Thank-you very much, it is great to be here. In case you are wondering it is still the most exciting time to be in Australia. It still is. This room would understand that better than any. That was a true statement when the Prime Minister first said it a few years ago, and nothing has changed, because there are exiting things that continue to happen, particularly in your space. It is changing the world, it is changing lives, it is changing prosperity, and it is making an enormous impact.
We know, and you particularly know, because you are the professionals in the field, that this whole area while it contains enormous opportunities, can also be incredibly intimidating to people. It is very hard for them, often, to understand the real changes and improvements in living standards that it can deliver for them and how when it is harnessed for their purpose, and for their good, and for their benefit, then there are real, big changes that can be made.
So, we have a collective challenge, whether it is Victor and I in government, or you working in the organisations which you work in, large companies, to small companies, to public institutions and public service departments, the change agents in harnessing this incredible new technology.
We live in a time where the pace of change is nothing short of extraordinary. It’s a world, where the cycle of change is putting increased power in the hands of consumers and forcing businesses to innovate at speed, or lose relevance. While some take technology for granted and others get lost in the hype, I commend the society for seeing it as a driver of productivity and increased living standards. And, importantly, you realise that advances in technology benefit all sectors of the economy, not just your own.
Digital technology continues to be a major part of Australia’s success as we shift the dial on our productivity agenda. According to the Society’s report, Australians are each better off by more than $4600 per year as a result of the general digital technology update. You can attribute this to many factors: increased productivity of workers and businesses, improvements in the quality of products and services, as well as reduced prices. We welcome these gains, but given the evolving nature of technology, we are not done yet — far from it, in fact. Consultancy firm McKinsey said “Australia’s digitisation is uneven and still a distance from its full potential.” It goes on to say that “digitisation could contribute between $140 billion and $250 billion to Australia’s GDP by 2025, based on currently available technology alone.” In other words, Australia’s performance hinges on our ability — as the Intergenerational Report said — to absorb technological advances and convert them into new business opportunities. As I told investors at Bloomberg last month, the solution doesn’t involve re-heating productivity agendas devised before smart phones and the internet. Instead, the digital economy — now more than 20 years’ old — demands a national productivity software upgrade of its own. Our challenge is to develop a productivity agenda geared towards the service and knowledge economy, while continuing to draw on our strengths in resources, construction and agriculture.
Work is under way on several fronts to set the foundations for innovation and growth. First, I’ve asked the Productivity Commission to undertake the first of what will be a five-yearly report on national productivity. The PC is not trying to provide a checklist for governments to achieve; rather, it will help define a new direction. Secondly, we are delivering the $1.1 billion National Innovation and Science Agenda, including delivered tax incentives to encourage investment in start-ups. We are sharing and providing access to more government data via the CSIRO’s Data61 unit. We are moving to overhaul our insolvency laws, which put too much focus on penalising and stigmatising business failure.
We have focused on digital literacy and improving science, technology, engineering and mathematics (STEM) learning outcomes. And we are investing $13 million to encourage more women to choose and stay in the STEM fields. Thirdly, we’ve reviewed both our competition and consumer laws to make sure they are fit for purpose in the digital age. And finally, as recently announced, we are developing a Digital Economy Strategy — a roadmap to create a thriving, digitally sophisticated Australian economy. I look forward to hearing your thoughts about enabling and supporting the digital economy. And how we, as a nation, go about building on our competitive strengths to drive productivity and raise digital business capability. The Minister for Industry, Innovation and Science, Arthur Sinodinos said “we are not only responding to change, but we are seeking to create change — change that is to our benefit.”
Improving digital engagement can boost the productivity of Australia’s small businesses, thereby making our economy stronger, more dynamic and sophisticated. Deloitte’s Access Economics found that “digitally-engaged small businesses create more jobs.” It said small businesses that reach ‘advanced’ levels of digital engagement are: 1.5 times more likely to be growing revenue, and eight times more likely to be creating jobs compared to those that have 'basic' digital engagement, and 14 times more likely to be innovating. By international standards, Australian businesses are not fast adopters of technology. On a number of different engagement indicators, Australia ranks in the middle of the pack of advanced economies rather than at the forefront. Those businesses, and we are particularly talking about small businesses here who may fail to grasp the need to digitise given their specific trade or clientele, are at risk of missing the benefits that such connections bring. Primarily, increasing sales by reaching more customers at home and overseas. That’s why we put so much weight on securing trade agreements to open the doors of opportunity. Now, while all small businesses may not want to be world beaters, there are also benefits when it comes to customer service. Smaller businesses often outshine their larger competitors by providing a more personalised service — digital technologies can take this to the next level by using data to better understand customer habits and preferences. As consumers become more powerful — and businesses look at new ways to get a competitive edge — this is particularly important. Small business may also find technology helps them run their business by being able to track their financial health in real-time, automate manual and time-consuming processes, or save time in meeting regulatory requirements.
