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House of Assembly - Fifty-First Parliament, Third Session (51-3)
2008-10-30 Daily Xml
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PARTNERSHIPS (VENTURE CAPITAL) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 16 October 2008. Page 560.)

Mrs REDMOND (Heysen) (16:46): It is my pleasure to rise to speak on this bill. In doing so, I indicate to the house that, whilst I know something about partnerships legislation, I know probably only slightly more than the Attorney-General about venture capital.

The Hon. M.J. Atkinson: Just a little bit—as a result of having practised.

Mrs REDMOND: Indeed—nothing to do with having practised, but having made some inquiries and done a little bit of reading about it. I often say to my colleagues that I want to be put in charge of the Treasury for only half a day, because I figure that in half a day I could rifle out enough money to do the things that I think need to be done in the state. However, I do not think that anyone is ever going to put me in charge of the Treasury, and it is a little surprising to me that I am leading the debate on this bill. However, I do so having the matter come, as it does, under the Partnership Act of this state, although in reality the thrust of the bill has little to do with partnerships per se.

I will just talk briefly about my understanding, in layman's terms, of what this does. I would say that I have a very primitive understanding of venture capital, and that is that people who want to start up a new venture or engage in a continuing venture sometimes have the ability and the wherewithal in all sorts of ways, but they do not have the financial resources to enable them to do so. We now have a more complex system but, for some time, we have been able to make arrangements for those who have money but not necessarily much wherewithal about what to do with it and want to invest. I guess the basic idea is that the return from such an investment can lead to a greater outcome for those investors than what they would get were they simply to put their money into the bank and earn interest on it.

Potentially, if you invest in a business venture and it is a highly successful business venture, you stand to make a lot of money, and there are sound reasons why governments, of all persuasions, think that it is a good idea to encourage money which might be available from private investors in various places to be put into ventures around the country, in this state and elsewhere, so that we can develop new industries, new technologies and research—do all sorts of things—and, rather than governments having to pay for it all, it is a great thing to be able to get some private investor capital.

In recent years one of the things that has been done to enable that is to give tax breaks to people who invest in venture capital enterprises. The history of it is that in 2002—strangely enough, the same year we were dealing with the embryonic stem cell research—the commonwealth parliament dealt with the Venture Capital Act and also amended the Income Tax Assessment Act 1936. I can say I did understand the Income Tax Assessment Act way back when I studied taxation law. During my course I actually felt I had a reasonable grasp of it. I have long ago given up any—

The Hon. M.J. Atkinson: What did your examiners think?

Mrs REDMOND: They also thought I had a reasonable grasp of it. I passed income taxation law, at the very first attempt, and that is really the last time I took much interest in income tax law. Anyway, in 2002 the commonwealth passed the Venture Capital Act and amended the Income Tax Assessment Act to allow these partnerships which are involved with new ventures, venture capital, to be given a certain tax-exempt status, thus encouraging investment in them. In particular, they are constructed so that money from not just other states but also overseas can be brought into new ventures, and even existing ventures, in this country.

As is often the case, of course, because of the fact that we established our Commonwealth Constitution way back at the turn of the previous century and in those days we did not have corporations and all sorts of other things that exist today—

The Hon. M.J. Atkinson: Yes, we did. We had companies.

Mrs REDMOND: We had companies, but we did not have federal legislation covering companies, and so on. What has happened is that, constantly these days, we seem to be confronted with the situation where the federal parliament is deemed the appropriate mechanism whereby things can be legislated but the reality of our constitutional breakup is that the states have to pass legislation which goes hand in hand with the commonwealth legislation to give effect to what everyone intends. That is what is happening in this particular case.

At the moment there are already three different sorts of entities which can receive the benefit of this income tax exemption, and they are: a venture capital limited partnership; an Australian fund of funds; and a venture capital management partnership. A couple of years ago, I think in 2005, the states amended their partnership acts of various kinds to take advantage of the fact that the commonwealth had introduced these changes to the Income Tax Assessment Act, and these various entities under the partnership acts in the various states could get the benefit of the tax-exempt status.

I am still not quite sure why the new one that we are now trying to encompass within the legislation is not covered by what we already have, and I am contemplating whether we should go into committee to ask the Attorney-General to explain in detail what the difference is between the various forms of venture capital limited partnership, Australian fund of funds and venture capital management partnership, and how it is that they do not capture investments in small, early stage or start-up businesses. My understanding is that the current amendment is aimed at specifically trying to capture venture capital money which will be applied to those early small businesses and early-stage start-up ventures. All that this legislation is doing is adding to the three existing tax exempt entities a fourth entity for early stage venture capital investment.

