BIG YARN: The IT Policy Battle: It's the economy, STUPID!

In late January, Liberal Prime Minister John Howard delivered the Backing Australia's Ability Plan (with the unfortunate acronym of "baa") and promised $2.9 billion over five years to boost Australia's ICT (Information and Communication Technologies) industries and tertiary sector (see sidebar, page 12). In turn, Labor has promised the University of Australia Online with 100,000 places, but has yet to announce its platform on private sector research and tax breaks.

Both parties' announcements need to be seen in the light of the alarming comment from the Government's chief scientist, Dr Robin Batterham, that the Australian dollar "will continue to decline to about US30 cents unless action is taken to restore Australia's competitiveness".

The Liberal's spokesman on the plan is Senator Richard Alston, Minister for Communications, Information Technology and the Arts. He says spending in the first year of 2001-2 will be $159.4 million, gradually rising to $946.6 million in 2005-6, and the States, business and research institutions are required to match the amounts over the same period to attract the Government's grants and incentives.

The plan aims to strengthen Australia's ability to generate ideas and do research, accelerate the commercial application of these ideas, and develop and retain Australian skills.

Response to the Liberals' bag of goodies for the information and communication technologies (ICT) sector has been both positive and negative.

The Negative

Adrian di Marco, chief executive officer of e-business software and services development company, Technology One, says both Liberal and Labor parties have "absolutely missed the boat".

"The problem is not what percentage of R&D rebate is available," he says. "The IT industry here is in its death throes already and the Government and Opposition have failed to differentiate between local companies and multinationals."

Di Marco speaks passionately about the futility of mouthing platitudes such as "Australia, the Knowledge Economy" or "Queensland, the Smart State" if politicians continue to put IT business into the hands of huge multinationals which have no long-term commitment to this country.

"We must form an ‘indigenous' IT industry group which talks directly with Canberra. We have to get them to see that it's not just about creating jobs - it's about where those jobs are going to stay. If Oracle ‘creates' five jobs locally, it can just as easily take those jobs to another country in a year if it's cheaper.

"But, if Technology One creates five jobs in Queensland, those jobs stay here because we're headquartered in Brisbane and we live here."

Di Marco predicts the local IT industry will be dead within three to five years unless Government policies are skewed to encouraging local companies. "Ten years ago when we were bidding for jobs, we'd be competing with local and overseas companies such as SAP and PeopleSoft. Now, there are no other local companies in the bidding process," he warns.

But di Marco is not asking for the Government and private companies to accept second-best products because they're Australian. "The product must do the job," he says, "but the Government should be biased to Australian companies, and private companies should be given a much higher tax write-off for buying Australian software and services if we're going to build a robust local IT industry."

Di Marco goes even further with R&D and says it should be available to local companies only. "Why should we fund R&D for overseas companies here when the intellectual property is going to go back to Silicon Valley?"

However, David Shein, chairman of network integrator and e-commerce solutions company Com Tech Communications, says there are bigger issues than mere election promises.

"Australia represents only 2 per cent of the world's IT market," he says. "We have to face the fact that to be successful, you have to succeed in the US market, which is 50 per cent of the international market. It's no use looking to Government to devise incentives such as R&D concessions or staff options plans.

"The big issue for Australian companies is whether they tackle the US market on their own, or sell-out to a US company and try to stick to what they're good at."

Shein says it's also a matter of scale. "For example, Datacraft was an excellent local router company with Government contracts and turnover of $5 million. But it was competing with Cisco's turnover of $250 million. So, if you're comparing R&D budgets of 10 per cent for both companies, you can see Datacraft's $500,000 was up against Cisco's $25 million."

Yes and No

The Association of Professors and Heads of Computer Science has welcomed the $2.9 billion plan. This peak university body believes the measures will significantly boost Australia's capabilities in computer science and information technology.

