Australians would support HECS-style scheme for entrepreneurs

A new survey reveals most Australians want to see a HECS-based system for business research and development, similar to the funding style used for tertiary education.

The survey, conducted in May following recommendations from the Federal Government’s Innovation Review by Terry Cutler, shows 61% of respondents believe financial assistance should be provided to businesses to fund R&D.

Respondents in the survey also believe any funding given to businesses needs to be repaid once the businesses become financially capable.

The results come as Federal Innovation Minister Kim Carr says the Government’s response to the innovation review will be delayed until next year. Carr previously said the response would be released before Christmas, but cites a heavy portfolio workload as the reason for the delay.

The survey also looked at whether the public supported HECS-type arrangements for athletes and drought-stricken farmers. Both ideas received broad support, but those surveyed do not support HECS-style loans for services such as childcare.

Glen Withers, CEO of Universities Australia and adjunct professor at ANU, is a co-conductor of the study. He says such a scheme will help improve Australian business innovation.

“One of the benefits of income-contingent loan schemes is that revenue comes back in, and funds other businesses and other projects. There’s leverage for Government support.”

But Withers says safeguards for the scheme would be necessary. “You need controls and conditions – one way to do that is, you could readily require co-conditions of appropriate business plans, business experience, business training…

“The second thing you could do is also to make the loans a cocktail set of loans whereby government enters into partnership with private finance.

“One third of the funding might come from debt, which puts the discipline on the company, another third may come from equity like venture capital, which brings in people who can run businesses very well, and then one third is the patient capital that the government contributes and receives a return from the successful cases.”

Venture capitalist and SmartCompany blogger Doron Ben-Meir says the idea has considerable merit, but there needs to be restrictions on which businesses are given loans.

“The advantages are obvious – the entrepreneur doesn’t have to mortgage their house, doesn’t have to have constraining interventions put on the businesses and effectively has a non-recourse facility to expand their business,” he says.

“However, you still do have a liability on your balance sheet, so it’s not as good as an equity investment. You carry debt, but because it’s non-recourse debt, it’s less threatening.

“The downside to the taxpayer is that the money is lost if the business fails.”

Ben-Meir says that if implemented, the loans should be given only to certain high-risk industries, such as the IT sector.

“Where we need to look at putting taxpayer dollars is where the market fails most, and that is in companies developing Australian technologies. Any scheme to increase the opportunity for those businesses is a good thing.”

But Withers says he is wary of giving loans based on industry performance.

“Governments are not very good at picking winners. The Cutler review itself made known innovation takes place in many sectors, not just science and tech. Its also in sectors like marketing etc,” he says.

“Personally, I would prefer not to see it restricted. Some prioritising may be necessary, but the lesson of the Cutler review is that an expanded view of innovation should be incorporated.”

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