Although I do not think it is stated in the second reading, it is apparent that, with the other states already having done the same in relation to the three venture capital entities that already have tax exempt status, they will legislate to make this new entity—the early start-up venture capital partnership—part of their tax exempt package. Therefore, if South Australia did not proceed to amend its Partnership Act in line with that, the consequence, apparently, would be that venture capital people with money to invest in new or start-up ventures would be likely to invest that money elsewhere than in South Australia. Clearly, that is unlikely to be in the best interests of this state.

We want to be on an equal playing field with the other states when it comes to attracting money into this state; and it is not only money from other states but also money from overseas. I know the Premier keeps talking about our mining boom. In fact, in South Australia we are in the midst of a mining exploration boom—and there is no doubt that is the case—but it has not yet turned into a mining boom. Indeed, when I was working on the Far West Coast with the Mirning Aboriginal tribe and talking to the people involved in mining exploration, we organised lessons for the Aboriginal tribal groups about mining exploration and its likely impact.

They used the figure of 100:1. They said, 'Even if we start exploring, we are still at the point of its being a 100:1 shot that we will end up with a mine.' A mining exploration boom does not equate to a mining boom, but I am sure we all hope it will eventuate into a mining boom in this state. Of course, we have biotechnical advantages and various defence contracts where all sorts of money could be involved in the research and development of new ventures associated with any number of new technologies, new industries and new businesses in this state.

The plan is to amend our Partnership Act—as we anticipate the Partnership Act in all the other states and territories will be amended—so that early stage venture capital limited partnership (which is the new entity) can be included as the fourth of the tax exempt entities and be able to attract further venture capital into the state of South Australia. Hopefully, there will be significant benefits in this state for small business. I note that, although we are talking about small business and we normally define small business as an enterprise with maybe 15 to 20 employees, in this case we are talking about something well beyond that in my estimation because we are looking at a minimum of $10 million and a maximum of $100 million and an entity that must be in existence for a minimum of five years to a maximum of 15 years.

Although we are talking about small business, the sort of money that can be involved in some of these start-up ventures is significant. Obviously, with those sorts of figures we would want to attract that sort of money into this state. Accordingly, the Liberal Party does not hesitate in deciding to support the passage of this bill through the chamber so we can enter as quickly as possible into the tax exempt status for the various entities.


[Sitting extended beyond 17:00 on motion of Hon. M.J. Atkinson]


Mrs REDMOND: I will resume my remarks simply to conclude them by saying that we support the bill. We wish it speedy passage. We do not have any hesitation in indicating our support for this, albeit, as I said, I have an extremely limited knowledge of the details of venture partnerships.

Mr GRIFFITHS (Goyder) (17:00): I commend the shadow minister on her contribution to this bill. I must admit, when it was first put on the table, there was some confusion on my part about who had responsibility for it, given its tax implications, and whether it came within my portfolio responsibility of finance or, indeed, the shadow attorney-general's, but we quickly cleared that up via a telephone conversation. I also fully support the bill. It is an enormous opportunity for South Australian businesses to have the chance to grow in a way that some might never have anticipated.

It is important for us in the chamber to recognise that, in the business community, it is often hard to attract the capital that a business needs to grow its business to its maximum potential. There are people out there, though, happily enough, who are prepared to invest with some degree of risk attached to it to ensure that, when they see an opportunity for something which they think has a bright future, they can be part of it, although not necessarily from the early stages because, as the shadow minister said, a business does need a history of a period of years behind it and a sum of turnover. However, when they see an opportunity either in a niche market or an existing market which is achieving greater exposure, they want to invest because they see a greater chance for return.

In these uncertain economic times, we still need venture capitalists. The most common tendency would be to consolidate all investment opportunities and take the lowest risk option, but with the opportunities presenting themselves in South Australia at the moment, it is important that we encourage people who do have the cash reserves to undertake that level of investment. Therefore, an acceptance of the fact that federal regulations need to be applied in South Australia and this chamber and the upper house ensuring that the bill passes swiftly will only act as a stimulus for opportunities that exist in our state.

South Australia, as the shadow minister mentioned, is predominantly based around small business. We consider small business to be far smaller in size than the scope being considered here, but many South Australian businesses fit within that level which, under the national economy, would be defined as relatively smaller businesses. For those businesses to have the chance to compete and to grow their business, and to take on the big boys who might exist in the eastern states, it is important that we support the legislation, therefore creating some tax advantages for those people who do take the risk.

In trying to develop a greater understanding of what venture capital means, I visited a few websites. I must admit that the definition of venture capital provided on the Australian Private Equity and Venture Capital Association Limited website was very helpful. It puts it quite succinctly and it makes it quite easy for any person, no matter what their background, skills and experience, to understand what it means. I then visited a government website, Venture Capital SA, which again is an organisation of government which has been established to support venture capitalists and to ensure that funds are available. It is pleasing to see that the government is taking a very pro-active stance.

