On December 7, 2015, an upbeat Malcolm Turnbull unveiled his first major policy initiative since becoming prime minister: the 'Ideas Boom', a $1 billion package of measures designed to boost innovation.
"We want to be a culture, a national culture of innovation, of risk-taking" Turnbull, who couldn't stop talking about 'disruption' or the need to be 'agile' back then, declared at a press conference at the CSIRO in Canberra.
Nearly three years to the day from the unveiling of that policy, the federal government's retreat from innovation, and standing within the tech community, sank to its nadir.
On December 6 encryption laws, universally condemned by local startups and global tech giants alike, were passed by parliament, with bipartisan support, on the last sitting day of the year.
The tech sector was aghast. Twitter erupted. The encryption laws were bad in their own right, according to critics, but also symbolic of a larger, more worrying trend. In the space of just a few short years, Canberra had gone from being besotted with tech, to ignoring it, to now passing laws that actively hurt the sector.
"The encryption laws, the crackdown on R&D tax credits, and thirdly immigration and the changes to 457 visas, they have made life harder for many startups," Paul Bassat, the co-founder of Seek and a prominent venture capitalist, says.
"There are few more important issues than the future of our economy. The reality is we are going to see enormous disruption over the next few years and the countries that do best will be those that support and invest in innovation."
At the moment, Australia doesn't seem like one of them. As a nation, we spend a paltry 1.87 per cent of gross domestic product on research and development, below the developed economy average of 2.3 per cent.
As Bassat points out, the government has been tweaking measures designed precisely to redress this. Founders are reporting the tax office and AusIndustry are trying to claw back R&D grants through tighter auditing, resulting in some claims being reviewed years after they had been granted. These grants have served as a valuable lifeline for emerging startups.
Throw this together with recent changes to immigration laws making it harder for tech companies to attract overseas talent, the imposition of GST for smaller online purchases and even the competition regulator's moves to rein in Google and Facebook, and it's hard to avoid the impression that Australia has grown hostile to the tech sector.
Finding a voice
It is no understatement to Australia's encryption legislation shocked the tech world. A consortium of US tech companies including Apple and Google slammed the laws as "deeply flawed", credit ratings agency Fitch warned it could weaken tech giants if copied overseas, and prominent commentators also questioned the merits of the legislation.
The episode has lit a flame within the local tech community, which is now determined to have its voice heard in Canberra. “We’ve definitely seen political mobilisation of the tech sector that we haven’t seen before [as a result of the encryption laws],” Nick Byrne, the founder of Melbourne based digital strategy start-up TypeHuman, says.
The Assistance and Access Bill is designed to fight criminal and terrorist activity planned using encrypted communications. The legislation allows authorities to issue companies with notices forcing them to assist with accessing encrypting data, which could include creating “backdoors”, or gaps, in networks to do so.
There are heavy restrictions on staff around telling anyone inside their companies else about these orders, and failure to follow orders could mean large financial penalties or jail time.
“We’re seeing an increase of the politics of fear in Australia. And I think the cultural impact of what [Prime Minister] Scott Morrison is doing is that it shuts people down to the idea of innovation," Byrne says.
TypeHuman this week held a panel event at fintech hub Stone and Chalk in Melbourne to discuss a tactical response to the encryption laws that was attended by more than 60 people. In an unusual situation for laws just passed, a parliamentary joint committee has called for fresh submissions on the encryption laws early next year.
Developers and founders are worried that it’s still not clear what they could be forced to do by authorities in order to uncover encrypted information.
Some fear that 'backdoors' or vulnerabilities built into software to enable the government to uncover encrypted information will invariably be exploited by bad actors, such as hackers spreading ransomware or even foreign intelligence services.
But the central worry of many founders The Sydney Morning Herald and The Age have spoken to is the belief that, according to the letter of the law, the Australian government will be able to interfere with tech company systems with little oversight or scrutiny.
For its part, the government strongly denies this. The Home Affairs department said the legislation won't create issues for business, that the laws were designed for collaboration with companies and would not be unreasonable.
“By law, the creation of backdoors or systemic weaknesses is prohibited. Industry cannot be required to reduce the securities of systems that protect Australians’ privacy and data, be asked to refrain from patching a weakness in their services, or be required to build a decryption technology,” a spokesperson for the Minister for Home Affairs says.
