I

Budget Insider 2016 An InnovationAus.com White Paper

Sponsored by the Australian Computer Society

5/4/2016

With thanks to Swaab Attorneys and Stone & Chalk

Budget Insider 2016 page 1

Foreword Welcome to the InnovationAus.com Budget Insider 2016 White Paper.

The Federal Budget has delivered good news for jobs and skills in the digital sector, with the

ACS welcoming the Government’s commitment to the National Innovation and Science

Agenda (NISA). The announcement of the NISA in December was a pivotal moment for

Australia’s digital future, and seeing the funding confirmed in this year’s budget delivers

certainty that these initiatives will help build a platform for Australia’s future.

The ACS is also pleased to see a sensible approach to FinTech regulation mentioned in the

budget. The idea of having a regulatory sandbox will help encourage innovation and

experimentation from new businesses, and recognises that disruption is driving the FinTech

space.

Thanks to the team at InnovationAus for producing this budget overview.

Anthony Wong, ACS President

Authors: Beverley Head, Stuart Kennedy, Graeme Philipson, James Riley

© 2016 InnovationAus.com

All rights reserved. The content of this report represents our interpretation and analysis of

information gathered from various sources, but is not guaranteed as to accuracy or completeness.

Reproduction or disclosure in whole or in part to other parties, by any means whatsoever, shall be

made only upon the written and express consent of InnovationAus.com and the Australian

Computer Society.

This document was written by InnovationAus.com and sponsored by the Australian Computer

Society. The views and opinions expressed in this publication are those of the authors and do not

necessarily reflect those of the Australian Computer Society.

Budget Insider 2016 page 2

Executive Summary

The Australian Government’s 2016-17 Budget has been widely discussed and anticipated. It is a pre-

election budget, and is a first for both Treasurer Scott Morrison and Prime Minister Malcolm

Turnbull.

The Budget contains no major surprises – much of it comprises initiatives already announced or

policies that were widely expected. Taken as a whole it appears to be a cautious document – without

many of the traditional pre-election handouts, and with not a lot to frighten the horses.

The key initiatives that affect the ICT industry are:

Company tax rate reduced: The company tax rate over time to 25 per cent to put Australia rates

more in line with other countries. From July this year, all organisations with turnovers of up to $10

million will have their tax rate reduced to 27.5 per cent, benefitting 870,000 businesses.

Crackdown on corporate tax avoidance: Much of the funding of the company tax rate reductions

will come from a new diverted profits tax (DPT), which will penalise multinationals that avoid paying

taxes by shifting income to lower taxing jurisdictions. There will also be extra funding for the ATO to

set up a taskforce to monitor tax avoidance by all parties.

A small nod at FinTech: The Government announced the promotion of Australian FinTech (financial

technology) in the Budget, but its actual financial commitment is very slim – a tiny $200,000 to

promote Australia internationally as a FinTech hub and to promote ASIC’s regulatory sandbox.

Cyber security boosted: Cyber security gets a big boost in the Budget, though many of the initiatives

have been previously announced. Australia will have a Cyber Ambassador, while establishing a ring

of joint cyber threat centres across the country among a range of cyber security measures

announced or confirmed in the Budget.

New education and training initiatives: An initiative called Youth Jobs PaTH (Prepare, Trial, Hire) will

support young people seeking employment and employers taking on young workers. Job-seekers will

be offered training programs, and the Government will run an internship initiative for up to 120,000

placements over four years, with businesses taking on interns receiving an upfront payment of

$1,000. Beyond that employers will be eligible for youth bonus wage subsidies to encourage them to

take on young workers.

Digital health revamped: The Budget confirms funding for a new Australian Digital Health Agency

(ADHA) which will replace the NEHTA (National E-Health Transition Authority) and drive the

adoption of the My Health Record online health record system, which will be renamed PCEHR

(Personally Controlled Electronic Health Record).

More for Geoscience: The Budget contains $100 million for Geoscience Australia’s ‘Exploring the

Future’ initiative to map mineral, energy and groundwater potential in northern Australia and South

Australia.

Important ICT areas such as the NBN, the Digital Transformation Office, and the Office of the

Australian Information Commissioner are untouched. Climate change and renewable energy were

not mentioned. The ABC gets a small cut to its budget, but private broadcasters see their licencing

fees reduced by 25 per cent.