I have no doubt that, on our coming to government, that will also be our philosophy. Our belief is that growth in the economy must be based around private investment opportunities. We want to ensure that we support it in every possible way. The acceptance by the federal government to provide tax rebates to encourage venture capitalists and the adoption of this bill within South Australia is only a good thing, and I certainly support the shadow minister in commending the bill to the house.

Dr McFETRIDGE (Morphett) (17:05): I rise in support of this legislation. I am just a humble veterinarian; I am not a financial guru, but I do understand that, if you are going to develop new enterprises or new businesses of any sort, you want to look at every possible way of encouraging the development of those businesses. This bill is part of a range of legislation aimed at increasing the opportunity for small businesses in South Australia. Certainly, with biotechnology developing the way it has and the way it will continue to develop after the passage of today's legislation, it will be very important that South Australian businesses and scientists are able to maximise their opportunities for the benefit of not only South Australians but mankind generally.

The need to look at this legislation and see what it is going to do is essential. The main thrust of this legislation is to recognise these early stage venture capital limited partnerships, thereby allowing businesses to take advantage of the commonwealth tax relief. In terms of the new corporate entities, the bill proposes to establish a new form of a corporate entity entitled 'incorporated limited partnership' and follows legislation that has been established in other states.

Partnerships created can apply for registration and be granted corporate status if they wish to do so. This business structure is preferred by international venture capital investors, particularly those for funds which come from the United States. In terms of its importance for the state, this legislation is extremely important to start-up enterprises—small and medium businesses—that need the finance to grow in the future.

It is extremely important for the state to have the right framework to encourage overseas investment and liquidity into local businesses and local industries. Without such legislation, South Australia will continue to fall behind other states of Australia. It is important that, in this volatile economic climate, small businesses are able to raise finance for projects and expansion, which will generate growth opportunities and jobs for the state. There is a need to encourage overseas international investment in this state, without which we could not grow.

In the bioinnovation sector, venture capital and private equity in South Australia have grown over the past few years. According to the 2005-06 Venture Capital Annual Report, the share of Australian professional private equity dollars invested was around $50 million in 2004-05. I understand that it has risen to about $90 million in the current year. The need for this legislation is vital for many industries in South Australia, but particularly for the bioinnovation industry.

With those few words, I will conclude my remarks, but I will make one comment. In the budget this year there was a $700,000 cut to Bio Innovation South Australia. That is the sort of thing that does not go down well with the opposition or with the science industry in South Australia. However, this is a good piece of legislation.

Mr VENNING (Schubert) (17:08): I believe that all members who stand in this house realise that they have to declare an interest in everything they do and vote on; I am doing just that. I have several partnerships, and members can read them if they wish; it is all listed. I have never used venture capital, but that does not mean I never will. I do not want to repeat all that has been said very capably by the shadow minister and, indeed, the members for Goyder and Morphett. If we do not pass a relevant amendment to the State Partnership Act, the small start-up enterprises in this state could be deprived of the possibility of attracting venture capital, which will be spent in other states with tax-exempt status.

A lot of work has been done on this issue. This country is devoid of many key industries. Over the years we have lost a lot of our industries, particularly in the agricultural sector. We now rely almost entirely on overseas product. So much is happening out there at the moment. We are living in huge times of great change. If we are able to attract business to Australia via venture capital, we should.

When a person agrees to put venture capital into an Australian business, that is money, but usually technology and ideas come with it. I think it is very timely to be discussing this tonight. We certainly need the cash resources but more important is the technology that comes with that—the commercial in-confidence technical information in so many technical processes, such as industry and technology, including industries such as solar optics, computer software, water processing plants, high-tech farming applications, precision planters and sprayers, oil and mineral exploration, and the companies and the equipment they use, particularly with the geophysics that they have today.

All these are now overseas companies. I think you can burn up a few million dollars very quickly in industries like this and, if we can share it with a big multinational company via venture capital, I say that we go for it. We have to go out there and meet the market in everything we do, but we have not been doing that. We have to do things like this, and we probably should have done this some years ago. People are out there taking risks. I have always said that we should reward the risk taker, particularly in the current economic environment.

The Hon. M.J. Atkinson: Particularly in the betting ring.

Mr VENNING: Well, the Melbourne Cup is next Tuesday; is that what you are talking about?

The Hon. M.J. Atkinson: I am satirising your contribution.

Mr VENNING: Well, I am responding just as weakly to your interjection. I think it is very relevant to pass this legislation. I commend the shadow minister for the work she has done and for being to the point, and also other members for their contributions to the debate. I support the bill.

Bill read a second time and taken through its remaining stages.

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