Yesterday, the Abbott Government delivered its first Australian Federal budget. I am grateful for the Australia Financial Review for much of the following content.

It confirms the Australian startup community’s worst fears and holds important lessons for New Zealand.

The federal government has confirmed plans to discontinue two key funding and grants programs for technology start-ups, following through on a recommendation from the National Commission of Audit to abolish or merge dozens of government agencies.

Australia Ends Support for its Startup Communities

Australia Cuts Support for its Startup Communities

It will also cease funding the information and communications technology research body National ICT Australia (NICTA) from 2016.

The government, as revealed in its 2014-15 federal budget, will discontinue eight programs from January 1, 2015, including Commercialisation Australia – a $213 million grants program for start-ups – and the Innovation Investment Fund, which co-invests in venture capital funds.

The programs were cut in a bid to save $845.6 million over five years, making up some of the $39 billion in total savings and new revenues the government has targeted in the budget.

The cuts confirm growing concerns for the programs by Australian technology investors and start-ups, who said the programs were vital to growing the local ecosystem of innovative companies.

“Commercialisation Australia has so far supported over 500 companies with grants in excess of $200 million,” said Peter Bradd, a director of industry body StartupAus, earlier this month.

“Stopping Commercialisation Australia funding is going to take away the vital lifeline for our start-up scene essentially . . . it’s a national imperative the government starts to support the start-up scene and remove the red tape.”

Yasser El-Ansary, chief executive of the Australian Private Equity & Venture Capital Association, said the cuts were a major setback.

“Everyone was expecting to see plenty of short-term pain for businesses in this budget – and that’s exactly what we got,” he said in a statement.

“But what we were also expecting to see tonight was a plan which set out the longer-term vision for what the Australian economy will look like in the next five or ten years – the short-term strategy of deep cuts to expenditure only makes sense when you can line it up against a picture of where we are trying to get to.”

The Department of Industry said the discontinuation of Commercialisation Australia came as the result of an evaluation that finished in November last year.

“The evaluation noted the benefit of support for facilitation of commercialisation pathways and the value of using advisors with business experience,” it said.

“High costs of entry and exit have the potential to discourage the type of start-up companies that often pioneer new technologies and work practices, and may also shield incumbent firms that may be less efficient from new competitors,” it said

The government also said it would decrease the $2.2 billion research and development tax offset, deemed a key competitive advantage to doing business in Australia, from 45 per cent to 43.5 per cent from July 1 this year.

The reduction would save $550 million in payments over four years.

Public funding cuts to NICTA

Communications Minister Malcolm Turnbull said in a statement that the government would continue $84.9 million in funding for NICTA, the research body for technology, over the next two years, but would move the body to a self-funding model from June 2016.

“It was always expected that funding from the private sector would play an increasingly important role in supporting NICTA’s operations,” Mr Turnbull said. “NICTA’s rapid recent growth in commercial revenue, through its partnerships with domestic and overseas firms, shows it can draw funding from a wider range of sources.”

“The government expects NICTA to pursue funding from private-sector investment and research grants.”

Later today, Bill English will be presenting his annual Budget to the New Zealand Parliament. I am not expecting anything like the statement delivered in Canberra yesterday.

The New Zealand Government understands the importance of the start-up sector to the New Zealand economy and despite my comments yesterday about New Zealand Government Procurement outcomes, I expect to see increased support for the rapidly growing ICT sector.