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Standing Committee on Economics
31/07/2018
Impediments to business investment

EL-ANSARY, Mr Yasser, Chief Executive, Australian Private Equity and Venture Capital Association Limited

SINELNIKOV, Mr Kosta, Policy and Research Manager, Australian Private Equity and Venture Capital Association Limited

[10:52]

CHAIR: Welcome. Although the committee does not require you to give evidence on oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I now invite you to make an opening statement before we proceed to discussion.

Mr El-Ansary : Thank you to the committee for initiating the inquiry and the scope of work that the parliament has approved for this inquiry, which we think is a particularly important one. AVCAL is the national industry association that represents the private equity and venture industry here in Australia. Our industry has a combined total of around AU$30 billion in funds under management on behalf of both domestic and overseas investors, a significant proportion of which is represented by Australian superannuation funds as well as offshore pension funds.

Private equity and venture capital firms invest billions of dollars each year in early-stage and established businesses spanning across almost every industry sector of our economy. In the financial year ending 30 June 2017 alone, private equity and venture firms invested around $3.6 billion into Australian businesses right across the growth spectrum. The issue of lower than expected levels of business investment across the economy over the past few years is really important for us to tackle. As highlighted in the September 2017 intergovernmental review of business investment, investment such as spending on new productive capacity, hiring staff and new business innovation is critical. And in order to sustain Australia's economic and employment growth trajectory we must ensure that we remove and minimise, to the extent that it is possible, any unnecessary barriers to higher levels of business investment.

In our written submission to the inquiry we focused the views of our industry on a number of key issues, which we are happy to expand on and discuss further with the committee this morning. Contrary to popular public opinion the majority of private equity and venture investment here in Australia is directed into small and medium sized enterprises, not at large listed corporate groups as the media in particular like to portray regularly. Private equity and venture investment isn't just about injecting capital into businesses—and this is a really important point which we would be happy to expand on further this morning with the committee; it is in fact smart capital, which is capital that brings with it access to industry expertise, access to networks and other elements of business strategy input and advice that normally are not consistent with other forms of funding or financing such as debt. Private equity and venture fund managers partner with entrepreneurs, who sometimes lack the experience and resources to be able to fulfil and realise their firm's full global potential. Our private equity and venture firms regularly meet those funding and experience gaps by providing crucial support at critical stages of a company's life cycle. As set out in our written submission, we believe the inquiry should consider ways in which changes in policy and regulation could unlock greater levels of private equity and venture investment in this market. Doing so would allow for businesses backed by our industry, and indeed businesses right across the economy, to expand and grow investment in capital stock, innovative technology and through expanding their workforce. We are happy to answer any questions the committee might have.

CHAIR: Thank you very much. There is a bill before the Senate at the moment—the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. I am keen to understand whether you are supportive of this bill and the extent to which you believe this will support start-ups and innovative companies to grow. What else should government should be doing to support new businesses to prosper more generally?

Mr El-Ansary : In respect of the crowd sourced funding bill, AVCAL—and indeed our industry—has for a number of years now been supportive of changes that would help to bring about another aspect of our innovation ecosystem in this market. For far too long we have been trailing some of our competitor peer countries around the world insofar as innovation policy settings are concerned. Crowd sourced equity funding is only one component of the innovation pipeline, the innovation ecosystem, and it is important to view it in that context. In other words, crowd sourced equity funding is certainly not a silver bullet solution to any one particular challenge in the market. What it does do, however, is provide another mechanism through which early-stage very promising and potentially fast-growth companies that have the potential to create thousands and thousands of new jobs in our economy can access an alternative source of very early seed-stage funding. But it is important to view it in that context: it plays a role very early on in the life cycle of a start-up company; it is not a source of ongoing enduring capital that allows that company to be able to scale up and reach its full potential in a more global economic sense.

CHAIR: But it can of course be the difference between success and not being successful.