Budget Insider 2016 page 3

Introduction The 2016-17 Federal Budget has attracted more interest than usual, for many reasons. It is a pre-

election budget, and is a first for both Treasurer Scott Morrison and Prime Minister Malcolm

Turnbull.

Like all budgets, many of its measures were announced or signalled beforehand. This budget in

particular contained few real surprises, but as always there is devil in the detail. The big picture

revenue and expenditure items have been widely reported elsewhere – this White Paper

concentrates on the budget’s effect on ICT, science and innovation.

The central plank of the 2016-17 budget is tax reform, with a so-called ‘Google tax’ announced,

along with a sliding corporate tax rate that should deliver modest comfort for local innovators until

the end of the decade.

The challenge the Government faces in this pre-election atmosphere is that it needs to fund

innovation initiatives that will allow Australia's economy to transition from resources and to the new

economy. Just as analyst group Gartner has been preaching ‘bi-modal ICT’ – managing legacy while

investing in the future – Treasurer Scott Morrison has been faced with a similar challenge, which he

acknowledged when he said: "What we are doing in this budget is what we can afford."

It cannot afford very much. The Government did not have a lot of room to move, given the range of

measures it had ruled out in the run-up to the Budget. That fact that was subtly reinforced by the

Reserve Bank's decision to lower the cash rate by 25 basis points on Budget day.

This is an election budget, if a modest one. If the Government is re-elected, it will likely use that

mandate to be far bolder at the next Budget. For now, steady as she goes.

Company tax rate reduced One of the Budget’s most important announcements was the intention to reduce the company tax

rate over time to 25 per cent to put Australia rates in line with other countries, or at least closer to

what the Treasurer refers to as the ‘middle of the pack’.

From July, all organisations with turnovers of up to $10 million will have their tax rate reduced to

27.5 per cent – which the Treasurer said would impact 870,000 businesses.

Australian small businesses contribute significantly to our economy. To make it easier for these

businesses to invest and expand to create more growth and jobs, the company tax rate will be cut,

with small businesses benefitting first.

We will continue to step up the turnover threshold for access to the lower company tax rate of 27.5

per cent for more businesses, from $10 million to $25 million in 2017-18, to $50 million in 2018-19

and $100 million in 2019 in 2019-20.

This will decrease the tax rate for around 870,000 companies who employ around 3.4 million

workers. Over the next ten years, the Government will encourage investment and higher-paid jobs by

decreasing the tax rate on all companies to 25 per cent by 2026-27.

Budget Insider 2016 page 4

Crackdown on corporate tax avoidance The Government says much of the funding of the company tax rate reductions will come from a new

diverted profits tax (DPT), which will penalise multinationals that avoid paying taxes by shifting

income to lower taxing jurisdictions.

The OECD G20 BEPS (base erosion and profit sharing) rules mean that most other major countries

are clamping down too, a necessary process to fully reform international profit-shifting Much of the

publicity about corporate tax avoidance in Australia has been around multinational ICT giants such

as Apple and Google, who will be most affected by the DPT.

There will also be $679 million provided to the ATO to set up a 1300 person taskforce to monitor tax

avoidance by all parties, with 390 new jobs to be created.

The Government will take additional steps to reinforce the integrity of Australia’s corporate tax base

and ensure businesses pay the right amount of tax in Australia. We are introducing tough new laws

and much harsher penalties including:

A Diverted Profits Tax (DPT) which will impose a penalty rate of tax on large multinationals

that attempt to shift their Australian profits offshore to avoid paying tax. Together with the

Multinational Anti-Avoidance Law, introduced by this Government last year, the DPT is

expected to raise around $650 million over four years.

Rules to prevent multinationals exploiting differences in the tax laws of two or more

jurisdictions to defer or avoid paying tax (anti-hybrid rules).

Updating Australia’s transfer pricing rules to align with international best practice.

A new Tax Transparency Code to encourage greater transparency within the corporate

sector, especially by multinationals.

New protections for whistleblowers who disclose information about tax misconduct to the

ATO.

