STRATEGY 2020 Economic Growth Framework Economic Development Strategy

STRATEGY 2020 Economic Growth Framework Economic Development Strategy & Performance

Economic Development Framework – Innovation, Productivity and Venture Capital Innovation Indicators Venture Capital Start-ups or Angel Investment Jobs Created by Start-ups Digital Fiscal Strategies Payroll taxes and tax burden Regional jobs and taxation Page 2

Executive Summary Innovation Indicators § Country’s specific macro and microeconomic factors, management culture, and the degree of digital transformation are key drivers of productivity growth § 2017 Australia ranked § 23 rd in the Global Innovation Index (GII) and § 11 th in the Digital Economy and Society Index (DESI) § 50%+ of businesses have a digital presence and placed orders via the internet § Australia is a big consumer of digital and agile adapter to new emerging technology Page 3

Executive Summary Venture Capital § Start-ups or Angel investments in the USA were identified as key drivers of job growth in short and long-run § Australia’s start-ups from 2010 Q 1 to Q 1 2018 created § 688 jobs with an investment level of $USD 3. 8 million. § Each investor contributed approx. $USD 2, 000 and invested $USD 5, 000 for each job created. § Australia’s start-up created 0. 5 jobs/per investor compared to the USA of 4. 5 jobs per investor. § USA created more than 4 times jobs compared to Australia § NSW share of venture capital at 41%, followed second by QLD 18% § 2016 -17 NSW was the highest receiver of venture investment in retail, services and infrastructure Page 4

Executive Summary Microsimulation scenarios - Payroll taxes 1999 NSW Treasury research paper quoted: “Broadening the NSW payroll tax base will increase the competitiveness of NSW industries and hence increase the output and employment of the NSW economy (Treasury paper RTP-97 -4)” § In the short-run, modelling results confirm significant increases in the output, employment and consumption at State level § In the long-run the effect is offset by the adjustment in real wages § VIC & SA has a lower payroll tax rate for regional areas § Reducing payroll tax base and/or rate for NSW Regional areas would incentives creation of jobs in regional locations (see NSW Treasury papers on computational general equilibrium model CGE) Page 5

Policy Questions Q 1: Innovation policy and jobs statistics § How much of NSW Gross State Product (GSP) is allocated to innovation policy and measurement of innovation at state level via research funding? § How can we track NSW Government policy on innovation and creation of new jobs statistics from innovation policy perspective? § Which agency at the NSW state level measure creation of new jobs as a result of innovation? Page 6

Policy Questions Q 2: Venture capital /start-ups State Priority to boost regional jobs § What strategy should NSW Government adopt in order to attract a higher share of venture capital to NSW? § How NSW compares to Silicon Valley? § Are there any strategies to create a “high-end “innovation in NSW for a particular industry? Page 7

Policy Questions Q 3: Microsimulation of payroll taxes vs. Jobs in regional areas? NSW rate of payroll tax is not differentiating at regional level or offer any concessions compared to states such as SA and VIC § Payroll tax concession for small business in SA § Payroll tax exemption for employers of displaced apprentices and trainees in VIC § It is estimated empirically that a lower payroll tax has a positive effect on businesses and jobs; e. g. depends on industry tax elasticity; Scenario questions: ü Boost regional jobs via payroll tax concessions in particular to encourage new start-ups and venture capital investment. ü For each 1% reduction in payroll tax rates generate x% increase in regional jobs Page 8

Appendixes Page 9

Appendix 1: Innovation Indicators Which innovation indicators are most significant for economic development and growth? Page 10

USA National Bureau of Economic Research Macro and microeconomic indicators to raise productivity ü "batting average" ü "rising tide" effect Management and manager culture USA culture has moved towards an operational style management, agile CEO’s and increased functional managers with flat management structures. Are any cultural barriers to innovation? ü Management mind set? ü CEO’s hiring practices? ü Emotional Intelligence management? Page 11

Evidence from USA – examples from NBER innovation research 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Are Ideas getting harder to Find? Missing Growth from creative destruction The rise of American Ingenuity: Invention in the Golden Age Effects of Robots on Employment What next for AI? Immigration and American Ingenuity Automatable jobs and the minimum wage Slower U. S. growth in the long and medium run The rise of American ingenuity Invention in the Golden Age Secular trends and the rise of market power scientists, engineers, and productivity 12. Advantage of serial entrepreneurs 13. Alternatives in productivity measurement 14. Artificial Intelligence and growth Page 12