Mr El-Ansary : Most definitely. It can play a very important role in helping to create an alternative source of funding very early on in the life cycle of those businesses. When they are struggling the most, when they have maximised all their opportunities to ask friends and families and other parts of their network for access to funds, when they have maxed out their credit cards and drawn out every ounce of cash they have available to them, a mechanism like crowd sourced equity funding can certainly help to allow them to move to the next stage and survive another week, another month or another year in order to be able to continue to grow their early-stage business.

CHAIR: For our innovators and start-ups, what do you think the key priority is in terms of government reform?

Mr El-Ansary : Firstly, it is worth noting for the record that the National Innovation and Science Agenda, which was released almost three years ago now, has been a very important catalyst for our innovation economy. A lot of the momentum that we see in the market today really has emerged on the back of a clear signal from the government that innovation, the innovation economy and investing in this part of the economy is important to our future. I think that, for a long time, we weren't seeing that message. We didn't have that message in the market, and businesses in that part of the economy were unclear about what their future outlook and their future prospects were here in Australia, which of course led to many of those businesses relocating to offshore markets for want of—

CHAIR: Can you give a practical example of how the government's agenda in that respect has made a key difference?

Mr El-Ansary : One of the changes that's had a very significant effect in the marketplace is the incentive structures that sit around attracting institutional investment into early-stage businesses. That occurs primarily through what's referred to as the early-stage venture capital limited partnership regime and the venture capital limited partnership regime, or ESVCLP and VCLP for simplicity. Those regimes have been in place for some time. I think they were introduced over a decade ago now, and they have been instrumental in helping to attract capital into a part of the economy where normally that would not readily occur. The changes that were made as part of the innovation and science agenda that allowed for a 10 per cent tax offset for institutional investors like superannuation funds to be able to invest the capital into that part of the market have been hugely important—certainly not the only driver of investment, but those measures have played an important role in signalling to the market that this part of our ecosystem in the economy is very important and that government policy, regardless of which political party might be in place from day to day, in this area is stable and predictable and this part of our economy is important to our future. Institutional investors, be they domestic or offshore, certainly do value to a very significant extent the importance of that certainty and signalling about the future.

CHAIR: So what are the key priorities for you, for investors, for start-ups, for the people you represent now and of course for the venture capital firms operating in Australia?

Mr El-Ansary : Our membership base is comprised of both private equity and venture firms. The $3.6 billion that I referred to a bit earlier in the opening statement reflects combined total of investment just in the preceding financial year 2017. For both private equity and venture firms to continue to invest more equity capital into promising Australian businesses, be they right at the early-stage spectrum or later-stage, more mature SME-type businesses that have potential to expand, grow and unlock growth opportunities in global markets, we've outlined in our submission a number of areas where policy could be improved, policy could be put in place or policy could be reversed. I will draw out a couple of those in particular.

The areas that are most important to our industry relate primarily to our capacity to attract capital from offshore. Despite the fact that Australia is home to, I think, the third largest accumulated savings pool in the world at the moment through our compulsory defined contribution pension system, we still have a very great dependency on offshore capital. And that's a good thing, certainly not a challenge, certainly not a problem that we should be concerned about. But it is really important for us to continue to ensure that we can remain competitive in seeking out and attracting that capital into the Australian market.

A couple of years ago the current government introduced some changes to the foreign investment policy regime which were hugely problematic to this part of the market in the sense that those changes sent a signal to offshore institutional investors that Australia was not as open for business as we were saying we were and that in fact we were preferencing domestic investment over offshore investment. That was clear from the design of the policy architecture that was rolled out around three or four years ago. We've worked hard with the government and the Foreign Investment Review Board to ensure that changes are made to help to eliminate the worst aspects of that policy or help to neutralise the worst and most problematic aspects of that policy. That came about last year through the introduction of a new business investment exemption certificate regime known as the exemption certificate for low-sensitivity business investments, but it is one step forward on otherwise a policy that I think has taken us back two steps. So there is still a package of work that we think needs to be done in the foreign investment area to continue to ensure that we can attract capital from offshore. It is hugely important for our industry and, in fact, our economy to be able to attract investment into promising Australian businesses right across the growth spectrum from smaller to medium to larger businesses. So foreign investment policy is one area where we would certainly suggest the inquiry could examine opportunities through some of the recommendations that we've made in our submission to bring about a more stable and predictable environment for offshore capital to find a home in Australia.

