Boring budgets best for tech

Boring budgets best for tech

Summary: I am beginning to wonder whether boring budgets are best for the tech sector and the wider economy.

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There's nothing like exciting government interventions to make the headlines, but the question is, how effective are they?

I say this as I note that both New Zealand and Australia have had their budgets declared in the past week.

They presented a nice example of compare and contrast, along with claims that despite our earthquakes and lack of a mining boom, New Zealand might be in a better position financially than Australia.

As spendthrift Australia finally discovers prudence, with it having to cut the Budget for its flagship National Broadband Network (NBN), New Zealand is pressing ahead as before with our Ultra-Fast Broadband (UFB) equivalent, and even found extra cash for science and innovation.

It rejigged the various grant schemes, and raised the prospect of tax breaks for R&D — something of a u-turn, considering the National-led government abolished them after it came to power in 2008.

The new programs also allow the government to claw back support when grant recipients are sold to overseas interests, something that is only fair, and an issue that has caused controversy in the past.

The moves to encourage investment in R&D are welcome, but are they enough?

Rod Drury, the chief executive of accounting software company Xero, came up with his own "alternative Budget".

In it, he called for government funding for a Trans-Tasman fibre cable, a merging of the IT and broadcasting ministerial portfolios, a provincial call centres initiative, an internet privacy zone, allowing extra IT-skilled immigrants, and other initiatives.

The government can always do more to help the tech sector, but the road to hell is always paved with good intentions.

Rod Drury was behind the Pacific Fibre project, but Telecom NZ and Vodafone are now pushing ahead with their own cable, so government intervention is not needed.

The government's pension funds actually looked at the Pacific Fibre proposal, and found that the business case did not stack up.

And as I said before, Rod Drury and others had plenty of opportunity to put their money where their mouths are, instead of putting their wealthy hands into the pockets of hard-pressed New Zealanders.

With government grants, there always remains the risk of corruption, as governments support their supporters with taxpayer funds. This is a common problem in the US, it seems, though I have heard similar allegations also made regarding the UK and its government's support for "green" energy.

In New Zealand, we see that without much government support, though targeted grants at innovation are increasing, a policy of what you might call benign neglect seems to be working.

Should the government intervene radically, I doubt the IT sector would be able to cope with any sudden upsurge in demand for IT staff, for example.

In previous years, I have felt that our National-led government was too timid in tackling the "Decade of Deficits" that it inherited from Helen Clark, akin to what Tony Abbott faces if elected this year.

But as the IMF and others are discovering, New Zealand's economy is ticking along quite nicely, and so is its tech sector, as I have reported many times before.

There hasn't been any dramatic initiatives, but boring seems to be working, despite uncertain times globally.

Rod Drury and others are right in raising issues and coming up with proposals. Like this month's software patent announcement, they sometimes become government policy.

Rod Drury won't get his government-supported Trans-Tasman cable, but he can take heart at the increasing support that government is giving to science and innovation, with software a major beneficiary.

As his billion-dollar company, Xero, has yet to make a profit, its tax burden will be nothing. Despite his own burgeoning personal wealth, Xero has benefited from government grants.

Neither Finance Minister Bill English nor his budgets are exciting, but they have put New Zealand back on the right track, and we have a pragmatic government still open to ideas on how to make the economic boat go faster, along with how tech might power it.

Topics: New Zealand, Government AU

Darren Greenwood

About Darren Greenwood

Darren Greenwood has been in journalism, not all of it IT, since the days of typewriters and long before the web spun its way around the world.

Coming from Yorkshire, he can be blunt, and though having resided in New Zealand, as well as Australia, for quite some time, he insists he is not one of the 'sheeple!'

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3 comments
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  • Don't think you really understand business

    Darren, that's a pretty disappointing take and simply demonstrates a lack of understanding of business

    1. I did not call for substantial Government funding. Just a small amount to get the project going but the bulk of the funding would be on a debt return basis (say 10%). New Zealanders and NZ Super and other long term investors want good infrastructure projects so all parties win. The international rate card ensure the business case flys and that the cables get used. Please feel free to question further if you don't understand that. Happy to do a call.

