by Tim Lohman

Little for CIOs to Get Excited About in Federal Budget

May 13, 20098 mins
GovernmentGovernment ITHiring

The federal government’s budget has drawn a mixed response from industry analysts and organisations.

Kwanghui Lim from the Melbourne Business School said the budget may hold growth opportunities for CIOs in sectors that are tied towards specific investment initiatives such as providing IT solutions relevant to infrastructure, transportation, medicine, defence, RD and education.

“These are tough times, and the government’s anticipated $22bn in cost cuts will probably lead to the same kinds of concerns among CIOs about pressure to put projects on hold, delay IT hiring, and spend less on hardware and software upgrades,” he said.

“The main thing is that these cuts in operational costs are going to happen alongside similar cuts in the private sector, rather than counter-cyclically. So I think many CIOs are going to be worried.”

Australian Computer Society CEO Kim Denham said while it was important that ICT was playing a prominent role in the budget via the focus on the National Broadband Network, said there was little for CIOs to get excited about.

“The tax incentives may be good for some, but the operational budget cuts CIOs are already facing mean that they are unlikely to be celebrating,” she said

Michael Warrilow, managing director at analyst firm Hydrasight, said the tax breaks — 30 percent on eligible assets contracted for prior to 30 June 2009, and 10 percent for eligible assets committed to investing in between 1 July 2009 and 31 December 2009 — could be viewed as positive by CIOs.

“The government’s intention is to stimulate businesses to spend in this period when they are retreating from it,” he said. “Smart accountants and CIOs will look at that to help with their tax bills and make capital acquisitions a little easier in this time of scarce capital. Anything that will have effect of helping a CIO get his budget approved — in the sense that it will be more tax effective — will have some attraction.”

Ian Bertram managing vice president and business intelligence research team manager at Gartner, said the tax incentives would be viewed by CIOs as a way to cut costs, rather than spur new project spending.

“CIOs are already cutting costs, so they will view the tax incentives as an additional cost saving,” he said. “They’re already upgrading their servers or storage or putting in new network infrastructure, and they will see this as a way to save 30 percent. They won’t be saying they’ll now go out and spend.”

Jean-Marc Annonier, program manager IT spending at IDC was positive about the budget’s $2.4 billion flagged for innovation.

“[It] is going to have a more substantial impact as Australia is already a strong innovation hub and this will comfort us in this position, whereas we cannot really compete with low cost countries for commoditised IT administration and software development.”

Agreeing, MBS’s Lim said the government’s investment was a good first step in reversing the decline in Australian RD investment in recent years.

However, it was important to focus on how that money was to be spent, building a system of innovation around those investments, and, nurturing a community of inventors and commercialisation partners such as venture capitalists to translate those investments into economic returns.

“Innovation isn’t’ something you can promote simply by throwing money at it, but it surely helps to invest in it rather than not to,” he said. “If invested wisely, the amount spent on education and RD should lead in the medium term to better-educated professionals (including IT graduates and in other areas) entering the workforce. This should improve the quality of human capital in Australia, and so is an important investment.”

Gartner’s Bertram was sceptical, arguing that the budget focused more on laying a solid foundation future innovation and RD.

“There are some breakages in the system, things that the government can be more efficient and effective on, so [the tone is] let’s get those things right before we start to look at innovation,” he said.

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Hydrasight’s Warrilow questioned the budget’s the reliance on the government to fund innovation in the country, arguing that it did not do enough to encourage private sector investment in RD.

“Australia has got a welfare style approach to RD and is very much based on grants and handouts from government rather than an entrepreneurial style approach,” Warrilow said.

“I worry that this budget isn’t going to address the issue. Australia has a very large number of small companies and a small number of very large companies, so there is not much innovation in between that.”

Rob Mackinnon, advisor and consultant at research firm IBRS said the government had made some effort in this area in the form of $512 million promised to universities for block research grants, albeit over a period of 4 years.

“What still seems to be missing from the mix is any government assistance in incubating good ideas so that they can then be commercialised,” he said.

“This is very much up to individual universities to work with [commercial entities] to provide that type of funding assistance. Post GFC, that’s asking a lot and it would have been useful to see some assistance there.”

Ian Birks CEO at the Australia Information Industry Association (AIIA) said the wider IT industry was likely to benefit from the direct and indirect innovation investment in the budget.

“There’s a pretty big innovation agenda and the government should be applauded,” he said. “It includes a lot of investment in science and technology programs as well as education capabilities so that may go some way to mitigating some of the skills shortage issues we have had In the industry – it’s a long term play though.”

IDC’s Annonier said the $7.5 billion education component of the budget was unlikely to address ongoing skills shortage in the ICT industry in the short term, but in the longer term it is a step in the right direction.

“Of course we would need to see which areas would benefit the most to see whether it would help the skills shortage in the IT industry,” he said, adding “the recession is already doing its bit in freeing up resources.”

The ACS’ Denham said question marks still hang over the ability of the government’s education funding to address the long term ICT issue of skills shortages.

“[The budget] falls well short of what was in the Bradley review for education expenditure,” she said. “The amount of money that has set aside for education — no-one can tell us how that is that actually going to be spent.”

Denham also questioned how the government planned to attract students and teachers to ICT, and whether ICT courses would provide the right skills for future ICT professionals

“With the demand model that is being floated, how do we know that students will come out the end with the right set of skills?” she said. “I don’t think there is anything in the budget that has answered that.”

IBRS’s Mackinnon said the budget’s education approach had placed too much emphasis on building lecture theatres rather than building minds.

“It would also have been good to see the government tackle the issue of telecommuting,” he said. “What better way is there to provide a work/life balance whilst contributing to the green agenda?

“A full or partial rebate against the ISP costs of telecommuters — but paid to business to assist in achieving compliance — would have provided a useful structural adjustment,” he said .

MBS’ Lim said the budget should help address issues of skills shortage, although given the size of Australia’s population, immigration would still be necessary to remain competitive.

“Especially at the highly-skilled end of the skills spectrum, experienced and highly skilled people are hard to find anywhere in the world, and the issues Australia faces in terms of skills shortage at the top end aren’t all that different than in other countries,” he said. “In addition, an injection of highly skilled people from other countries (with different backgrounds and exposure to different work experiences) gives Australia an inflow of interesting and useful knowledge that can help it sustain its innovation.”

The ACS’s Denham was also critical of the budget’s approach to e-security, especially in light of the far reach of the National Broadband Network.

“They haven’t revisited e-security — they’re still going forward with their 2008/09 projections and carrying it across,” she said. “They are looking to advance the ICT capability of Australia using the NBN, but have not looked at the security of this national infrastructure. We reiterate the need for a national review of e-security.”