The other area where we feel quite strongly that there is an opportunity for us in the medium and longer term to do more is in the policy and regulatory framework around our pension and superannuation system. There is work to be done here to allow our pension system to grow, mature and evolve in a way that is commensurate with having the quantum of capital that we have accumulated in that part of our market. Today we have the third-largest savings pool in the world, but I'm not sure we have a system that is as sophisticated as the best systems in the world. One of the most problematic aspects of our superannuation policy framework relates to the overemphasis that we've had in this country for over the past decade on incentivising our superannuation funds to be more focused on reducing their fees and reducing their cost base whilst not having anywhere near the amount of focus that we ought to on incentivising our superannuation funds to deliver exceptionally good performance for their members. I think those two issues are certainly uppermost in the context of our industry because it goes very much to the capacity of our superannuation funds to continue to invest in Australian market opportunities, to invest in Australian businesses, to invest in unlocking growth opportunities that create new jobs for our future. If we can get that recipe right, I think there's a tremendous opportunity in front of us.

CHAIR: Thank you very much. I'd now like to ask Mr Thistlethwaite to ask questions.

Mr THISTLETHWAITE: In your submission regarding the exemption certificate, Mr El-Ansary, on page 3 you make the point:

Initial feedback from our members suggests that some improvements to the process could be made.

Do you want to elaborate on that and suggest what those improvements should be?

Mr El-Ansary : Sure. The current exemption certificate regime is still very much in its early days, as I mentioned. The cumbersome aspect of this regime is that it can sometimes be hard to understand exactly what the Foreign Investment Review Board's parameters will be in a given circumstance. Our fund managers are typically approaching the Foreign Investment Review Board up front at the time they raise a new fund, at the time that they've sought and attracted new capital commitments from investors such as super funds. They are going and approaching the Foreign Investment Review Board to ask the board to approve in a pre-approval context a broad set of parameters to allow the private equity firm to go about investing capital into the marketplace with certainty that the commitments that the firm makes to businesses in terms of injecting equity capital or smart capital into them are reliable and can be banked upon, as it were. The current exemption certificate regime doesn't provide the degree of certainty that our member firms would like in that it is not clear in a given circumstance whether or not the Foreign Investment Review Board will have the capacity to approve on a pre-approval basis a particular program of investment activity right up front. This investment activity can sometimes take place over a period of five years.

Granted, it can be a little bit difficult to foreshadow precisely how things will play out from year to year, but one area where there is an opportunity for the exemption certificate regime to be improved is for clarity of the parameters around which the certificates can be granted being provided to the market. I think that would encompass more clarity on issues such as what we regard from a national viewpoint as being a sensitive asset and what we regard as being a less sensitive asset. That's one area, for example, in the healthcare sector where there is ambiguity, a greyness around exactly where those lines are and where those boundaries are. So that's one example.

Another aspect of this would be to provide a more expedient process. There can sometimes be significant delays in the processing of these requests for exemption certificates, and that does present some challenges in the marketplace when our member firms are trying to move fairly rapidly through diligence processes that relate to the essential acquisition of businesses. Not having clarity in a timely fashion can be problematic.

Mr THISTLETHWAITE: As I understand the foreign investment review rules, the applicant can seek a confidential briefing with the FIRB prior to an application being made. Is that what you're referring to?

Mr El-Ansary : No, I'm referring specifically to the parameters that are set around the exemption certificate regime. This is a particular change that was brought about in 2017. It commenced in 2017 and it allows for firms such as our member private equity firms to approach the Foreign Investment Review Board up front without knowing the particular target business that may be the subject of an investment downstream. They approach the Foreign Investment Review Board to seek approval up front for a program of investment in particular sectors of the economy, and that would be a green light, in other words, for those investments and those acquisitions to be completed without needing to wait for Foreign Investment Review Board approval on a case-by-case basis. So it is a pre-approval program, and the points I'm making in relation to clarity, certainty and timeliness relate to this particular program, not so much the bespoke conversations that need to happen on a particular transaction.

