FEATURE STORY: Yes Prime Minister!

Promises, promises, promises -- it's election time!

As we edge closer to casting our votes, the IT community has to consider which government party will best secure Australia's place in the information-based economy for the 21st century.

The choice is yours.

Does Australia need high levels of government intervention to help it to build competitive information industries and a flourishing information economy, or is it better to sit back and leave as much as possible to the market?

How far should governments go in pulling the strings, having recognised the potential importance of the information industries to our nation's prosperity? Is it enough to get the regulatory settings right and leave the rest to industry, or can government intervene to give local industries a leg-up? Should the Government use its massive purchasing power to assist Australian SMEs or buy goods and services from multinationals in the interest of the Budget bottom line?

These are not issues we've heard much about during the early weeks of the 1998 federal election campaign, nor ones likely to receive mass media attention during the hectic final days. Yet most of those closely involved with the IT&T industries feel instinctively that resolution of such issues will, in one way or another, determine whether Australia becomes a serious player on the Global IT&T industry stage, or merely a consumer of US product.

And in such matters the contrast in approach between the Coalition and the Labor Party could hardly be starker . . .

The story so far

The Howard Government's track record on long-term IT expenditure can only be described as poor, and its commitment to growing the indigenous IT industry more a matter of rhetoric than substance.

After the 1996 election the Government quickly moved to redefine its pre-election pledges to the IT industry as having been "non-core" promises. John Howard started the ball rolling by breaking his promise to extend privacy legislation to the private sector, claiming it would impose too much of a burden on industry. Unfortunately, many in industry felt a lack of legislation was more likely to hamper their interests than help them.

The Government also reneged on promises to maintain the 150 per cent R&D tax concession (at a cost to Australian researchers of $1250 million) and Labor's export assistance measures, amidst much talk of "rorts" and "business welfare". One result has been a dramatic decline in R&D spending for the first time since records have been collected.

But it pushed on full-steam with Finance Minister John Fahey's controversial whole-of-government outsourcing program, meeting the protests of SMEs with media gags and overriding departmental secretaries' grave concerns about the program.

The message that outsourcing was the Coalition's major industry development measure was reinforced with the 1997 Federal Budget.

This contained welcome measures on capital gains tax roll-over and fringe benefits tax relief, tariff reductions on IT component imports and Y2K tax treatment but made little effort to tackle problems highlighted by the Government's own Information Industries Taskforce.

The AIIA attacked the imposition of extra fees and charges by Austrade and the phasing out of the computer bounty, at a time when manufacturers would continue paying tariff on components for the next four years. The latter decision cost the industry $21 million in assistance and produced a disincentive to local manufacture.

And the decision to amortise software costs over two-and-a-half years was seen as a huge blow to the industry with considerable negative impact on Australian software developers.

In September 1997 the Government established the Ministerial Council for the Information Economy to oversee and coordinate a whole of government agenda for the information economy.

Three months later the Prime Minister's $1.2 billion Investing for Growth spelt out the Government's commitment to a light-handed regulatory framework, getting Australia online, and fostering the information industries. The statement failed to address the critical issue of a national approach to industry policy, ignoring the need for Commonwealth and State Governments to work together on the issue.

The Government says initiatives of its National Office of the Information Economy (NOIE) and other agencies, including the Business Entry Point, Australia's Cultural Network, its government-sponsored awareness programs and zero tariffs on information technology inputs demonstrate its commitment to advancing the information economy.

Maybe. Yet the Government has chosen to ignore many of the recommendations both of the Information Industries Taskforce and the Mortimer report -- reports it itself commissioned -- because they didn't sit well with its non-interventionist philosophy. In fact it has been left to the Labor Party to pick up the most germane recommendations of the Mortimer report and use them to shape a new industry policy.

The Coalition

The Coalition's philosophy on the information economy was spelt out in the recent NOIE Green Paper http://www.noie.gov.au/nationalstrategy/document.html, which serves to outline the Government's information economy policy position but which reads in many ways like a "motherhood statement".

The greater emphases are on raising awareness through regional summits ($3 million allocated), creation of a suitable regulatory environment, and on a range of measures to ensure access to affordable communications, Internet public access points and support and training.

There's also a national strategy to raise Y2K awareness and stimulate corrective measures among businesses of all size, with a budget allocation of nearly $10 million.

