Australian trade and investment minister Andrew Robb commented recently, when discussing proposed changes to the SIV program, that foreigners need more ‘skin in the game’ as a sign of good faith. The program was temporarily closed to new applications in April and new changes to the program are expected to be announced by the government this month.
The best way to encourage foreign entrepreneurship is to provide incentives to do business in Australia, particularly in struggling industries such as manufacturing and technology.
These ventures will in turn lead to increased employment and contribute directly to broader economic growth. A significant tax incentive is the smartest way to entice foreign business owners to invest in the new SIV proposals, given they carry significant risks.
The proposed changes to the SIV program include mandating a significant proportion of foreign investment into risky venture capital funds.
One possible tax incentive under the SIV scheme could be to halve the tax rate for three years for businesses with profits running under $2 million.
The government needs to think big to grow big and attract talent from other regions. The current tax system is not encouraging start-ups to invest in this country, which is why our brightest and best move overseas. Additionally, Australia has an expensive labor force with high tax rates.
Entrepreneurs seeking a SIV are very successful business people looking for their next business opportunity. They are also savvy when it comes to investing and understand the importance of diversifying their asset base. The proposed mandate for a significant proportion of investment in venture capital assets to obtain an SIV is a risky move for any investor.
According to the latest statistics from the Australian Department of Immigration and Border Protection, between 24 November 2012 and 30 June 2014, 1,497 SIV applications were received. Of these, 1,224 were invited to proceed to the interview stage. Significantly, 91 percent of these applications came from China.
The statistics highlight that $3.255 billion has been invested in complying investments, while $2.845 billion is proposed for future investment. These figures span from November 2012 to January 2015.
Much of the great work the government has done to attract high-net-worth SIV applicants could be undone if they move forward with a recommendation to force people to place allocations of up to 50 per cent in risky assets such as venture capital and micro-cap companies.
It is simply not plausible to expect foreign entrepreneurs to invest up to half of their money in risky assets to obtain a pass into Australia. How can the government expect any foreign investor to undertake such a foolish move when investors in our own country would not undertake such an unreasonable investment requirement?
The Australian venture capital and micro-cap sectors are very small. It would be difficult to find both the investment opportunities and the expertise to significantly increase this allocation as would be required under the proposed visa guidelines in the short term.
According to Australian Private Equity & Venture Capital Association Limited’s 2014 Year Book, over the last five years, approximately $150 million per year was raised for venture capital funds in Australia by, on average, three or four managers.
Over 90 per cent of SIV applications come from China. Australia is one of China’s top three preferred locations to live and do business in. This country is geographically well positioned, the time zone is relatively close to China’s major cities (approximately three hours), the tax system is stable and culturally the two countries are a good fit.
The government needs to fully recognise the significant benefits foreign entrepreneurs bring to Australia and harness these opportunities with enticing packages for them to expand their wealth here. This in turn will be advantageous for the entire economy.