Mr THISTLETHWAITE: Does that system occur elsewhere in the world in other jurisdictions?

Mr El-Ansary : Australia itself has had an exemption certificate regime for a number of years in the property sector, so this is a well-trodden pathway in a domestic context. Our argument so far on this has been that we should take the best learnings from the regime that we've already had in place in this market, because we know that it works in the property sector, and look to apply that in the context of what FIRB determines to be low-sensitivity business investments. So I don't think there's so much a need to try to benchmark us against other markets, but the direct answer your question is that I'm not aware of another, comparable regime, but by the same token I'm not sure that ultimately that influences what we need to do here in the sense that we already have a well-understood regime here and we just need more certainty, more timeliness and clarity around the existing parameters.

Mr THISTLETHWAITE: You make some points about RG 97. In what way would you like to see that reformed?

Mr El-Ansary : This goes very much to the issue I touched on a moment ago: the focus that we have had in our superannuation policy and regulation for the past decade or more on driving superannuation funds to reduce their costs and fees, which ultimately has a very direct downstream consequence of steering capital that super funds would otherwise want to deploy into Australian businesses towards offshore markets. RG 97 is a manifestation of this. It is a regulatory guide that's been worked on by ASIC for the past four-plus years. Just in the past week the next iteration of this regulatory change was released through a comprehensive review that was done by an independent expert outside of ASIC to help inform ASIC as to the better approach to take on some particular issues. So our main concern here is that RG 97 has already had and will continue to have downstream implications in our marketplace that ultimately lead to superannuation funds investing more and more of their capital in offshore markets rather than in domestic markets, which in turn helps those offshore markets to continue to grow, expand and create new jobs, which is very good for those markets. But, at a time when the Australian economy is desperately in need of attracting more and more capital to help fuel the growth of our SME sector in particular, we feel that RG 97 is one example of how policy and regulation could be better designed to provide a more balanced approach to the incentive structures for superannuation funds here in Australia.

Mr THISTLETHWAITE: That regulation's put together on the basis of improving transparency and accountability, which has been going on not just in Australian financial markets but in international financial markets as well. The overarching theme of the Australian superannuation system is that trustees act prudently because they're dealing with members' funds—

Mr El-Ansary : Correct.

Mr THISTLETHWAITE: and invest wisely and don't take risks, for those reasons. I'm still not clear, specifically, what you want to change in that guidance note that would assist your members, given those foundations of the way the superannuation system operates in Australia.

Mr El-Ansary : I accept what you're saying, absolutely, except with one caveat, perhaps, if I may. I don't think it's reasonable to suggest that superannuation funds should not take risk. I think quite the opposite, in fact. The reason we pay superannuation funds is to take calculated risks, to do diligence, to assess the opportunities and to counterbalance that risk with safety and other asset classes or strategies.

To come to your particular question about RG 97, the particular issues at play here are that transparency and disclosure are clearly desirable attributes of the modern global marketplace in which we all operate. But there is evidence through RG 97 that, in fact, the transparency and disclosure being sought is not consistent with the ultimate objectives of what RG 97 is seeking to do. In other words, there are aspects of RG 97 that create fictitious results, that superfunds themselves acknowledge would be fictitious and not representative of the true costs expended in pursuing a particular asset investment strategy, that ultimately will mislead the end users, will mislead mum and dad as members of those super funds.

This is coming directly from superannuation funds themselves, many of whom—particularly the industry funds—are members of our industry body as well, because they are the big providers of capital. So there is a balance that needs to be struck with any regime that looks for transparency and disclosure. That's beneficial where it's accurate and helpful to the end user but, in this case, RG 97 does not deliver that outcome. It delivers outcomes and disclosures that are unhelpful because they are quite misleading and not representative of the true costs of investing in a particular asset class.