On 17 June 1998 Minister Moore released a report, Information Industries Action Agenda, which elaborates on and reviews progress in implementing the Action Agenda.

And it says those objectives will be addressed through generally available industry support programs and information industries-specific initiatives announced in Investing for Growth, and as outlined in the Information Industries Action Agenda released in June 1998 by Minister Moore.

This includes:

Extension of the Innovation Investment Fund by $43 million to expand the availability of venture capital, with one of the five licensed fund managers specialising in information industries.

Provision of an additional $556 million to the Research & Development Start Program over the next four years; seven of the 19 projects accepted under the third round of funding were in information industries.

Establishment of Software Engineering Quality Centres during 1998/99.

Continuation of broadscale IT outsourcing.

All the measures are built on the Government's belief that the private sector will lead development of the information economy, while the Government's role is to partner business and the community to create the social and economic conditions in which the information economy can flourish.

And the Coalition is determined to push on with plans to sell off 100 per cent of Telstra, despite fears that a privatised Telstra would be significantly less interested in helping local industry.


Like other business interests, IT business leaders have been pushing for tax reform for years, but there are fears IT business may well end up being short-changed by the Government's proposals. Business is required to support the GST and the gains the Coalition says it will bring to business, and trust the Coalition will introduce fundamental reforms to business taxation after the election.

But there are real fears the information industries could be big losers from the process. Already there is talk of the Government being prepared to introduce a 30 per cent company tax rate only provided business is prepared to give up on the very business tax concessions the IT industries depend on to grow. The AIIA also fears the price for lower taxes will include unrealistic depreciation rates.

For the IT&T industries it is proving difficult to assess the real impact of a GST on business growth. While taxes on hardware should drop from about 18 per cent effectively to 10 per cent, taxes on software and services will rise from zero to 10 per cent. According to the AIIA, overall the cost of IT to the customer is certain to rise.

Labor's alternative

At the time of writing, Labor had tax reform proposals and an Industry Policy on the table, but was hinting there would be more announcements germane to IT&T before election day. Labor says it intends taking an integrated approach to industry policy involving investment attraction, measures to encourage Australian research and innovation and moves to increase the availability of venture capital for small start-up firms.

One of the most significant but little noticed pledges to date is to adopt Mortimer's recommendation that business programs be funded on a rolling five-year funding envelope, to give certainty to industry.

ALP's Tax Plan includes pledges to reinstate the 150 per cent R&D tax concession and allow a limited capital gains tax exemption for foreign fund investors, both initiatives IT&T industry bodies have been lobbying hard for over an extended period.

The AIIA says the move on venture funds, which would open the way for the giant US pension funds to invest in Australian SMEs, "is in the right direction because the vast bulk of venture capital in the world comes from those sources". It should remove one of the major obstacles to local developers getting access to offshore capital and hopefully prevent the need for many of them to take their technology out of Australia. The main effect, Labor says, would be to allow access for the first time to the Australian capital market by the US pension funds which are a world-wide source of venture capital at the seed, early start-up and early development stages of development.

A further $20 million has been earmarked to develop a policy that would give some comparable relief on the domestic side. Labor also has committed to a target of lifting Australian business spending on R&D to above 1 per cent of GDP by 2005-2010.

It would also provide $100 million to re-establish an Investment Attraction Fund, as recommended by Mortimer, to attract new investment projects with a high level of spillover benefits to Australia, such as introduction or new technologies and skills.

And it says it would work with key industries, including the information industries, to create the best possible environment to help them lift employment levels, net exports, investment and R&D at a cost of $75 million a year.

Developed as a response to Mortimer's call for "action agenda" giving industry the tools needed to facilitate investment, each strategic plan would be a five-year plan designed to tailor existing general industry development programs and funds to the requirements of the industry.

Labor says it would call a moratorium on the whole-of-government outsourcing program until it can be assessed by a public interest test considering long-term impacts on jobs, Australian industry and employment.

There would also be a development allowance giving a 20 per cent tax deduction on eligible spending on infrastructure projects -- including IT&T infrastructure projects -- valued between $5 million and $100 million and started between 1 July 1999, and 30 June 2003.

And arguing keeping Telstra in public hands is vital to our economic future, Labor has pledged to earmark 35 per cent of the Telstra dividend to be used exclusively for science and technology, regional infrastructure and job creation.

All the IT community has to do is decide which approach is best likely to secure our place in the information-based economy of the 21st century.

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