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Nassim covers the accounting and tax rounds for BRW, as well as general business news. She previously worked for The Age newspaper covering general news, state politics and economics.

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Why Australia can’t replicate Silicon Valley or Israel: Malcolm Turnbull

Published 16 October 2013 11:46, Updated 26 November 2013 12:10

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Why Australia can’t replicate Silicon Valley or Israel: Malcolm Turnbull

Malcolm Turnbull says innovation and access to capital are critical for start-ups. Photo: Glenn Hunt

Technology start-ups are excited about a minister in Canberra who finally gets technology.

Communications Minister Malcolm Turnbull has long been involved with technology companies, most famously as the former chairman of OzEmail.

Turnbull took a stake in the tech company in 1994 for $500,000, and five years later sold it to WorldCom for $57million, making him one of Australia’s richest politicians.

In an exclusive interview with BRW, where he also talked about the challenges facing women, Turnbull discussed what Australia can do to create a successful start-up ecosystem like the ones created in Silicon Valley and Israel. “I don’t think anywhere is likely to equal Silicon Valley,” he says.

Turnbull, like Treasurer Joe Hockey, thinks the government can review Labor’s policy on employee share schemes, which many start-ups have described as damaging to helping create more start-ups in Australia.

Before 2009, employees could defer the tax on shares or rights for up to 10 years, but Labor’s changes in that year meant tax has to be paid immediately. This deters start-ups from using options to attract talent.

Former communications minister Stephen Conroy announced a welcome review of the scheme earlier this year. The Treasury review – examining how the schemes are administered, valued, and at what point they should be taxed – is currently under way.

Affordability and timing

Turnbull is supportive of a policy change – Hockey told BRW in July that the Coalition will consider winding back Labor’s policy in its first term.

Turnbull says it’s a question of “affordability and timing. I think there’s a number of things we can do to make start-ups more attractive in Australia. I’m not announcing any policy on this, but you’ll hear from your tech start-up friends about the way in which options are taxed. That’s a huge issue.”

Australia can’t replicate Israel’s chicken soup

With a population of fewer than eight million, Israel produces more start-up companies than much larger nations such as Japan, China, India, Korea, Canada, and the UK. On a per-capita basis, Israel has attracted over twice as much venture capital investment as the US and 30 times more than Europe

Turnbull says when he was involved in technology start-up OzEmail, the tech start-up world was “a lot tougher”.

“No one was doing it then,” he says. ‘We should be more positive about companies that are starting here. You’re getting a more sophisticated investor base and you’re getting people who are making money out of technology investing in it.”

Asked whether that means we can eventually catch up with countries like Israel, he says: “I don’t know that anyone can replicate the secret chicken soup of Israel. What the government can do is promote more innovative approaches; encourage its departments to be more innovative, you’ve seen that in our policy.”

In September, speaking at the York Butter Factory in Melbourne, Turnbull and finance and deregulation minister Andrew Robb announced the Coalition will reduce its spending by roughly $6 billion per year on ICT procurement.

Turnbull says the biggest challenge for Australia is to stay competitive in a globalised world, where developing countries are now competing for high-wage, high-skilled jobs. He says nearly all government interactions with the public can be conducted digitally by 2017.

While the steady stream of tech entrepreneurs moving onto the BRW Young Rich list has slowed this year – the number has dropped from seven to three – smart entrepreneurs are still finding ways to make money without moving to the United States.

Subsidies won’t help

Turnbull says the reality is that most Australians looking to take their businesses global, will move overseas.

“The difficulty that you face is that for people of your generation, and mine too, going from Sydney to San Francisco is not a bigger deal than going from Sydney to Melbourne,” he tells BRW. “You guys are living in a globalised world. It’s important to understand that Australians speak English. They don’t see America as a foreign country.”

The best incentive for Australians to stay is its great lifestyle, he says.

“The biggest objection to moving to Silicon Valley is leaving the beach in Sydney,” he says.

“The best thing we’ve got going for us, apart from the ingenuity of our people, is our lifestyle. We shouldn’t underestimate this. The fact that Sydney and Melbourne is such a great place to live is a drawcard.”

Some governments overseas offer start-ups subsidised rents and other tax incentives to help them grow. But Turnbull says the American and Israeli governments don’t put a lot of money into start-ups.

“The critical thing that you need is innovation and the access to capital,” he says. “I mean I’ve started a few tech companies over the years, and one of the challenges you always face with tech start-ups in Australia is that your biggest market is not going to be in Australia. And so inevitably you get to a point where you’re under pressure.

“Even if you’re funded entirely locally, you say to yourself, ‘the market is in North America or Asia or Europe. I should be there’. So running a global business out of Australia is tough. The potential for changing that is that the more you can transact over the web, without having to talk to people face-to-face, the easier it is to do business in Australia. What you need is venture capital investors in Australia making money.”

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