New rules, to be developed in consultation with stakeholders, to require better disclosure to

the ATO about potentially aggressive tax planning schemes.

Increased penalties for breach of tax reporting obligations for companies with global

incomes of $1 billion or more. The maximum penalty for failing to lodge tax returns and

similar documents will be increased 100 fold from $4,500 to $450,000.

Enforcement of our existing and tough new laws will be supported by a Tax Avoidance Taskforce to

be set up in the ATO. This crack down on multinationals and high wealth individuals is expected to

generate $3.7 billion of additional revenue over the next four years.

NISA revisited The Government used the budget to essentially re-announce the National Innovation and Science

Agenda (NISA), launched in December 2015. There was continued mention of innovation in the

Budget and its accompanying documents and press releases, but little in the way of new

announcements.

Budget Insider 2016 page 5

The December NISA launch announcement was centred around four pillars, not all of which were

addressed in the Budget.

Culture and capital: Tax breaks to encourage businesses to take risks and innovate. The

Budget announced reductions in corporate tax rates, with most of the benefits flowing to

small business in the short term (see above).

Collaboration: There was nothing in the budget on increased collaboration.

Talent and skills: There were significant initiatives in education and training (see below).

Government as an exemplar: Nothing new, and the new Digital Transformation Office will

have its funding cut as its initiatives are transferred to individual departments.

The Government is making strong progress towards implementing the $1.1 billion National

Innovation and Science Agenda (NISA) which will support a culture of ideas and innovation to

encourage commercialisation, reward enterprise and facilitate investment. The Government’s

achievements so far include legislation for tax incentives for angel investors, which will make it easier

for innovative startups access early stage capital to grow their businesses.

The Government has also advanced a range of measures such as the new Entrepreneur Visa and

Incubator Support Program, which will be implemented early in the new financial year. (They) will

make it easier for Australian entrepreneurs to expand into new, high-growth markets.

A small nod at FinTech

The Government announced the promotion of Australian FinTech (financial technology) in the

Budget, but its actual financial commitment is very slim – a tiny $200,000 to promote Australia

internationally as a FinTech hub and to promote ASIC’s regulatory sandbox.

The Budget announced that CSIRO’s Data61 will pilot test blockchain, a technology that offers

instant settlement between banks, and ASIC will create a regulatory sandbox for FinTech startups.

Blockchain technology is used by digital currencies such as Bitcoin. The digital ledger system

eliminates the long settlement periods as money moves from one financial institution to another.

Meanwhile, ASIC will help FinTech startups test out their ideas with clients without necessarily

clashing with sometimes outdated financial regulations through ASIC’s coming regulatory sandbox.

The Government is also eyeing greater efficiencies from electronic invoicing and will undertake an

implementation study into the costs and benefits of adopting e-Invoicing. The findings from the

study will be examined early next year.

The Government’s FinTech Statement is our plan for a strong and vibrant FinTech industry in

Australia. The Government will encourage the exploration of Blockchain technology, including

through a study and pilot testing by the CSIRO’s Data61.

We will also introduce changes to the GST to ensure that consumers are no longer double taxed when

using digital currencies such as Bitcoin. The Australian Securities and Investments Commission will

also release a consultation paper in the coming weeks on a regulatory sandbox exemption to

facilitate the testing of new FinTech products and services.

Budget Insider 2016 page 6

Cyber security boosted Cyber security gets a big boost in the Budget, though many of the initiatives have been previously

announced. Australia will have a Cyber Ambassador, while establishing a ring of joint cyber threat

centres across the country among a range of cyber security measures announced or confirmed in the

Budget.

The new Cyber Ambassador will be funded by the Department of Foreign Affairs and Trade, to the

tune of $2.7 million over four years. The Cyber Ambassador’s job will be to promote Australia’s

Internet governance and cyber security agenda worldwide.

The Office of the Children’s eSafety Commissioner will receive an additional $1 million in funding to

expand digital programs that will include helping young people and their families avoid harm from

violent extremism promoted online.

The other cyber security moves flow from the $230 million Cyber Security Strategy which was

announced by Prime Minister Malcolm Turnbull in April and were confirmed in the Budget.