Mr EVANS: Thank you both for being here and for a very detailed and thorough submission. I want to start with a couple of very broad questions. After reading this submission I came away with the sense that the stakeholders you represent were very pleased with the National Innovation and Science Agenda and you thought much of it was overdue, in terms of a policy framework guiding this space in Australia, but you now feel it's time for a reboot—a National Innovation Science and Agenda 2.0, if you like—containing many of the suggestions you've made here. Is that broadly right?

Mr El-Ansary : That is broadly right, absolutely. The work in this area that's been done over the past three or four years, as we touched on a bit earlier, has been positive, it's been overdue and it's done, effectively, no more than to bring us to a point today where we should have always been some years ago. So it has restored the ground that we ceded by not acting for a number of years. That's the way I think it would be appropriate to view the National Innovation and Science Agenda. It's caught us up from where we were to where we need to be.

The task now, though, is to take things forward again. The global market—we know from earlier testimony that the inquiry's been engaged in this morning that there's been a focus on the future and how we spur capital to grow businesses through the corporate income tax system rate et cetera. But the task now is how we continue to drive our competitiveness in a global marketplace.

The National Innovation and Science Agenda work should never be done. And, pleasingly, from our point of view, we've heard messages from both the government and the opposition to suggest that's exactly the approach and mindset that exists within both of the major parties, at least at this point, which is that this work will never be done. NISA is not a task that we can tick the box on now and move on to other things. This must remain a continual area of focus, and I think it's important for this committee to explore that further as part of its work.

The answer to your question is, yes, there is absolutely a need for a NISA mark 2.0 or whatever you want to refer to it as, and there are areas of the policy that we've identified in our submission that we think would be really well suited to the next reboot of the policy. They're ideas like the introduction of a national innovation fund, which would help to catalyse new co-investing opportunities in parts of our market that do not otherwise attract capital. Agriculture and agricultural technology are one case in point. Changes to the R&D tax regime, which are being worked through by the government now, are also important to our future innovation ecosystem. Maintaining a competitive R&D tax incentive framework, we think, is really important to our future and competitiveness in a global market. The attraction of talent into our market is another one of those key areas that our members talk a lot about. So there are a number of areas.

Mr EVANS: I'll come back to that topic of mobile skills and capital in a second. I guess I'd just make the point that many of my constituents are equally persuaded, I suppose, of the importance of the sectors and the stakeholders you represent in providing many of the jobs and opportunities, and prosperity, the country needs to see. Without labouring the point, I want to go back and clarify a conversation you had with Mr Thistlethwaite about FIRB, the Foreign Investment Review Board, because something that was said didn't quite accord with my understanding. Were you suggesting that there have been no exemption certificates granted to fund managers that have some foreign investors who support their investment mandates of investing in particular asset classes in Australia without having to go back and get FIRB approval on a transaction-by-transaction basis?

Mr El-Ansary : No.

Mr EVANS: I thought the Treasurer had indeed approved some—

Mr El-Ansary : You're quite right. And the answer to your question is, no, that's not what I was suggesting. I wasn't suggesting there had not been the granting of exemption certificates so far. In fact, we're aware that there are probably somewhere around 10 to 12; maybe it's moved since we last spoke with the government about this. You're quite right. The Treasurer has approved a number of exemption certificates so far. But we must view this in context. If the number is around a dozen—let's operate on that assumption for a moment. There are more than 70 private equity and venture capital fund managers here in Australia. That means there are a significant proportion of investment managers who still do not have an exemption certificate in place. Not necessarily all of those managers will require access to a certificate, but we certainly feel, based on our reading of the data points around our industry and the reliance on offshore capital, that a significant proportion would.

