Though the Cutler report has been out for a few days there still has been a surprisingly limited amount of detailed analysis on it. That may have to do with the sheer size of the document, or something else. Either way I’ve had a little time to read over it and here are some of the key points I’ve noted:

Amendments to the R&D Tax Concession Scheme

The report illustrates the negative effect that the reduction in the tax concession has had on R&D and innovation. They have suggested several improvements that seek to change the “underpowered and overcomplicated” nature of the current scheme. That includes changing the current situation, where the tax benefit to most companies who participate in the scheme is 7.5c in the dollar, to one where companies with under $50M in revenue see 20c in the dollar and those with above $50M see 10c.

I’m no expert on R&D tax concessions, so I recommend you read John Haining of Michael Johnson Associates’s post on the topic . If you want to get straight to the business end, below is his summary:

Overall, the Green Paper presents a positive future for the use of R&D tax mechanisms to stimulate, reward and incentivise the conduct of innovative and risk-based activities.

What will be of critical importance to Australian industry is how the journey from Green Paper to Policy is conducted, and beyond that how effectively the Policy is turned into practical, workable and actionable legislation

Interestingly though, Kris Gale, Managing Director of Michael Johnson Associates had this to say in the AFR yesterday:

For companies making decisions about where to park their R&D, the [proposed changes] are probably not worth enough to drive behaviour…for a few companies who are on the cusp of a decision, this change could tip them over the line. But I don’t think it’s internationally competitive enough,

The lack of a clear positive position on what the actual outcome of the green paper will be tells me that while they’ve gone some way to improving things they’ve stopped short of the optimum solution for the R&D concession scheme - at least in the eyes of those who work with it daily.

University Funding

It’s clear one of the big winners, if the recommendations are all enacted, will be Universities. The report recommends an “urgent” $2.2B annual injection of funding for research at Universities and calls for Government agencies to increase spending on research from 0.55% of GDP up to 0.9%of GDP in the long term. That figure of 0.9% has been chosen because it’s closer to what most research intensive countries in the OECD are spending.

It’s not just about more money though. There are incentives to get universities collaborating with both other universities and the private sector as well as a call for Universities to specialise in their research.

More money, more focus, more collaboration - sounds like a recipe for success to me.

Open Innovation

Speaking of collaboration, I think that a massive part of the report that has somewhat flown under the radar  is the acknowledgment that innovation has changed and that open innovation is the way forward. Already countries like Denmark and the UK have user-led innovation policies, which recognise the ever increasing research that highlights the role of collaboration between users and companies in driving real innovation. Australia might just be starting to catch up.

It’s not clear the extent to which open-innovation will be built into any future government policy, but I can’t emphasise to the Minister strongly enough the importance of positioning Australia as a global leader in this field. One small disclosure here - one of the projects we’re working on at the Half Square idea lab is a user-led innovation project called OneEyeDeer. The only reason I’m working on that project, however, is because of the research I’ve read (see Eric von Hippel from MIT and his work) which demonstrates why user-led innovation is far superior to traditional innovation methodologies.

Let’s hope open innovation gets a good run in the upcoming white paper.

Early Stage Funding

There’s good news for those seeking early stage funding. I’ll quote a whole paragraph here because it’s relevant: -

There is a global and systemic funding gap in the availability of capital for early stage ventures and thus the maintenance of the Innovation Investment Fund (IIF) and Pre-Seed Fund programs supporting capital raising by early stage companies is essential. To further strengthen the growth of high technology and innovative service based firms, support should be given to organisations of angel investors to help increase networking and the Commercialising of Emerging Technologies (COMET) program should be continued

At a high-level this is really good news for tech startups. It’s not perfect, for instance the IIF program has issues around focusing on new fund managers rather than existing managers and the actual fund sizes, but the most important thing is that all these programs (including support for Angels) have been recommended.

I know there has been some criticism of these programs in the past, but I think that step 1 was always to try and ensure the programs remained. With that achieved step 2 should be to work on the detail.

Venture Capital

The story around venture capital is a little more ambiguous than earlier stage funding. The report appears to says they need to get more information on the industry before they can make recommendations. Despite this they suggest that a focus should be to get a US-based VC firm to set up shop here in Australia.

If I was a VC I’d have mixed feelings about the report. There’s no mention of tax concessions for venture capital which would have been a brilliant fist step. That having been said, the idea of bringing a US-based VC to Australia is a lot less nasty than many of you may think. My feeling is that this would do a lot to help bring experience and skills to the local VC and tech industry as well as increasing the local VC market as a whole by helping your typical limited partners, such as super funds,  feel more comfortable with VC as an asset class.

Web 2.0

Hey! The report recommends that public Government information should be released under a  Creative Commons licenses as well as recommending:

an advisory committee of web 2.0 practitioners should be established to propose and help steer governments as they experiment with web 2.0 technologies and ideas

Who would have thought?

——-

OK - I’m going to leave it there for now because if I’m not careful this post will end up longer than the actual report.

No doubt we’ll be posting on more outcomes from the report in the near future