Innovation is an investment at all level of research and academic funding USA examples of Programs driving innovation ü 1978 NBER established the Productivity, Innovation and Entrepreneur Programs ü Led the Conference on Research on Income and Wealth (CRIW) ü NBER has established research which links researchers and industries

2017 Global Innovation Index (GII) After 1980 high level innovation activity Page 14

Innovation and business size positively correlated Higher profits a key driver of innovation Source: cat. no 8158. 0 Page 15

ABS: 50%+ of Australian’s businesses have a digital presence § 50. 1% + of business have an internet presence for the first time § 57% of business placed orders via the internet § 36. 8% of business received order via the internet Source: ABS cat no: 8158. 0 Page 16

The economics of digital consumption a primer for innovation Demand for digital products are infinite, however supply is subject to innovation and disruptions Digital Economy and Society Index (DESI) 2017 ranking takes account: § Transformed social interactions § New industries § Access to information faster than ever for consumers, businesses and government § Connectivity ü Human Capital ü Use of Internet ü Integration of Digital Technology ü Digital Public Services Page 17

Australia is ranked 11 th among most advanced digital economies Page 18

Appendix 2 : Venture Capital https: //youtu. be/Cb-6 XRAco. EU Page 19

Venture Capital USA vs. Australia is not benefiting from Venture Capital as USA as far as job creations and returns on capital USA Silicon Valley Profile ü 47, 000 new jobs in a year AUS ü Patent registration ↑ 47. 5% 47, 000 new jobs in a year ü Venture Capital↑ 40. 2% ü Angel Investment ↑ 28. 9% ü IPO’s ↑ 34. 6% ü M&A ↑ 21. 0% USA Jobs statistics NA Venture capital AB S statistics 1 publication only Patent registration ↑ 47. 5% Venture Capital ↑ 40. 2% Page 20

Silicon Valley Employment Growth The total number of jobs in Silicon Valley had far surpassed pre -recession levels (19% higher) and has continued to grow Source: 2018 Silicon Valley Index Page 21

ABS statistics - Venture Capital § Cat No. 5678. 0 is the only publication with data on deals value & numbers by State, industry type and source of funds. § 2016 -17 QLD received $6. 8 mill per deal, higher than NSW at 5. 4 mill per deal due to a big inflow of funds. § Historically NSW received a steady inflow of capital funds, however most recently QLD experienced a surge of funds. Page 22

Australia statistics on venture capital – State and Industry 2016 -17 NSW received $5. 44 m per deal QLD received $6. 78 m per deal Page 23

Start-up or Angel Investment KPI’s https: //angel. co/locations Page 24

Start-up statistics – jobs and $ investment per investor Australia had a low job outcome per investor creating only 0. 5 jobs for an average $2, 667 per investor Europe creates highest numbers of jobs 6. 8 jobs and USA 4. 5 jobs per investor jobs/per investor $ / per investor 8, 0 $ 3 000 7, 0 $ 2 500 6, 0 5, 0 $ 2 667 6, 8 $ 2 000 4, 5 4, 0 $ 1 500 3, 2 $ 1 135 3, 0 $ 1 000 $ 796 $ 591 2, 0 $ 500 1, 0 0, 5 0, 1 USA India China $- $Europe Australia USA India China Europe Australia Page 25

USA Start-ups Angel Investment USA is leading jobs created via Start-ups $4. 6 M average valuation 159, 653 Companies 4, 776 Investors 26, 156 Jobs created Page 26

Australian's Start-ups or Angel investment Australia created 659 jobs via start-ups $3. 8 M average valuation 6, 793 investor s Companies 1, 425 659 Jobs created Page 27

Appendix 3 : Fiscal strategy and taxation in pursue of jobs in regional NSW 1% reduction in payroll tax rates lead to x% increase in regional jobs Page 28

NSW payroll tax rates and thresholds – time series Page 29

NSW Fiscal Strategies 2018 vs tax simulations State priority to develop a payroll tax strategy § Balanced budget § Fiscal discipline & transparency § 2018 NSW Budget focus is on fiscal discipline § State taxation such as payroll tax and stamp duties simulations Page 30

Payroll free threshold Payroll taxes Free threshold 2 500 000 SA 600 000 2 000 ACT 2 000 1 500 000 NT 1 500 000 1 000 500 000 VIC 625 000 - 1 250 000 TAS 750 000 850 000 NSW 1 100 000 QLD WA Page 31