Mr EVANS: Thanks for that clarification. You spoke about the mobility of skills and talent, and I guess that dovetails perfectly into the mobility of capital investment we're seeing. One of the things that's really interesting, about the sectors in the space that we're talking about with you here today, is that you see that huge mobility of capital right in there with the small and medium enterprises, the start-up businesses and so on. Lots of your submission is focused on very specific aspects of the tax framework. I did just want to get some comments from you though about the overall, the broader, corporate tax rate and get you to either confirm or reject the notion that Australia's competitiveness, when it comes to its overall corporate tax rate, also matters in attracting the investments you want to see in your sector here in Australia.

Mr El-Ansary : There's no doubt that a competitive tax system is hugely important to our nation. It always has been and, I hazard a guess to say, it always will be. We are in a global race for capital. Our industry is right at the sharp end of that, because our fund managers are the ones that go offshore and speak to the institutional investors—be those sovereign wealth funds, pension funds or endowments et cetera—and they are the ones who are ultimately selling the opportunity of bringing their capital into Australia. So, in many respects, the points around the competitive tax system, a competitive economy, are hugely important to our capacity to continue to attract that offshore investment into our market.

The corporate income tax rate itself is key to our business tax system. It's one significant part of the overall mix. When we talk to offshore institutional investors, they want to make decisions to allocate capital into Australia on the basis of a variety of considerations, one of which is our corporate income tax system, one of which is the opportunity set here in Australia and one of which is the stability of government, the stability of policy, and the certainty with which they can make long term 10-year-plus investment decisions. For us, as a mid-weight global open economy, we must remain vigilant about remaining competitive on our corporate income tax rates. However, it is like, all areas of policy, sometimes a discussion and a debate about trade-offs and prioritisation—and we acknowledge that. For our industry, what is most important, above a discussion and debate about the corporate income tax rate itself, is our capacity to continue to compete to attract capital into this market, and that is a much broader conversation than the corporate income tax rate alone.

Ms KEARNEY: I have a couple of questions. I quite enjoyed your submission, thank you. You do say that Australia is doing quite well at the moment in the region—you have a paragraph in here that says:

… Australia more than punches above its weight in terms of performance by such high-growth companies … 115 Australian companies on its list of the top 1,000 high-growth companies in the Asia-Pacific region …

So we are doing quite well at the moment, and perhaps that's due to a lot more things than our tax regime. Perhaps that is due to the fact that we do have a stable political system—mostly. We do have good infrastructure. We do have a stable financial system, banking sector et cetera. So the tax regime really is only one part of an overall global decision to invest in a country, isn't it?

Mr El-Ansary : It is, absolutely and I think the points from the previous question certainly apply here—that is, that the tax system is one consideration. In fact, ultimately, because a lot of the offshore institutional investors looking at the Australian market are investing through economic cycles, they're investing for anywhere from five to 10 years normally and sometimes much longer than that. So, during that time, they will see ups and downs in the economy. They will see some ups and downs in key areas of policy. So, the institutional investors, quite appropriately, have to look through those things and at the longer term prospects for a market like Australia's and what our horizon is in the region and globally. I think it would be entirely appropriate to say that the income tax system—the business tax system, more broadly—is one consideration. It is one input that goes into the equation of whether or not Australia is a competitive and attractive market in which to invest capital.

Pleasingly for us, over the past 25 years or so now, we've been able to place great weight on the fact that we've had a stable growing economy even during periods of economic downturn and that there are different forces at play within our economy that have helped to create that outcome. It is not policy alone. It is not one sector alone. It is not one particular policy or regulatory initiative on its own that's driven that. It's a combination of things, and I think that's something we ought to be mindful of but it is important.

I spent a significant amount of time, many years ago now, involved in the work that Dr Ken Henry did as part of the comprehensive review of our tax system—the Henry tax review, as it became known. I said in a previous role—and I'll say it again in this role in the context of this inquiry—that I believe firmly that many of the recommendations made in that program of work, that comprehensive package of work, that ran for more than two years are sensible. They are appropriate for our future. Any government, regardless of the political stripes it might wear, could do a lot worse than simply pick up the Henry tax review, pull out the 30-odd recommendations and set about enacting them. One of those recommendations was to drive towards an aspirational tax rate of 25 per cent. That's something which I do believe is important, but, like all areas of policy, there are sometimes trade-offs that need to be made and prioritisation that needs to be made, and we acknowledge and support that, as long as there is a clear direction set for where we aspire to get to. We can be confident then about our trajectory from this point to there.

