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Wednesday, 4 December 2002
Page: 9636


Mr LINDSAY (6:39 PM) —The Taxation Laws Amendment (Venture Capital) Bill 2002—to be debated cognately with the Venture Capital Bill 2002—is another progressive bill on the government's agenda to help commercialise effectively Australia's marvellous innovation. I have no doubt, as I move about this country and see what our research institutions are doing in all sorts of fields, that the wonderful work they do leads the world. Australia is recognised for its huge pool of thinkers who are very good at coming up with new ideas that can ultimately be commercialised through research. Australia can reap some great benefits from those initial ideas.

I was at the University of New South Wales very recently and I was talking to the CEO of the Photonics CRC, which is developing many new innovations in moving information by light. I asked the CEO about the current fibre-optic cables. As you know, they are glass fibres. He indicated to me that we have now invented a plastic fibre that is much cheaper than the glass fibre. That technology has to be commercialised because it is going to lead the world—revolutionise the world. That will likely need venture capital. Venture capital can be made much easier to source through the passage of these bills in the parliament this evening.

The Taxation Laws Amendment (Venture Capital) Bill 2002 and the Venture Capital Bill 2002 aim simply to encourage additional investment into the Australian venture capital market to facilitate the development of the venture capital industry. There is no doubt that venture capital drives research and development. That fact has been shown by the OECD and by research in the United States. Research I have seen shows that venture capital backed companies spend almost three times as much on research and development as all the public companies in the United States between 1980 and 2000. If we can enhance the flow of capital into venture capital and ultimate investment in the commercialisation of Australia's ideas, more capital will be available for the creation of early stage and expansion companies in Australia, which will then drive private sector research and development. That is a great outcome. I understand that the member for Kingston indicated to the parliament that these bills have the support of the opposition. I welcome that and thank the Australian Labor Party for it.

These bills will address some anomalies. What we will be trying to do in these bills and what we will achieve in these bills is internationally consistent tax treatment so that investors overseas who want to put money into venture capital will not be treated any differently from the way they are treated in other countries.

Some people think that venture capitalists want half the farm when they invest—to put it in an unkind way, that they are pretty greedy. I raised that with the venture capital industry and asked them for their response. They say that, first of all, raising funds is incredibly difficult. In the current environment it can take two years to raise funds. It is little understood by entrepreneurs that the people running these firms go through exactly the same excruciatingly painful process that entrepreneurs go through in raising funds. They also make the point with regard to whether venture capitalists are avaricious or greedy that these venture capital limited partnerships reforms will hopefully enable us to open this industry to more competition from abroad and to have a freer marketplace. Of course, that will then drive returns down.

I have also seen some research in relation to the importance of venture capital which says that venture capital backed companies have typically higher levels of research and development than non-venture capital backed companies. This has positive economic implications for the economy and, of course, society in general. Innovation through research and development is a fundamental driver of economic growth in the business community. Improvements in business practices and technology drive increased efficiency and productivity. New products open new markets, while improvement in technological processes affect competitive advantage by changing a company's cost position or corporate differentiation. Technological change is therefore a critical component for the corporates out there and for Australia to remain internationally competitive, let alone nationally competitive.

Another interesting piece of information I have seen in relation to the importance of venture capital is that companies backed by venture capital achieved 22 per cent annual staff growth rates between 1992 and 1996, compared with only a two per cent staff growth rate for the ASX top 100 over the same period. In addition, a recent study of US venture capital backed companies found that they have had an employment multiplier of 2.2; that is, for every person directly employed in a venture capital backed firm, an additional 1.2 jobs are generated in supporting businesses. What a great result for Australia if we can increase the number of firms that are backed by venture capital. This is one of the outcomes of these particular pieces of legislation before the parliament this evening.

In regard to financial performance there is also some interesting information: venture capital backed company sales increased at an average annual rate of 12.1 per cent, profits increased by 34.9 per cent and exports by 15.2 per cent. All of these figures exceeded national averages. I think a compelling case can be made for doing everything that Australia can to make sure that people who want to invest in venture capital companies have the most competitive way of doing so.

I began by saying that Australia has the ideas and I would add that it is very important for those who are involved in commercialising Australia's research and development that they do it to the world rather than just through the limited domestic market. There is also a role for venture capital backed companies in this regard so that the scale can be right and the dollars involved in doing that can be appropriate. I certainly am very pleased to support these measures tonight to encourage additional investment into the Australia venture capital market and, of course, to facilitate the development of the venture capital industry. It can only be good for Australia.