creative in how we view people’s skillsets,” he added.

Hartmann would have liked to see investment in learning and development programs helping job-seekers transfer their skills to new industries.

“The job market is down, but the reality is that there are still a lot of businesses operating and are very active,” he said.

“When they are hiring, they need to be able to screen applications for transferable skillsets and make the right hires quickly”

Sonia Majkic, founder and managing director of 3 Phase Marketing. Source: supplied.

Sonia Majkic, founder and managing director of 3 Phase Marketing, also notes this measure would not incentivise her to hire a young job-seeker.

“In the technology and digital marketing space, less experienced staff members require both formal and on-the-job training, which comes at an additional cost to our small business,” she said.

“It doesn’t provide any additional incentive for me … there is a fine balance in recruiting to train, and recruiting to function.”

Fintech

For the fintech sector, budget night brought good news, with $9.6 million pledged in support over four years, to help startups secure a foothold in international markets.

Alison Hardacre, co-founder and chief of healthtech platform Halaxy, noted that her business may benefit from this, as it manages patient payments and rebates.

“This is ‘picking winners’ – and it is a winner,” she said.

But, she also suggests this funding may not actually go very far.

The reality is, “$9.2 million over four years is very, very small given the real costs of fintech — for example, payments, compliance, integrations, et cetera — all of which differ by country,” she said.

Still, all in all, Fintech Australia chief Rebecca Schot-Guppy called the budget “incredibly positive” for the fintech and innovation sector.

She pointed to support of the consumer data right rollout, the review into the payments landscape and investment into a digital business register and e-invoicing as measures that will “help bolster the fintech industry”.

Equally, she noted the rollback on R&D Tax Incentive changes will be important for the sector.

“The policy is important for fintech capital runways, particularly at their earlier stages, and the changes will no doubt support their growth.

“In addition, the increased R&D spend will ensure that new innovative businesses come into our economy which will help lead our recovery.”

Finally, Schot-Guppy pointed to the government’s measures encouraging the employment and training of women in STEM.

“Women continue to be underrepresented in fintech. Up until now, this has been left to the market to fix, and as a result, progress has been slow,” she said.

“We’re hoping this measure towards diversity will have substantial social and commercial outcomes both for the fintech industry and for Australia.”

Women entrepreneurs

Despite bearing the brunt of job losses and economic hardship during the pandemic, the government pledged just $240 million to ‘women’s economic security’, and neglected to invest in childcare.

There was, however, $35.5 million over five years for the Boosting Female Founders initiative, following on from the $18 million pilot scheme launched earlier this year.

We will be looking into what this means for women in entrepreneurship, and whether it’s enough. But, for now, the measure has been welcomed, for the most part.

As a woman founder, Majkic is “passionate about amplifying women’s careers and encouraging women to start their own business”, she said.

“Women bring different skills to organisations, and our future workforce needs more inclusiveness, patience, empathy and balance. Some of the most significant influences in my startup journey have been other female business leaders.”

Hardacre also called the scheme “fantastic”.

“It recognises the market failure in that globally only 3% of founders of VC-backed businesses are female,” she said.

“The needs of women are the needs of every other founder plus more, and this recognises it.”

Instant asset write-off

And finally, we heard a lot of commentary on the government’s massive $26.7 billion scheme allowing businesses to immediately write-off the full value of new assets.

“I don’t think we can underestimate just how impactful the instant asset write-off provisions are,” Pratt said.

“Every investment decision in Australia is now 30% more compelling. It reinforces and further justifies our business case to keep the heart of our operations here in Australia, despite seeing substantial growth in the US.”

However, not everyone in startupland was so positive.

Carbar founder Des Hang. Source: supplied.

Des Hang, the founder of car subscription startup Carbar, questioned the logic of the measure, suggesting it fails to acknowledge a trend towards rental and subscription services.

“Australia is a nation that’s well accustomed to the subscription business model. This write-off encourages ownership over other unique ways of accessing assets,” he said.

“It’s a blunt instrument that will have the intended effect of stimulating spending, but we wonder whether there was a more nuanced, tech-savvy way in which this could have been implemented.”

Hardacre notes that the instant asset write-off will largely benefit traditional, bricks-and-mortar businesses such as restaurants and clothing stores.

“As a Software-as-a-Service business, our main cost is not assets but salaries. So this may not be that helpful for high-growth ventures,” she said.

And LiveTiles founder Karl Redenbach agrees.

“Tech companies are predominantly made up of highly educated people and a bunch of laptops,” he said.

“So there’s a low ceiling on the benefits for companies like us.”

LiveTiles chief executive Karl Redenbach. Source: supplied.

Finally, Marko Njavro, co-founder of FlexCareers pointed out that this is most relevant for profitable businesses, with respect to minimising their tax payments.

“The novelty is the ability to use the purchase to create a loss and an offset against tax previously paid,” he explained.

“Under some scenarios, this might well mean that the ATO will effectively be funding a purchase of your asset through a refund,” he added.

“Unfortunately, no joy for startups or scale-ups here, as the great majority run at a loss during their growth phase.”

NOW READ: Budget 2020: Massive write-off scheme and welcomed R&D changes to give SMEs and startups a fighting chance

NOW READ: Budget 2020: Government pledges $2 billion to R&D Tax Incentive, and rolls back some of the more controversial reforms