The benefits stack-up — but there are several barriers for small businesses in taking up digital technology. Deloitte found more than 90 per cent of small businesses are not taking full advantage of today’s digital tools, with many citing ‘inadequate skills’ as a barrier to making the most of the web. In an earlier study, the Australian Communications and Media Authority (ACMA) ran through a list of barriers small business see when considering digital communication technologies.
This includes: information overload, concerns about return on investment, costs, and worries about usability and fit with existing systems. This is completely understandable when you consider in recent years, somewhat tough years for business owners, many operators have had to dip into their own pockets to ensure they keep their staff in jobs. It’s hard to think about investing in your future by digitising your business when it’s a struggle to keep the doors open.
In pushing the boundaries of opportunity, we are backing Australia’s small businesses, encouraging them to grow and embrace new opportunities and innovate, Australia wins. This year, we have lowered tax for 3.2 million small and medium-sized businesses — employers of around 6.7 million Australians. Right now, incorporated businesses with an annual turnover of less than $25 million benefit from a corporate tax rate of 27.5 per cent — the lowest level in 50 years. And we are raising the turnover threshold to qualify for the lower tax rate to $50 million in 2018–19. As well as the extra breathing space on company taxes, we have extended the $20,000 instant asset write-off to 30 June 2018. This initiative provides small business with an opportunity to invest in their business by immediately writing-off the cost of purchasing machinery and equipment costing less than $20,000 each. Indeed, some businesses may access the instant asset write-off when they purchase new hardware or technology. On top of that, we have made it easier for smaller businesses to compete for the government’s ICT contracts. Recent ICT procurement reforms — which cap contracts to a maximum of $100 million or three years’ duration — will benefit SMEs who will have the opportunity to bid for smaller individual components of larger government projects. In the area of cyber security, we will provide grants of up to $2100 to co-fund small businesses to have their cyber security resilience tested by CREST ANZ-approved service providers. Many of you will be interested to know that our strategy also extends to building a strong cyber security industry in Australia. The Minister Assisting the Prime Minister for Cyber Security, Dan Tehan, announced $30 million to fund a new Cyber Security Growth Centre. Industry experts are driving the Centre’s work in ensuring Australia has a foothold in a global industry which is expected to grow to AUD$200 billion by 2020.
The Government can make life easier for businesses by using technology to cut red tape. Time is money. To remove the level of government hoop-jumping, we’ve set up the Digital Transformation Agency and the National Business Simplification Initiative. Believe it or not, it can take up to 18 months to set up a café here in New South Wales. People need to complete up to 48 forms and comply with up to 75 different regulations across different levels of government. Under the banner of the simplification initiative, we are working with the New South Wales Government to reduce this burden. Combined with other measures by Service NSW, we are looking to reduce the cafe set-up time from 18 months to three.
Financial technology — or FinTech — is another dynamic area where The Turnbull Government has been methodically positioning Australia as a world leader. The ‘FinTech revolution’ is an uprising The Economist heralded by saying: “The magical combination of geeks in T-shirts and venture capital that has disrupted other industries has put financial services in its sights.’’ This revolution is offering consumers and businesses the chance to benefit from new services and products — providing them with greater choice through increased competition and efficiency across the financial system. On another level, we see that FinTech start-ups and entrepreneurs are more nimble in their use of technology which is giving them a fighting chance against established and traditional businesses. For these reasons, FinTech is one of the fastest growing sectors in the global financial services industry, with total investment almost US$25 billion in 2016. Earlier this month I travelled to Beijing to lead our representation at the Strategic Economic Dialogue with the Chinese Government, and met with major Chinese firms who are investing in Australia. Among the encouraging signs of China’s pursuit of sustainable economic growth, the prudency at which it is addressing its debt and its continued openness to trade and investment, is the pace of digital change within its economy. While many consider London, New York, Singapore and Hong Kong as FinTech frontrunners, China is powering ahead. Digital disruption has been king to the Chinese consumer, presenting them with a range of mobile payment platforms, mobile lending, and peer-to-peer credit which enables more than 400 million Chinese - or 65 per cent of its mobile users - to use their phones as their wallet; the highest rate in the world. While China is the emerging giant in this space, providing innovative all-in-one FinTech platforms that sync with social media accounts, evidence shows that Sydney and Melbourne are holding their own. The Global Financial Centres Index saw both Sydney and Melbourne featuring within the top tier of FinTech and financial services destinations. Recent results also show that Australia is now the second largest alternative finance market in the Asia-Pacific, with the market reaching US$610 million in 2016. And the number of FinTech start-ups in Australia has increased from less than 100 in 2014 to 579 companies in July 2017. The Australian FinTech landscape is increasingly diversified, picking up credit, payments and digital currencies and extending to include regtech, data and analytics, and personal finance management. As we’ve come to expect, Australia is punching above its weight — eight of our companies made the 2016 list of the world’s 100 leading FinTech innovators. According to KPMG, investment in Australia’s FinTech industry hit a new high in 2016 — US$656 million invested across 25 deals. This is especially pleasing when measured against a backdrop of falling global FinTech investment. What’s more, the positive trend in Australia’s FinTech investment has continued in the first half of 2017.