Still, startups and major tech companies fear the laws could have a devastating impact on their ability to win customers in, and attract talent from, offshore markets.
“Best-case scenario we’re seeing huge international uncertainty over whether people should do business with Australia,” Byrne says.
Industry association StartupAus surveyed 219 founders and stakeholders in the tech community and found that 91 per cent of them were against the encryption legislation.
Thirty-six per cent of companies said it would have a direct impact on how they do business the minute the legislation took force at the end of the month.
Founder of startup strategy firm Uncompromise and web firm Icologi, Cameron Burgess, says the legislation has forced him to start the immediate process of taking all business operations offshore.
“Frankly, I was horrified,” Burgess says. The global firms he works with would be sceptical of the power of the Australian government to compel access to encrypted communications.
“I do believe that this is not only significant overreach, but it’s politics interfering with something without understanding it.”
Other entrepreneurs are beginning the task of reviewing whether they will keep offices in Australia.
Katryna Dow operates Meeco, a personal data management startup which has offices in the UK and Australia. She says watching the passing of the access bill was “heartbreaking”, because “‘why would you trust an Australian tech solution now, if you had an alternative?”
Research tide turns
Uncertainty is also reigning on the research front, where founders say increased scrutiny on amounts claimed via the research and development tax incentive scheme is leading to unfair outcomes.
The scheme lets companies claim either offsets or payment incentives for activities that create new knowledge, but a series of reviews of the program in 2016 led to a focus on those companies overclaiming.
Startups like Sydney software brand Digivizer have spoken out in recent months after tax incentives they were offered in previous years were then retrospectively questioned by AusIndustry, costing tens of thousands in fees to review claims already made.
Digivizer founder Emma Lo Russo said back in October that the experience with the reviews process has put the company off making any future claims for their research activities.
Lo Russo says the government needs to review whether its research policy gave certainty to early-stage businesses.
“The associated administration in considering these are hurting our companies and harming new investment. More needs to be done to keep our early growth companies here in Australia,” she says.
For its part, the government says its approach to the program in the long term will "encourage genuine, additional R&D activity".
Kris Gale has worked on research and development schemes for more than two decades and assists businesses with preparing claims as chair of Michael Johnson Associates.
He says Australia is in a situation where the offset policy itself has not changed, but concerns about rorting have led AusIndustry and the ATO to step up their focus on compliance in a way that is causing intense uncertainty.
“It’s difficult, because it’s the government’s flagship program for innovation,” he says.
Other founders say even when they are sure they are in the right with their claims, the paperwork and logbooks required to prove their activities are “research” related is taking up a significant chunk of time each day.
Gale says it feels like the system is now “broken” because companies are too nervous about what they can claim.
“Surely we’ve hit an inflection point here, we need to fix this up,” Gale says.
A federal election is scheduled for next year, but whether that changes anything for the tech sector remains to be seen. After all, while federal Labor is pledging to increase communications around R&D funding and encourage more companies to invest in research, it also ended up providing the crucial votes for the encryption laws to get through parliament.
Bassat says it's entrepreneurs, not politicians, who will ultimately do the heavy lifting in building an innovation economy. But government can provide a platform for Australian companies to succeed on the world stage.
"We need amazing, global success stories emerging from Australia to create the highly productive, high paying jobs that the future of the country depends on," he says.
At the moment, the government isn't providing this platform, because politicians lack long-term focus, he says.
The Ideas Boom is a classic example. At one point it looked like a signature government policy.
'Ideas Boom' was splashed over bus stops and spruiked on radio and TV. It may have been a bit cringeworthy, but the underlying message it sent was positive.
Yet after the Coalition nearly lost the 2016 election, Turnbull stopped talking about tech amid fears it was scaring older, swinging voters. The 'Ideas Boom' was all but discarded as a political priority.
"It is harder to focus on these longer-term issues rather than the here and now, whether that's interest rates or power prices," says Bassat.
"But it's like a family or a business, unless you actually put aside a certain amount of time and capital, unless you are saving to invest in things like education, you are trading your future for your present."