The Government will spend up $82.3 million over four years on a chain of Joint Cyber Threat

Centres. The Department of Defence’s more centralised Australian Cyber Security Centre will receive

$38.8 million over four years to relocate to a ‘more flexible facility for public-private engagement’.

The Government will also spend $3.5 million over four years for the Department of Education and

Training (DET) to establish up to six academic centres of cyber security excellence. There is also $1.3

million for cyber security assessments for Commonwealth entities, and $11 million to identify cyber

vulnerabilities in government systems.

AustCERT (the Australian Cyber Emergency Response Team) will receive $21.5 million in funding, and

the Australian Federal Police ($20.4 million) and Australian Crime Commission ($16 million) also get

more money to boost their cyber crime fighting abilities.

Other measures include grants for small business to conduct threat assessments, a new cyber

security awareness campaign and cyber security health checks for ASX100-listed companies.

The Government … has announced the co-chairs of the Cyber Security Growth Centre (which) will

create opportunities for businesses to grow and strengthen Australia’s cyber security industry.

The Government is investing a further $5 million to support communities impacted by violent

extremism and prevent young people from falling for the allure of violent extremists online. The

Government will invest in a national helpline for families who fear their children are being

radicalised.

Our investment will enable the helpline currently being developed by NSW to be rolled out across the

country to help families and other frontline workers such as teachers and community leaders to seek

help for young people at risk of online grooming by terrorists.

This $4 million commitment will be supported by another $1 million for the e-Safety Commissioner to

strengthen Australia's prevention strategies and reach young people before they become vulnerable

to the evil encouraged by terrorism.

Budget Insider 2016 page 7

New education and training initiatives An initiative called Youth Jobs PaTH (Prepare, Trial, Hire) will support young people seeking

employment and employers taking on young workers. Job-seekers will be offered training programs,

and the Government will run an internship initiative for up to 120,000 placements over four years,

with businesses taking on interns receiving an upfront payment of $1,000. Beyond that employers

will be eligible for youth bonus wage subsidies to encourage them to take on young workers.

The Budget confirms the $64.6 million initiative to support digital literacy and STEM (Science,

Technology, Engineering and Mathematics) education in schools, with a particular focus on students

at risk of falling behind and children in regional areas.

In the tertiary sector, the Budget has confirmed the Government will not a proceed higher education

reforms originally announced by the Abbott Government. They will not now begin until January

2018, and then only after further consultation with the universities and stakeholders regarding full

deregulation. The changes had threatened the $150 million National Collaborative Research

Infrastructure Strategy (NCRIS) funding by tying it to the Senate passing controversial university

deregulation plans.

This budget confirms $1.5 billion of funding for NCRIS over the coming decade along with an

additional $180 million of new research support and research training programs in higher education.

In 2016, $1.8 billion is earmarked for universities to support research block grant funding that will

give greater emphasis to success in industry and end-user engagement.

Youth Jobs PaTH is not just another training program. From 1 April 2017, young job seekers, who

need to boost their job-readiness, will participate in intensive pre-employment skills training within

five months of registering with jobactive. The first three weeks of training will focus on skills such as

working in a team, presentation, and appropriate IT literacy. A further three weeks of training will

centre on advanced job preparation and job hunting skills.

In stage two, the government will introduce an internship program with up to 120,000 placements

over four years to help young job seekers who have been in employment services for six months or

more to gain valuable work experience within a real business.

Job seekers and businesses, with the help of jobactive providers, will design an internship placement

of 4 to 12 weeks’ duration, during which the job seeker will work 15 to 25 hours per week. In addition

to gaining valuable hands on experience in a workplace, job seekers will receive $200 per fortnight on

top of their regular income support payment while participating in the internship.

Businesses that take on interns will receive an upfront payment of $1000, and will also benefit from

the opportunity to see what a young worker can do and how they fit in to the team before deciding

whether to offer them ongoing employment.

In stage three, Australian employers will be eligible for a Youth Bonus wage subsidy of between

$6500 and $10,000, depending on the young person's job readiness. Businesses will have the

flexibility to employ young job seekers either directly, through labour hire arrangements, or

combined with an apprenticeship or traineeship.

All of these initiatives will cost $751.7 million over the next four years, and are fully funded from

savings in other employment programs, including better targeting work for the dole.