    2. Connecting through Australia forever relegates NZ to being 50ms behind and we lose the opportunity to have a great new company that provides Australia broadband and can further invest in local internet infrastructure. We could have created competitive advantage. I called for AU-NZ-USA cable. It's a lot of money for a startup $300m, but not a lot of money compared to the $2-4B of public benefit identified by the NZ Institute as long as 6 years ago.

    3. The business case for PF did stack up for several investors, but we were not allowed to connect to the US with those funders. Intense lobbying from Southern Cross made NZ Super nervous and this project was a bit out of the box. We were close and surprise surprise, after we pack up the tent a new cable is announced so it appears that SX mislead the Govt and our local investors. It's a very aggressive market. We were closer than you'd think and the politics were much worse than we anticipated, perhaps naively, when you connect countries.

    4. This just doesn't make sense: ".. put their money where their mouths are, instead of putting their wealthy hands into the pockets of hard-pressed New Zealanders" WTF. We did stump up our own money. I lost a significant portion of my cash and a heap of time. Business is about putting deals together where all parties win and investors want business people to create value. Should business owners pay cash for all their ideas. How could anyone do anything? Business 101 stuff there. So I lost money. That's all part of it. I answered the funding question above. I believe we'd create a new asset that earns money for the Government and people of New Zealand. We might disagree on whether that works but I'm proposing it does and I'm not asking for a hand out. Just trying to create the conditions for a new cable to happen.

    5. "As his billion-dollar company, Xero, has yet to make a profit, its tax burden will be nothing. Despite his own burgeoning personal wealth, Xero has benefited from government grants." Again WTF. We've created 400 new jobs, paid $5m in PAYE last year alone and have been clear about building a growth business and so far it's going well with great investor support. On paper I look OK but I'm fully invested in Xero being successful.

    If the Govt provides grants, as many countries do, it's my duty to shareholders to apply. We are creating massive new jobs and paying PAYE and eventual lot's of tax so I think we've been an excellent investment. I've also lobbied that when sold businesses should pay grants back.

    So your comment seems out of line. Have I upset you in some way?

    My ideas were to start a discussion. Give me a call and I'll happily debate them but the comments above are a bit rough and simply wrong.

    Rod
    RodDrury
  • "Decade Of Deficits"

    How odd is that, given how notoriously tight-fisted Michael Cullen was. Didn't the National Opposition at the time accusing him of borrowing too little?
    ldo17
  • Understanding business

    Thank You Rod

    Like your alternative budget, my blogposts are also intended to stir debate, and obviously I did.
    I do tend to take a non-interventionist freemarket line and anyone who seeks government/taxpayer support can be expected to be scrutinised by cynical journalists.
    You are right to claim what government support you can as a duty to shareholders.
    The trouble is governments have competing claims, such as health, education, welfare, etc, and the taxpayer helping successful businesspeople like yourself might not seem the most urgent priority, especially during difficult times.
    Already there are a range of government initiatives to help the tech sector, which Xero has benefited from, and such investments probably would give the country a better return than what it spends in the above areas.
    Of course, there will always remain the debate about whether government should do more.
    It is a pity that Pacific Fibre did not get the funds it needed, but I guess that is one of the realities of business. You do not always succeed in convincing the right people.
    I am curious about what you say about the US and Southern Cross and that might be worth further inquiry.
    As for Xero, I note you reported more losses yesterday but a doubling of customers and revenue.
    At least here, you have built up a business that is becoming a brilliant success and you and the others behind Xero deserve to be congratulated.
    The issue is, does Xero work better in a higher tax higher subsidy environment or one where taxes are low but government intervention is low. I tend to take the latter view but your experiences, far more worthier/knowledgable than mine, obviously led you to a different conclusion.

    All the best

    Darren
    darren Greenwood-3f868