Senator LUNDY (12:56 PM) —The Taxation Laws Amendment (Venture Capital) Bill 2002 attempts to overcome the flaws of the existing regime by extending an exemption to certain tax exempt non-residents and non-resident venture capital funds of funds and certain taxable non-residents. The entities covered by this exemption will be partners in a venture capital limited partnership or Australian venture capital funds of funds, which are tax exempt entities, including pension funds, endowment funds and foundations. This will apply to such entities from Canada, France, Germany, Japan, the UK and the USA. These investors may hold up to 100 per cent of the committed capital of the venture capital of the venture capital limited partnership or Australian funds of funds. The bill goes on to provide for other circumstances where VC funds of funds established and managed in Canada, France, Germany, Japan, the UK and the USA can hold up to 30 per cent of the committed capital of a VCLP or Australian funds of funds.

The point I would really like to make without going into the detail, because I think it is sufficiently explained in the explanatory memorandum of the bill, is that these changes have been a long time coming. Labor has welcomed this legislation but its passage into law has taken a very long road.

The Ralph review found that Australia needed to develop its venture capital industry and recommended changes to Australia's capital gains tax, but not before Labor in the lead-up to the 1998 election recognised that there needed to be movement here to attain some level of parity with the laws in Australia to ensure that Australia too attracted venture capital to provide the capital necessary to grow innovative start-up businesses at quite a crucial time in Australia's economic development. However, the coalition only introduced a limited capital gains tax exemption contrary to the advice from the industry at the time. That change led to one investment of $10 million. The primary fault with that change was that it provided for the exemption for foreign investment to be made into companies themselves rather than the tax flow-through vehicles, which is the regime this bill sets up.

The main benefit of this bill is that it does create parity between Australia and comparable Western economies where venture capital is a crucial part of the capital food chain that provides sustenance to new start-up companies and to the growth prospects of companies that, for whatever reason, cannot get the capital they need through commercial banking and loans. Whilst the venture capital industry sector has grown significantly in Australia, the issue of parity is particularly crucial if we are going to ensure that venture capital is flowing through to Australian start-up companies and established companies that need to grow. That is the sort of capital they need to get them through those phases. We have the opportunity to strengthen our economy in the area of research and development and innovation, and venture capital is essential in allowing the initial commercialisation of good ideas to become commercial entities. With a view to creating jobs here in Australia, these new businesses are driving forward with good ideas.

Finally, we have the prospect of these changes at what is quite an uncertain time in Australia. We know that with the downturn, particularly in ICT, there are a great range of pressures on some of the innovative sectors in our economy. Whilst the government has identified some projections of the impact of this bill, the downturn in that sector and the current lack of investment because of a great deal of uncertainty will perhaps mean that we will not see the effects of this bill as soon as we would like. Nonetheless, the bill makes a critical and very important change to the law that will allow Australia to have some parity with particularly the laws in the US and UK and, hopefully, will stimulate the interest of foreign investors in sending some venture capital to this country so that Australian ideas, Australian start-ups and Australian businesses that are already on track can continue to grow with the necessary capital behind them.