Will Smoking Joe’s Horror Budget stifle or stimulate crowdfunding in Australia?
By Crowdfund Vibe Editor
The Australian Government has just handed down a tough, ideologically-driven budget that axes many government programmes, reduces benefits and abolishes dozens of government agencies.
Amongst a staggering range of headline cuts it has slashed funding for health and education, cut funding for film and the arts, and is proposing a six month waiting period for unemployment benefits for those under 30. The tenor of the government’s budget is similar to that of the 2008 Budget of the UK Conservative-Liberal Coalition albeit without the underlying Global Economic crisis that drove financial austerity there. Political opponents have attacked it as one that looks after the big end of town at the expense of the young, the aged, the unemployed and women. Commentators say it will undermine core values and the social fabric of the country.
A number of the 2014 Budget announcements will have an impact on crowdfunding in Australia.
The enduring symbol of this concerted attack on the “fair go”, a core value of Australia, may become the candid photographs of the smug Treasurer and his Finance Minister. TV cameras captured the two of them smoking a cigar on the evening before handing down the budget. The Treasurer, Joe Hockey, is also reputed to have danced in his office to the song “Best Day of My Life” in celebration of the completion of his first budget. With its unabashed assault on the Age of Entitlement, healthcare, welfare and slashing of support to the disadvantaged, this imagery may be a “let them eat cake” moment for the government, though.
— PatriciaKarvelas (@PatsKarvelas) May 9, 2014
Surprisingly for a political party that claims to be pro-business, pro-tech and pro entrepreneur, it will be shutting down a range of start up assistance programmes such as the Innovation Investment Fund and Commercialisation Australia. It will also be cutting the R&D Tax incentive scheme and abolishing an industry assistance programme for computer gaming. A new Entrepreneurs Infrastructure programme will only provide about half the funding of the schemes axed. Medical Research does get a significant boost, however.
It is also cutting funding and staff in ASIC, the securities market regulator, and axing the Corporations and Markets Advisory Committee (CAMAC) the body tasked with advising it on equity crowdfunding. CAMAC will conclude its current inquiry on crowdfunding and report as its final act. It will abandon its work on employee share schemes, which start-ups have championed.
Australia has weathered the GFC well due to sound economic management, coupled with the good fortune of insatiable Chinese demand for raw materials. Nobel award winning economist, Joe Stigliz has stated the country had “probably the best designed stimulus package of any of the advanced industrial countries … and I think it served Australia well.” Australia’s deficit and debt levels are amongst the best in the OECD. Unsurprising there is widespread outrage at the extent of the proposed cuts and somewhat shaky economic justification for them.
Australia has a burgeoning crowdfunding industry which features several world leading platforms. ASSOB pioneered a form of equity crowdfunding (essentially an investor introduction service) and Pozible, a rewards based platform that is now one of the top platforms in the world, has expanded over the past year to the US, Singapore, Malaysia and China.
Despite this innovation and excellence, Australia has lagged behind the rest of the world in revising its equity crowdfunding laws to permit the sale of securities through crowdfunding sites. While the Minister for Communications, Malcolm Turnbull, has championed crowdfunding, the Budget did not include an announcement on legalising equity crowdfunding or indeed how this will be progressed after the abolition of CAMAC.
Experts agree that the budget cuts will reduce economic growth in the short term, although it may help drive longer term economic growth. The large number of government sector redundancies and the increased pressure on young people is likely provide a stimulus for business start ups, as it has in other parts of the world. With that in mind, the reduction of assistance to start-ups and the lack of a timetable to deploy alternative start-up mechanisms like crowdfunding and employee share schemes seems poorly thought out. The country will miss an opportunity to reinvigorate the Australian economy away from its dependency on mineral exports. The Government has abandoned support for the very engine of change which will develop innovations and support future employment.
This position can only be contrasted with that taken by the right wing National Government in New Zealand, which has just legalised equity crowdfunding, simplified employee share schemes and announced an innovative cash out tax rebate scheme for start-up R&D. What is even more striking is that Smoking Joe has expressed some admiration for the entrepreneurial policy settings on the other side of the Tasman.
The pure ideological nature of these drastic cuts was foreshadowed last year when the incoming government abolished a range of bodies such as the Climate Commission upon taking office. Since a great number of Australians support efforts to address climate change, the former members of the Commission were quickly able to raise over $1M through crowdfunding to continue their activities as the Climate Council. This strategy is likely to be repeated in other areas to replace lost government funding. While this may provide an initial solution, the longer term challenge will be to secure regular, reliable funding for ongoing operations of these type of bodies. In this area the advent of subscription based crowdfunding – as offered by Pozible – may be something to watch.
Aside from institutions, the cuts to start-up assistance for technology and arts funding are likely to increase the demand for crowdfunding as an alternative means to fund arts projects such as film. Pozible has announced that it is investing $100,000 to support crowdfunding to those affected by the cuts in film, gaming and the arts. It is gearing up to support an increase in these types of campaigns.
Australia does face challenges as the world economy changes. Like many countries it needs to innovate, develop new industries and utilise new means of funding. This will require imagination from its profit-seeking entrepreneurs rather than reinforcement of the position of its rent-seeking old industries, which appear to be the main beneficiaries of this budget.
Under this budget the conservative Coalition Government is attempting to remake Australian society as one ready for an Age of Opportunity. Unfortunately Smoking Joe Hockey’s first budget looks like it will actually impair the start-up sector. The cuts to programmes are likely to stimulate increased fundraising through existing crowdfunding websites, though. These may help retain some of the institutions and preserve a number of the projects that will be affected by the cuts. As a side-effect it will definitely increase awareness of crowdfunding amongst Australians.