#Budget2019 and the Digital Economy
Now that the first federal budget emotions are over, we (Marek Kowalkiewicz, Paula Dootson and Shahid M Shahiduzzam of the Chair in Digital Economy), met to exchange our thoughts about it. When three people passionate about the digital economy get together, especially in the context of a budget that barely even admits the existence of the digital economy, things get a bit heated. Read on, and take it with a grain of salt. If the thoughts below cause any wounds, you might need that salt. To rub it in.
First thought: the overall impression
The Government of Australia does not recognise the need to proactively invest in the digital economy. Instead, this week’s budget is a reactive budget of micro-investment in areas that are merely helping to bridge the digital divide. Australia is slipping in digital development indexes. We need to do better to keep up; we need to do much better to lead and thrive.
What if Australia were a retailer?
Australia’s projected tax revenue for 2019–2020 is 513.8B AUD, comparable with Walmart’s 2018 revenue of 514.41B USD. Of that revenue, Walmart’s investment into digital technology, making sure this “traditional” retailer remains competitive, was 11.7B USD (16.47B AUD), while Australia’s investment in IT adds up to roughly 663.3M AUD, twenty times less. For some local context, the Australian company Telstra invested $3B in digitisation, almost five times as much.
If Walmart’s budget share of investment into digital technologies was similar to Australia’s budget share, would you invest in Walmart’s shares?
One of the most critical challenges for Australia, a digital identity framework, received $67.1M in funding, the amount almost identical to what Amazon, Facebook, and Google spent last year on lobbying in Washington (48M USD; approx. 67M AUD). Big steaks for Washington, big stakes for Australia. For context, the World Economic Forum identified Good Digital Identities as one of the six most important aspects of Digital Economy and Society.
It is disappointing that, rather than a strategic approach to digital transformation, the budget proposes a series of smaller, uncoordinated, initiatives.
There may be light at the end of the tunnel though.
Second thought: Looking for light in the black economy
The #Budget2019 successfully identified some of the critical digital economy issues — fraud and cybersecurity — which are sometimes linked to, and a consequence of, activities in the digital economy.
Small and medium businesses need to protect themselves and their customers (including their information) from cyber attacks. There are challenges, but also opportunities there (safety as a competitive advantage or an enabler of new services). But cybersecurity is a daunting space for most businesses. Lack of skills and funds results in insufficient protection and practices, making companies more susceptible to being breached. Breaches can then lead to other black economy issues like identity fraud. It is good to see investment in activities preventing cybercrime and fraud.
Speaking of issues in the economy, the digital giants of this world are often in the centre of attention when it comes to tax avoidance. Are they evading, or are they avoiding?
Will you pay your taxes, pretty please?
While tax avoidance is not a new issue, the digital economy offers new methods for addressing it. #Budget2019 allocated $1.1B to the ATO to set up a Tax Avoidance Taskforce, going after multinationals and other big business not paying their taxes. While not explicitly mentioned, this process will likely involve significant technology investment, with the ATO likely to rely on data matching, automation, and nudging to identify taxpayers, calculate obligations, and solicit payment.
Technology can help ensure higher budget revenue by nudging taxpayers. However, with cuts in university research funding, knowledge and evidence-based interventions for addressing these wicked problems of the black economy will rely on corporate- and market-sponsored research.
Third thought: Blind man’s buff or why there is no strategy
We suspect that the Government of Australia is currently unable to comprehend the size of the digital economy fully. This lack of comprehension is a well recognised global challenge, but it doesn’t change the fact that the government should try harder.
While we celebrate digital exporters, little information on digital trade currently exists, and we fail at measuring the trade volumes and quality accurately. This lack of information is not just a “black economy” issue, but an issue of the entire economy, including some of Australia’s most successful digital businesses, including those operating according to all rules they need to follow. For instance, we know of a Brisbane-based startup with millions of registered users, serves 95% of customers outside of Australia. One would expect, this sector is only growing, and we should see an increase of it year over year. Indeed, we see an increasing number of digital activity, but current statistics from Australian Bureau of Statistics show a declining share of information sector (from 3.5% in 1990 to 2.5% in 2018) to the country’s GDP. It can’t be true (i.e. more research is needed)! We believe one reason may be the nature of the digital goods and services, that makes them “invisible” to XXth century metrics, such as GDP.
Digital revenue is no longer just an Internet or e-commerce revenue. We need to measure it accurately to manage and support a digital economy.
If you want to manage, you need to measure
The budget needs to develop a holistic approach to measuring and managing the digital economy. Unless our digital economy is measured accurately, it cannot be managed. Lack of understanding of the big picture leads to questionable decisions. For example, the budget provides $62.4M to deliver foundational and digital skills training of employment, but leveraging opportunity in the digital economy now requires improving skills of the current workforce. Unfortunately, the budget fails to provide that holistic direction.
Famous last words
Let’s invest a bit in this thing called the digital economy. How much cash is left?
It’s hard to remain tongue-in-cheek in this bleak situation, but we do. And we remain boldly optimistic. The good news about the federal budget is that it is not the only budget we will see announced this year. State governments can step up; local governments can step up, businesses will step up. The digital economy that we live in is an economy in which anyone can be a significant economic player (thanks to platforms, new business models, and automation). It gets better.
Keep calm and carry on.
