Getting the legislation right on crowd-sourced funding

"Part of the mix—obviously not the only part of the mix, and not even necessarily the main part of the mix—for finding more capital to be invested into Australian start-ups is dealing with crowd-sourced equity funding. I am very pleased that this movement, that the member for Chifley has been such an agitator for and so tenacious about, is continuing to take hold here in our parliament. Equally, I am concerned about the bill. I appreciate that there have been some amendments made since the last time I was in a position to speak to related legislation. I appreciate that there has been a substantial increase in the turnover cap from $5 million to $25 million. I strongly welcome that increase in the turnover cap to allow broader access to crowd-sourced equity funding. But I am very concerned, particularly about this issue of not being in a position yet to extend crowd-sourced equity funding to proprietary limited firm companies."

 

Ms BUTLER (Griffith) (19:14): It is a pleasure to rise to speak on an issue that is actually important for our economy and will be helpful to the Australian economy, which is crowdsourced funding for start-ups, unlike the bill we were just considering, which is going to reinstitute a body that, when it was last in force, presided over a situation where productivity growth was weak and safety outcomes were poor.

But I come back to the Corporations Amendment (Crowd-Sourced Funding) Bill 2016, which we are discussing at the moment. This is a very important question, that of: how do you allow crowd-sourced funding to happen in this country? We have what I would describe as a nascent start-up sector that is desperately looking for ways to increase the amount of capital that they can attract to their start-ups so that they can grow quickly. We want to support high-growth start-ups in this country. We want to have a very strong and robust start-up sector. That is why it is so important to get crowd-sourced equity funding right. The member for Chifley has been an absolute driver of the movement to open up crowdsourced equity funding in this country, and it is really important to acknowledge his work—that we got out well in front of the government, frankly—in relation to crowd-sourced equity funding through the discussion paper that he produced and his work in continuing to tenaciously pursue the reforms that will allow crowd-sourced equity funding to be a major force for capital raising for start-ups in this country.

We often talk about the benefits in relation to jobs that are created by high-growth start-ups. These are firms that will, in situations in which they succeed, grow new jobs for Australian people, and that is another reason, of course, why it is so important that we make sure the settings are right, so we can have a good, strong start-up sector here in Australia. I think there is an important point about opening up ownership of capital to more and more people. As Australia becomes less equal—as we move towards greater inequality; the situation that we are in now, where inequality is at its highest levels in 70 years—it is often tempting to focus in on income inequality, on the differences between the incomes for people at the very bottom of the income distribution compared with those at the very top of the income distribution. But we should also think about wealth inequality and the inequality of ownership of assets. That is a really important question for this parliament, because, as inequality grows and as asset ownership becomes more and more concentrated in the hands of smaller and smaller proportions of Australians, inequality and fairness is a massive challenge for this country.

It is for this reason that I am a supporter of, for example, employee share ownership. I want to see more employee share ownership in this country. I think employee share ownership can be a force for good not only for the reasons that have been traditionally articulated but also because the more that employees have access to ownership of shares, the more you see more availability for ownership of capital for more people and for more working people. That is important and it is important for a range of reasons.

Of course, with employee share ownership, you need to be careful to have the settings right. You certainly do not want situations, for example, where there is some sort of perverse incentive for management to prefer paying out dividends to reinvestment of capital in the business for the purpose of productivity-enhancing improvements whether it is capital deepening through equipment or through plant, or whether it is investment in the skills and talents of people, of human capital. You certainly do not want that. I think that the principle, that employees should own shares in their businesses, is an important one not only because it gives them that immediate direct incentive to have a bit of skin in the game—to have that incentive to make sure that they make a capital gain from the ownership of those shares—but also because of the broader question of opening up ownership of assets to more and more people in this country.

For the same reason, I think it is really important, when we talk about crowd-sourced equity funding, that we do acknowledge that we are talking about allowing smaller investors to have a real stake—to have some real ownership—over what could be potentially very high growth new businesses. That is one reason why I think we should be very clear that when we are supporting crowd-sourced equity funding we are not only supporting the business itself but also supporting the capacity of more people to own assets in this country and to potentially make asset ownership more democratic, to open it up to more people and to more people of lesser means than possibly people who have traditionally been angel investors.

I am a big supporter of the work that the member for Chifley and others have done to promote crowd-sourced equity funding in this country for that reason, and, as I said, I am also a very big supporter for the usually expressed reason, which is that start-ups need access to capital. We do still have a need for more capital in this country to go towards high-growth start-ups. It is something that Labor acknowledged in the policy that we took to the last federal election. You will be aware, Deputy Speaker Buchholz, that our policy included substantial tax offsets for angel investors—in fact, more generous tax offsets for angel investors than the coalition's policy taken to the last election.

We also were very cognisant of the importance of attracting capital to this country through venture capital, and I have certainly had the benefit, in my capacity as one of the co-chairs of the Parliamentary Friends of Innovation Enterprise in the last term—and I see my fellow co-chair, the member for Banks, is also in the chamber, and I know he is an enthusiastic supporter of attracting more venture capital to this country. I have certainly had the benefit of meeting with and working with the Australian Private Equity and Venture Capital Association Ltd, AVCAL, which is a really strong peak group advocating for better frameworks in this country to promote investment in Australian firms and to promote venture capital being able to flourish in Australia. That is something that I am very passionate about.