Budget Insider 2016 page 8

Digital health revamped The Budget confirms funding for a new Australian Digital Health Agency (ADHA) which will replace

the NEHTA (National E-Health Transition Authority) and drive the adoption of the My Health Record

online health record system, which will be renamed PCEHR (Personally Controlled Electronic Health

Record).

The ADHA begins on 1 July 2016 and will have 51 personnel. It is intended to drive the uptake of the

PCEHR electronic health records. At present there are 2.7 million electronic health records and the

Government expects another million from the trial of its opt out system (it had a poor uptake as an

opt in system).

The ADHA was funded to the tune of $485 million in the previous 2015-16 Budget.

Tougher Medicare compliance achieved through data matching and analytics is expected to improve

fraud detection and waste – saving $66.2 million over four years from 2016-17.

The Australian Digital Health Agency (the Digital Health Agency) will commence operation on 1 July

2016. The ADHA will manage governance, operation and ongoing delivery for digital health.

In 2016-17, the Government will implement changes to the Digital Health Incentive to encourage

practices to use and realise the benefits of the My Health Record system.

The Government will continue to provide Practice Incentives Program (PIP) teaching payments to

support general practices to provide teaching sessions to medical students and will continue to

support general practices to provide after-hours service provision to ensure that all Australians have

access to high quality after hours care, integrated with their usual general practice. The rural loading

incentive which recognises the difficulties of providing care in rural and remote regions will also

continue.

In 2016-17, the Government will work towards introducing changes to the PIP to include a new

quality improvement incentive payment that will streamline and simplify current PIP payments to

help general practice achieve high quality health care and improved patient outcomes.

Further demonstrating the Government’s commitment to reforming the health system through the

uptake of digital health, an additional $29.9 million is set aside in the Budget to deliver a single

National Cancer Screening Register, linking to My Health Record and other systems.

$100 million for Geoscience The Budget contains $100 million for Geoscience Australia’s ‘Exploring the Future’ initiative to map

mineral, energy and groundwater potential in northern Australia and South Australia.

It adds to the growing body of public sector data that is now being collected and shared to spur

private sector innovation and streamline Government operations.

Under the initiative, pre-competitive geoscience data will be generated and released annually over

the coming four years to stimulate investment in minerals exploration and infrastructure

development.

Budget Insider 2016 page 9

The resources sector continues to play an important role in our economy, representing around 10 per

cent of Australia’s GDP and more than 50 per cent of our exports.

The 2016-17 Budget delivers a strong boost to the productivity and competitiveness of this sector

with $100 million provided to Geoscience Australia for mapping mineral, energy and groundwater

potential in northern Australia and South Australia. This funding is on top of the $1.1 billion of

initiatives outlined in the Government’s National Innovation and Science Agenda.

The $100 million Exploring for the Future program will produce pre-competitive geoscience data, to

be released on an annual basis over the next four years. Geoscience Australia estimates that around

80 per cent of Australia remains under-explored, in particular, areas in the Northern Territory,

Queensland, Western Australia, and South Australia, which will be the focus of this initiative. This will

improve Australia’s long term exploration prospects and help address declining new onshore

exploration.

The benefits for doing so are clear. In 1996, Geoscience Australia undertook $3 million of analysis in

the Browse Basin. This helped identify the Ichthys field, which will produce more than $70 billion in

export earnings over the next forty years. Further, data compiled across South Australia in the 1960s,

costing around $350,000, helped identify the resource potential of the Olympic Dam and ultimately

to the discovery of ore more than 300 metres underground.

No transformation at the Digital Transformation Office Funding for the Digital Transformation Office, which has been charged with spearheading the

transformation of the way government services are delivered to Australians, has been confirmed for

the coming four years – but CEO Paul Shetler will see both his budget and team shrink in coming

years.

Budget and staff will peak in the 2016-17 year at $34 million and 208 respectively, but this is slated

to drop to $26 million and 177 next year, and $25 million and 150 thereafter as responsibility for

digital services shifts out to the individual departments.

No changes at OAIC The Budget announced that Government will not proceed with the new arrangements for privacy

and Freedom of Information (FOI) regulation, including proposed changes to the Office of the

Australian Information Commissioner (OAIC). Funding will continue, but there will be no increase

and the Government expects an ‘efficiency dividend’.