Similarly, the Australian Computer Society (ACS) president John Ridge says it is "extremely pleasing to see a recognition and support at the highest levels of government that innovation and its commercialisation must be encouraged in order to transition Australia into a nation of technology producers".

Nevertheless, the industry's reaction remains mixed. According to the executive director of the Australian Information Industry Association (AIIA) Rob Durie, "The [Federal Government's] plan addresses many key issues that drive innovation and growth, particularly public and private sector research funding, a skilled workforce, and SMEs participation in innovation."

Durie says the plan includes several initiatives of specific interest to the industry, such as: funding of $129.5 million over five years for an ICT centre of excellence; a 175 per cent premium R&D tax concession; and the enhancements to Australia's immigration system to help entry of IT professionals.

"The Government has also recognised the need to address issues beyond innovation such as employee share option schemes, business tax improvements, increased access to ICT especially via the Internet, and removing impediments to commercialisation."

On the other hand, the AIIA is "pretty unhappy" with the tax concession components and the possibility that R&D grants could exclude software companies, and many tech start-ups.

The Liberals' plan offers small loss-making companies a cash rebate on their R&D spending equivalent to the 125 per cent tax concession that profitable companies receive, but the program is capped at $1 million of research expenditure. In addition, tech start-ups are disadvantaged in accessing the 175 per cent tax concession on additional R&D because it requires a three-year track record and is tied to the company's turnover.

Durie also points out that instead of writing machinery off over three years, businesses will now have to write it off over the effective life of the equipment which is typically 10 years - saving the Government $345 million over five years.

Labor's spokesperson on Information Technology, Senator Kate Lundy, says one of the main problems of the Liberals' plan is that they refuse to nominate any target for the national effort on science and innovation.

"The Prime Minister blundered five years ago when he savagely cut R&D support in the 1996 Budget," Lundy says. Since then, $5 billion has been "gouged out" of education and innovation in Australia and "the Liberals are only proposing to put $3 billion back in over five years," she points out.

The Scathing

Long-time ICT industry analyst and commentator Graeme Philipson is even more scathing in his appraisal of the Liberals' plans for the so-called information economy. "The Federal Government's recent innovation statement is a joke," he says. "The best example is its lamentable policy on datacasting and digital TV."

Digital TV, he explains, is a transmission technology that was originally intended to digitise conventional TV images. It can also transmit any digital information. The Internet is also a transmission technology that was originally intended to digitise text and data. Being digital, it also can transmit any digital information.

"The two are the same thing," Philipson says. "With cable TV and satellite and microwave Internet, not even the transmission media are different. Yet the Government has put in place a regime that limits digital TV to the existing broadcast media, and prohibits those that use the technology for ‘datacasting' from transmitting all but the most rudimentary TV-like images.

"The Government has actually listed types of content - comedy, for example - that cannot be broadcast by operators other than the existing networks."

Meanwhile, he says, there's no such restriction on the Internet. When true broadband Internet arrives in a few years - and anyone can broadcast anything, including TV, over it - "the whole system will collapse like the pack of cards it is".

Philipson adds that digital technology can't be arbitrarily divided into categories, with content limits on those categories. "There's an old saying, and a very true one, that you can't legislate against technology, but that's exactly what this Government is trying to do."

Outsourcing an issue

Outsourcing is another shibboleth which is certain to be aired in the run-up to the election. In response to revelations last year that the $5 billion outsourcing plan had cost millions of dollars, Senator Alston released the IT Outsourcing Initiative earlier this year. The three prime contractors (CSC, Advantra and EDS) are now required to report on investment and employment opportunities for local SMEs.

Alston says the outcomes are encouraging. "For example, across the three contracts, payments to SMEs were 67 per cent above target, and total regional employment was 29 per cent above target. "Across the three contracts, industry development outcomes for strategic investment, exports and total employment were double the targets."

