Investment in Australian IT is set to boom as a result of business tax reforms announced by the Treasurer Peter Costello last week, but the industry has a further investment-hurdle - a shortage of funds management expertise.
Venture capital funds management is in its infancy in Australia, warns Vivian McCarron, a partner in PricewaterhouseCoopers' tax division.
VC investment is expected to rise under government plans to implement many of the recommendations made in the Ralph Report, including slashes to Capital Gains Tax for Australian investors, and exemptions for overseas Pension funds.
With the expected influx of money, the next question facing the industry will be "do we have enough talent in Australia to manage it," McCarron told PC Week.
"There are a lot of implications for funds," and the lack of qualified fund managers will be the next hurdle.
McCarron also believes Australia will take a couple of years to catch up to other countries in attracting overseas venture capital.
Overall, the reforms have been met with industry-wide jubilation.
"It's wonderful news for the industry," according to Bruce McCabe, senior analyst at the Gartner group.
Graham Penn, general manager of research at IDC agreed. The report "is favourable to all aspects of the IT industry," he told PC Week.
A major motivation for the proposed reform was to increase the international competitiveness of Australian business and to encourage greater investment by Australians.
This has been achieved with, among other things, the Ralph report's recommendation of capital gains tax (CGT) exemptions for gains earned through an Australian pooled development fund and for non-resident tax exempt pension funds investing in venture capital projects.
For individuals, only 50 percent of capital gains will be taxed, and for superannuation funds, only two thirds of capital gains will be taxed.
This is good news for high growth IT firms which will benefit from an increase in local and overseas investment and start-ups which will be less likely to head overseas.
"The single biggest barrier to investment in our industry is capital gains tax," McCabe said. Australia has all the ingredients to attract overseas companies, an educated workforce, political and social stability and even climate.
Another key element of the report is the lowering of the company tax rate from 36 percent to 34 per cent from 1 July 2000 and then to 30 percent from 1 July 2001. A separate simplified tax system will be introduced for businesses earning less than $1 million per annum.
In the report the government recognised that businesses have demands in addressing Y2K compliance issues and the introduction of GST, so if the new system becomes legislation it will be phased in. Major elements of the package will be deferred until 1 July 2001.
The Government will be considering other recommendations in the report and announcing a second stage response in the coming months.
Details of the report can be found at www.rbt.treasury.gov.au.