The OAIC will receive ongoing funding of $37 million over four years to continue its privacy and FOI

functions. FOI funding is provided on the basis of the streamlined approach to FOI reviews adopted

by the OAIC since the 2014-15 Budget.

Budget Insider 2016 page 10

Little mention of the NBN The NBN (National Broadband Network) barely rates a mention in the Budget, except to confirm

existing funding details. These include financial guarantees to Telstra and Optus until 2021 in regard

to NBN Co’s purchase of their HFC networks.

The Australian Government has committed $29.5 billion in equity to NBN Co Limited, which is

expected to be fully utilised by the end of the 2016-17 financial year. Consistent with NBN’s 2016

Corporate Plan, NBN is expected to raise debt from external markets of between $16.5 billion and

$26.5 billion (with a base case of $19.5 billion) to complete the rollout of the network.

NBN is currently undertaking the necessary preparatory work on the proposed debt raising. In the

event that NBN Co is initially unable to raise the necessary debt on acceptable terms, interim funding

support may be required. Were it required, additional Government financial support for NBN Co

would have implications for the fiscal position, for example by increasing assets and liabilities on the

balance sheet and, depending on the nature of support, could have positive or negative impacts on

the underlying cash balance.

Climate change ignored There was no mention in the Budget of climate change or renewable energy, and unlike many of his

ministerial colleagues Environment Minister Greg Hunt issued no supplementary press releases.

While this may not be surprising from this government, it is something of a disappointment to those

looking for leadership in this area.

Not mentioned in the Treasurer’s speech, but outlined in the budget papers, is a total of $103 million

over the next four years for the Clean Energy Finance Corporation and the Australian Renewable

Energy Agency, amounts that had been previously announced.

The Department of Meteorology receives an unspecified amount (‘commercial in confidence’) for a

new supercomputer.

Cuts to the ABC, a boost for private sector broadcasting The Budget continued the triennial $3.1 billion base funding for the ABC across television, radio and

digital services. But the extra $60 million over three years which had previously been allocated for

special purposes including the National Reporting Team, new regional bureaus, state-based digital

teams and the Fact Check unit has been reduced to $41.4 million over the next three years, an

effective cut of $18.6 million.

At the same time the Budget cuts 25 per cent off commercial broadcasters’ licensing fees, saving

them (and costing the Budget) $163.6 million a year.

Budget Insider 2016 page 11

About the Australian Computer Society

The ACS is the professional association for Australia's ICT sector. Over 20,000 ACS members work in

business, education, government and the community. The ACS exists to create the environment and

provide the opportunities for members and partners to succeed. The ACS strives for ICT

professionals to be recognised as drivers of innovation in our society, relevant across all sectors, and

to promote the formulation of effective policies on ICT and related matters.

The ACS is a member of the International Federation of Information processing (IFIP), a non-

governmental umbrella organisation for national societies working in the field of information

processing. It is also a member of the South East Asia Regional Computer Confederation (SEARCC),

the forum of national Information Technology professional societies in the Asia Pacific region.

The ACS is a signatory to the Seoul Accord, a multi-lateral mutual-recognition agreement among

agencies responsible for accreditation or recognition of tertiary-level computing and IT-related

qualifications.

About InnovationAus.com

InnovationAus.com provides news and commentary on public policy issues related to the tech and

innovation sectors. The Australian market has a well-earned reputation for producing sophisticated

users of technology, but has had only mixed success of developing and commercialising products for

world markets.

Governments can play an important role in creating a business environment in which innovative

ideas can flourish. Policy levers related to education, skills, access to capital, taxation, intellectual

property protection, technology procurement, and export industry support can all play a role in

assisting small Australian companies to become large Australian companies.

InnovationAus.com aims to provide the Australian industry with news and insights into the

government policies that can help or hinder the development of the local ecosystem. Armed with a

better understanding of policy development, it is hoped the indigenous tech industry can then

engage more successfully with governments and policy-makers.

Stone & Chalk

www.stoneandchalk.com.au

Australian Computer Society

www.acs.org.au

Swaab Attorneys

www.swaab.com.au

InnovationAus.com

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