Budget 2014: Australian tech startups hit by budget cuts

Funding cuts in the 2014-15 federal budget will gut Australia’s technology startup sector, warn industry advocates.
Written by AAP , Contributor and  Leon Spencer, Contributor

Funding cuts in the 2014-15 federal budget, delivered last night, will gut Australia's technology start-up scene and speed the flight of local entrepreneurs, industry advocates have warned.

The coalition announced plans to scrap eight programs from January 2015, saving a projected AU$845.6 million over five years.

On the chopping block are Commercialisation Australia (CA), which has provided more than AU$200 million in funding to local startups, and the Innovation Investment Fund (IIF), which connects startups with venture capital.

In their place, the government will devote AU$484.2 million over five years to an Entrepreneurs' Infrastructure Program.

Steven Baxter, the managing director of startup accelerator River City Labs, said the budget cuts would seriously dent the local startup scene.

"Australia invests a fraction of what other developed countries do funding tech startups, and the budget has provided no solid proof that the government intends to rectify this," said Baxter. "We need tech startups as a major focus of the Entrepreneurs' Infrastructure Programme, as they are an important driver of economic growth and their needs are very different to those of regular small businesses."

Peter Bradd, board member at startup advocacy group StartupAUS, said the budget provided "more questions than answers".

"If our leaders don't bring Australia in line with the rest of the world when it comes to fostering tech startups, we will continue to see many of our most successful startups have no choice but to move overseas," he said.

Bradd pointed to recent research by PricewaterhouseCoopers suggesting that the local startup industry could contribute as much as AU$109 billion and 540,000 jobs to the Australian economy by 2033.

"We need companies that have global aspirations, and if our leaders don't bring Australia in line with the rest of the world when it comes to fostering tech startups we will continue to see many our most successful startups have no choice but to move overseas," he said.

For Philip Andrews, director and co-founder of digital publishing startup Liquid State, the budget cuts outlined by the Treasurer Joe Hockey last night could lead to the startup community's long-term detriment.

"Scrapping initiatives like CA and the IIF for short-term gain will be to our long-term detriment. Although these initiatives are not perfect, they provide stepping stones for the budding entrepreneurs Australia needs," said Andrews.

"It's clear from vibrant startup ecosystems overseas that government support, if given judiciously, can really jump-start a startup community," he said.

Australia is home to a growing number of privately-funded technology startup incubators, but for StartupAUS, the abolition of CA and the IIF cuts a necessary lifeline for local startups, along with support for angel investment.

Additionally, the startup advocacy group said that government's new Entrepreneurs' Infrastructure Programme, to which tech startup grant applicants are now being directed for support, is focused on SMEs rather than startups.

"The new programme will bring research and business together to develop and commercialise home-grown ideas and equip small to medium enterprises with the management and business skills to lead change and expansion," said Industry Minister, Ian Macfarlane, in a statement.

"The reality is there's nothing in this budget that indicates the government wants to support tech startups in Australia," said Baxter. "The concerning top-level conclusion is that a 'saving' of AU$845.6 million over five years is another way of saying the government will reduce its support for innovation by nearly AU$170 million a year."

Baxter's comments mirror those of Suzanne Campbell, CEO of the Australian Information Industry Association (AIIA), who today questioned how the Federal Government intended the new Entrepreneurs' Infrastructure Programme to combat the potential industry losses incurred from the abolition of CA and the IIF.

"The AIIA is seeking to better understand how the establishment of the Entrepreneurs' Infrastructure Programme will redress the abolition of programmes including CA, Enterprise Connect, Industry Innovation Precincts, and Industry Innovation Funds, to ensure that Australia is well positioned to create sustainable prosperity and meet emerging global competition," said Campbell.

The government also revealed plans to stop funding the technology research body National ICT Australia (NICTA) from 2016, along with funding for video game developers, who have taken a AU$10 million hit in the budget with the axing of the Australian Interactive Games Fund (AIGF).

The AIGF was established by Labor in 2012 to pump AU$20 million into local game development over three years, but this year's budget papers show the fund will end on 1 July, saving the government the remaining AU$10 million.

Local game development has struggled in recent years because of high labour costs. Generous government subsidies in countries such as Canada have prompted the major studios to abandon their Australian operations.

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