In response, Senator Lundy says the outsourcing bungle has been one of the Liberals' "biggest fiascos". "Only multinationals can fund the bid process and the public liability," she says. "Since outsourcing began, three main things have knee-capped local companies and government departments."

First, departments have lost strategic control because four to five such departments have been forced to work with one outsourcing contractor. Second, existing local companies which had contracts directly with the Government have been disenfranchised and made into sub-contractors. "They've also lost their ‘export credentials' by no longer being able to show direct contracts with the Government," Lundy says.

Third, "off-the-shelf" solutions from CSC, Advantra and EDS have stifled local innovation, she says.

Lundy hastens to emphasise that Labor is not opposed to outsourcing, merely to its uniform application. "When we gain office, we'll reduce the size of the tenders so departments and local businesses regain control . . . We'll encourage ‘layers of innovation' so there's a more efficient blend of in-house and outsourcing."

The statistics

Rhetoric aside, both parties will have to deliver more than ribbon-cutting and CD-ROM kissing if the state of ICT in Australia is to be redressed. Alarming indications of a sluggish jobs growth-rate in the info-tech sector are revealed in the latest Information Industries Update.

ICT employment surged in the first half of the 1990s, but slowed in the second half of the decade, according to this survey. While ICT businesses generated up to 77,000 new jobs in Australia between 1992-93 and 1995-96, they actually lost almost 2,500 jobs between 1995-96 and 1998-99, due to contraction in the ICT manufacturing sector.

During the same period, the Australian market for ICT goods and services grew strongly to more than $65 billion in 1998-99 and was expected to reach $75 billion for 2000.

The 100-page report was prepared by Professor John Houghton of the Centre for Strategic Economic Studies (CSES) at Victoria University, Melbourne, and sponsored by the Australian Computer Society (ACS).

"Unfortunately, an increasing proportion of the Australian market is being supplied from overseas," says Professor Houghton, warning that the data highlights a net loss of jobs and a reduction in the number of medium and large companies.

In 1998-99, 96 per cent of all ICT businesses operating in Australia employed fewer than 20 people while less than 1 per cent employed more than 100 people. "Other OECD countries also experienced significant job losses in the telecommunications industry during the early to mid-1990s, but in places like the US and UK, they have started to grow again, whereas we are yet to see any major growth here," he says.

So, what will it take to change the rhetoric into reality?

The culture must change its anti-risk, anti-entrepreneurial and laid-back lifestyle, says Jonathan Erhlich of, who's worked in Australia, the US and Canada. "John Howard must change the present business culture, which is essentially conservative, no-risk," says Erhlich.

The ultimate irony is that Silicon Valley, which Howard and Beazley aim to emulate, has not been master-minded by any central agency. The valley is not really a place - more a state of mind which is shared by the business, academic and investment communities.

This, then, is the challenge for both parties: to create such a state of mind without brain-binding it in red tape.

Backing Australia's Ability

The Liberal's plan apportions a total of $2.9 billion over five years including:

- $736 million for Australian Research Council competitive grants- $583 million more for research infrastructure funding- $176 million for Centres of Excellence in information and communications technologies and biotechnology- $155 million to support investments in major national research facilities- $535 million over five years for the R&D Start Program- Reform of the R&D tax concession including the provision of a premium rate of 175 per cent for additional R&D activity, and a tax rebate for small companies- $227 million to expand the Cooperative Research Centres (CRCs) Program- $151 million more to universities to create 2000 more places each year- $130 million to foster scientific, mathematical and technological skills and innovation in government schools in States where the Enrolment Benchmark Adjustment (EBA) is triggered- 55 new postdoctoral research fellowshipsLabor's response- 130 new research fellowships- University of Australia Online created, offering 100,000 places- Online resource material for teachers- More funding for primary and secondary school teacher training- Enrolment Benchmark Adjustment scheme abolished- No announcements yet on private sector research and development tax- Breaks for funding for Cooperative Research Centres, the Australian Research Council or CSIRO