Part of the mix—obviously not the only part of the mix, and not even necessarily the main part of the mix—for finding more capital to be invested into Australian start-ups is dealing with crowd-sourced equity funding. I am very pleased that this movement, that the member for Chifley has been such an agitator for and so tenacious about, is continuing to take hold here in our parliament. Equally, I am concerned about the bill. I appreciate that there have been some amendments made since the last time I was in a position to speak to related legislation. I appreciate that there has been a substantial increase in the turnover cap from $5 million to $25 million. I strongly welcome that increase in the turnover cap to allow broader access to crowd-sourced equity funding. But I am very concerned, particularly about this issue of not being in a position yet to extend crowd-sourced equity funding to proprietary limited firm companies.

This is not a straightforward question, but when we talk about a situation where an early-stage start-up has incorporated, they are going to have incorporated as a proprietary limited company. That is what they will have done—why would you incorporate as a nonlisted public company if you did not have to? Of course you would not, because of the additional costs and the additional compliance burdens that rightly apply to public companies compared with those that apply to proprietary limited companies. If you were starting a business, you would incorporate as a proprietary limited company, and to have access to this scheme that the coalition is contending for in this House tonight you would have to do something that you would not otherwise do, which is to become a nonlisted public company. You would take on all of the additional compliance burdens that come along with that—things like reporting and annual general meetings. And for what? It would be only to get access to this scheme.

I think that most people would agree that it is not ideal to say to people that, as a cost of gaining access to this capital, you have to take on additional costs and compliance burdens that you would not otherwise take on and that would not add sufficient value to make it worth it if it were not for getting access to that crowd-sourced equity funding regime. I think most people would agree that this is a problem, and I am certain that the Treasurer agrees that it is a problem because in his press statement and in public statements that he has made he has said that the government will look at extending this regime to proprietary limited companies early next year. Well, why not get it right the first time?

This government has taken such a long time to work on this bill. We have extended the hand of bipartisanship and we have worked through it, but the government has now been in office since September 2013 and we are still not in a position where they have been able to pass crowd-sourced equity funding laws. It took them a very long time to even be in a position to table a bill in the House, let alone a bill that would be acceptable across the parliament and across the community. Given that, why are we rushing this now at the last minute?

There are other issues with it as well. There is a glaringly obvious piece of work that needs to be done that the government intends to do soon. Let's just get the bill right. We have made it very clear to the government, through the second reading amendment that the member for Chifley has moved today, that we want to see a piece of legislation that can be passed and that does not then lead to another version of the legislation having to be passed in five minutes time. In other words, the sector should not have a bill passed in November 2016 and then another bill passed in February 2017—that gives them two different sets of goalposts. Why move the goalposts? Why not just take a comprehensive piece of legislation to the parliament and say, 'Here's what's going to happen. Don't change it a few months later. This is what we've actually done'? All it would take is for the government to work on extending the provisions of its regime to proprietary limited companies—which it has already said it wants to do—making sure that that is done appropriately.

As I said, it is not a completely straightforward matter. It is not a matter of just chucking in an amendment. There are issues that need to be dealt with, but let's just deal with them. The government has the full resources of the Treasury and the nation's bureaucracy at its fingertips. It has a great sector full of amazing people—start-up founders, venture capitalists, angel investors, universities. There are great, phenomenal people engaged in the high-growth start-up sector in this country. Why not work with them over the next few months and get what we actually want to get, and not this half-baked, 'here is most of it but there is another bit to come later' version of the bill that we are debating tonight?

I have said that we have a couple of other concerns about the bill. Those are addressed in the second reading amendment. For example, we are concerned about the protections available for retail investors. I am a very big and strong advocate for opening up the ownership of capital to more people. But, at the same time, there is a difference in the amount of knowledge and skill that a small retail investor might have compared with the amount that a big institutional investor might have, so we do need to make sure that we have appropriate safeguards in place to avoid people being ripped off and exploited.

We also need to make sure that any legislation in this space avoids too much of a burden in relation to regulation or investor relations disclosure. You have to strike the right balance, so we want retail investor protection. We want smaller investors to have access to the opportunities that this sort of regime would provide. We want these start-ups to have the crowd-sourced equity funding framework in their mix of possible places to obtain capital, and we want regulation to be right. We want it to be done well. All of these things are eminently doable. They are completely within the skill, the wit and the knowledge of the people in this place and of the people who work with us outside of this place. We can do it.

To have this situation where we say, 'Here's 90 per cent of what we're going to do, and we'll do the other bit later,' is not particularly satisfactory. One of the key frustrations of all the people that I talk to in business is a lack of certainty. They get really frustrated when we continually change the goalposts on them. We are now flagging that we are going to change the goalposts early next year. Given it has been signalled that the legislation will be amended so that people in proprietary limited firms will not need to transform their firms into nonlisted public companies to access this funding, what I suspect will happen is that those people who are tossing up whether to access crowd-sourced equity funding will probably sit back and wait a couple of months so that they can get the money without having to take on the additional costs and the additional compliance burden. That would be the rational thing to do. Given that, why not get this right? We can absolutely get this right. There is no reason not to get it right. It is a very odd proposition to say, 'Here's my bill. It's pretty good. We're going to fix it later.' That is kind of weird. While I am very enthusiastic about the crowd-sourced equity funding framework and I am very enthusiastic about getting a bill done properly, I do support the second reading amendment. I appreciate the opportunity to speak.

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