Ms KEARNEY: I think your point is that the Henry tax review was a package; it wasn't just one thing that had to be done. There is great support around the Henry tax review—for a Brown tax, for example, to offset any loss of revenue—

Mr El-Ansary : Correct.

Ms KEARNEY: which I think a lot of people in the minerals industry would disagree with and objective to, although they would embrace one aspect and that's the corporate tax cuts.

Mr El-Ansary : That's right.

Ms KEARNEY: It is a package. That's an important part of that.

Mr El-Ansary : If I can interject for a moment, there's only one thing missing from the Henry tax review—for those of us who remember aspects of the detail—and that was that the government at the time specifically excluded Dr Henry from looking at the role of the GST as part of that tax mix, which is something that I think was ultimately detrimental. That's one aspect of the picture that remains incomplete, but, otherwise, the Henry tax review did, as you quite rightly say, put together a very comprehensive package. In some aspects of the system, there would be beneficiaries and in some aspects of the system there would be net contributors, but overall the result was consistent with where we want our economy to go.

Ms KEARNEY: But it would not be advisable to just pick one thing out of that without looking at the package. That is my point.

Mr El-Ansary : Tax is certainly an area where you need to look at both the upstream and downstream effect of all of those decisions.

Ms KEARNEY: We just have to be mindful of that when we're pulling one thing out of a review. I'm also interested in your national innovation fund idea. Could you expand a little bit on how you think that would work? I think it was back in the Howard days when we had something called an incubator fund, which seemed to operate on a very similar basis to what you're describing. Is that what you're thinking of going back to?

Mr El-Ansary : Correct.

Mr Sinelnikov : Correct. Other examples have been put in place already that operate on a similar basis, like the Biomedical Translation Fund, which is obviously targeted at the life sciences sector. Our proposal is to have something that's a bit broader in terms of the sorts of companies that it would be able to support. It would be a matching scheme where private investors, alongside government, would pull together funds and then that money would be invested by professional venture capital managers essentially, which is very similar to the Innovation Investment Fund that was previously in place.

Ms KEARNEY: So there is a return expected on that?

Mr Sinelnikov : Correct. There are financial metrics that are obviously important and need to be taken into account. It's not just money provided with—

Ms KEARNEY: It's not like a grant—is that what you're saying?

Mr Sinelnikov : Correct. It's not a grant.

Mr El-Ansary : It's not a grant. We certainly have been strong advocates for many years around this particular design of policy, which is to deploy scarce resources—being federal government budget funding—in a smart way that involves doing much more than simply expending money through a program for which there's no asset generated and there's no return generated. In some contexts, it might be very difficult to measure a return in some areas. We think co-funding programs like the Biomedical Translation Fund, which Kosta mentioned, and the proposal that's in our paper for a national innovation fund, is a really smart way for governments to expend limited resources and create investment assets, ultimately, for the economy. There are not many areas of policy where you can quite directly make a link between government expenditure and the creation of an asset. There are many indirect links, but this is one area of policy where we think there's fertile ground to do much more in the future, particularly as government budgets come under more and more pressure and the capacity for governments to allocate funding through grants and direct expenditure that doesn't necessarily lead to a very direct return on that expenditure become more pressured. This is a smart way to use government funding to help catalyse activity in the private sector.

Ms KEARNEY: Thank you, Chair.

CHAIR: Thank you very much, Ms Kearney. And I thank you both very much for your attendance here today. If you've been asked to provide additional material, please do so and forward that to the secretariat. You will be sent a copy of the transcript of your evidence today to which you can make corrections of grammar and fact.

Proceedings suspended from 11:35 to 11:47