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Legislative Assembly for the ACT: 2004 Week 09 Hansard (Thursday, 19 August 2004) . . Page.. 3913 ..

community and business on a more equal footing as opposed to always favouring one over the other.

MS TUCKER (11.39): This bill puts in place a scheme that reflects arrangements in New South Wales and Victoria and is consistent with and works with the Commonwealth Venture Capital Act. It is purportedly contemporary international practice to support venture capital in this way.

What the bill does in essence is provide a structure for partners to operate a venture capital scheme with any number of additional “limited partners” providing the capital. The structure of the bill ensures that the liability of those limited partners is limited to their investments—they can lose their money and that is it. The more extensive liability and responsibility will rest with the general partners, from two to 20, who in essence carry the real business responsibilities of the operation.

Regulation of this scheme will be through the Office of Fair Trading and the Commissioner for Fair Trading has the power to wind up partnerships if they fail to meet the activity or governance requirements laid down in the act. The bill then is aimed at facilitating venture capital investment in the ACT. Given the wealth of research and expertise in the natural sciences, renewable energy, water and waste management, biotechnology and the social sciences in the ACT, enterprise development ought to be a feature of our economy. I have not, however, discovered any real evidence that it is for the lack of these kinds of partnership structures that venture capital is a bit hard to find in the ACT. So while I will be supporting this legislation, I am not expecting a lot from it.

The key ingredient for enterprise development really is the initial investment in time and money by the individuals putting their work on the line. Venture capital and other investment come further down the line.

In discussions over this bill it was raised with my office that the key impediment to getting a business going rests in broader areas such as Australian tax law. It was not long ago that you could set up a business with your own risk capital by lending it money. At a later time your business could pay you back as and when it could afford to do so and when you needed it. Now if you make a loan to your company, it can only repay you from its profits rather than loans or as operating costs. And so the business would have to earn the money as a profit, pay tax on it, and only then pay back the principal. While such a protection is understandable on a larger scale in order to prevent company directors from rorting loans, it actually works against individuals or small teams setting up a business to give their work a future.

Another related problem in this crucial area of micro-business development is the 80:20 rule, which takes anyone earning more than 80 per cent of their income in any period from one contract as in essence earning personal rather than business income. It increases the pressure on such business to get external finance, often at too early a stage.

The reality is that a micro business with only one or two employees might often earn 80 per cent of the income through a single contract or consultancy over a period of time and would need to invest a considerable amount back into the business, and maintain the business operation, over that time. The 80:20 rule basically pins micro-business people to the ground, paying personal income tax in income that the business needs to reinvest

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