With Australian FinTechs effectively competing on the global stage, we need to further unlock their potential. Case in point is the ASIC regulatory ‘sandbox’ to support FinTechs as they find their feet in the commercial world. The regulatory ‘sandbox’ allows entrepreneurs to test specified new products and services without a financial services licence while still subject to consumer protection obligations. And as we’ve already announced the Turnbull Government will move to legislate an enhanced ‘regulatory sandbox’ to enable more firms to take advantage of this world leading initiative. On top of that, we have a solid home-ground advantage, with Australian consumers adopting FinTech at a rapid rate. We’re currently ranked fifth on the EY FinTech adoption index — putting us ahead of key markets in Singapore and Hong Kong. Australia’s high ranking means we are an attractive market for the launch and expansion of FinTech products. Another factor holding us in good stead is that more than 40,000 information and communications technology professionals already ply their trade in the financial sector. Your skills are obviously in high demand, with the financial services industry climbing from 12th in 2015 to fourth in 2016 on the list of industries with the largest share of ICT job advertisements. This partly reflects the fact that established firms are not sitting eating dust while FinTechs ride off into the sunset. As the Competition Review Panel predicted ‘“new entry exerts a positive discipline on existing market players, encouraging them to be more innovative and responsive to consumer needs.” So consumers stand to benefit, with the major banks swinging into action to set up their own innovation hubs and incubators, and enter into FinTech partnerships and collaborations. The World Economic Forum’s paper confirmed this trend. It found: “FinTechs have materially changed the basis of competition in financial services, but have not yet materially changed the competitive landscape.” Importantly, the forum said FinTechs have shown the customer experience bar set by large technology firms can be met in financial services.
To fuel this competitive dynamic, we need to double-down on our efforts to allow FinTechs to make a mark. To help with this task — and set the best course of action — there is a FinTech Advisory Group reporting directly to me. The group provides advice on our policy actions, and ensures FinTech priorities are front of mind. Views of this group have informed our approach to extending the crowd-sourced equity funding to proprietary companies, building on the CSEF framework for public companies which commences tomorrow. CSEF will open up new capital markets for small businesses and start-ups who may face difficulty accessing traditional sources of funding. We are also knocking down barriers that restrict authorised deposit-taking institutions with less than $50 million in capital from using the term ‘bank’. We are lifting this restriction to encourage innovative new players to enter the market. The Australian Prudential Regulation Authority is also considering a phased approach to licensing new entrants to the banking industry. This means FinTechs can potentially apply to start on a restricted licence while they develop the resources and capabilities to meet the prudential framework. The Turnbull Government is also removing a tax obstacle — making it easier for innovative digital currency businesses to operate in Australia. We will no longer have a situation where if you purchased software worth $100 Australian dollars in digital currency you ended up paying double GST — $10 in GST to purchase the digital currency plus $10 in GST on the purchase of the software. Purchases of digital currency from 1 July 2017 will no longer be subject to the GST. The local FinTech industry also benefits from the Government’s National Innovation and Science Agenda, which I mentioned earlier. This includes a Launch Pad initiative where Australia’s rising stars can learn from the best and brightest innovators from around the world. For example, in collaboration with the NSW Government, a group of Australian FinTechs this month travelled to our launch pad in Tel Aviv, for an intensive boot camp.
In a world where data is everywhere and everything, an Open Banking regime provides the building blocks for FinTechs in Australia. In response to several reviews and inquiries, the Turnbull Government is taking action to provide banking customers with greater access to and control over their data. Customers will be able to request their data be provided to third parties — such as FinTechs — so they can potentially be offered better, more suitable services. I’ve put together an independent review with a mandate to recommend: a model for open banking in Australia, a regulatory framework, and a roadmap and timetable for its implementation. I’ve asked the review to provide advice on the scope of the banking data sets to be shared and who the data should be shared with. The review — due to report by the end of the year — will also consider customer usability and trust, security of data, liability and privacy safeguard requirements.
To finish, let me thank the Australian Computer Society for hosting today’s breakfast. I’m pleased to speak about digital technology and its importance to the Australian economy. As the Australian Computer Society is fond of saying ‘digital technology is driving some of the biggest changes in our era.’ Technology is there at the start of our day, it will also be there at the end of the day — we need to make the most of it to improve our productivity.
To grow, we need small businesses firing on all cylinders; we need them creating jobs and taking on new digital opportunities. As well as allowing businesses to deliver better customer experiences, digital technologies have enabled new business models and driven internal business transformation — FinTech is a great example.