KPMG urges changes to ignite Indigenous economic growth

KPMG urges changes to ignite Indigenous economic growth

KPMG Australia today unveiled a series of proposals aimed at driving economic growth for Indigenous Australia and encouraging further involvement from business. Developed in conjunction with prominent Indigenous Australian thinkers, the collaborators point to over 20 recommendations focusing on taxation, superannuation, innovation, education, Indigenous assets and Empowered Communities reforms.

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“We believe there’s great potential for Indigenous Australia to participate in economic growth, and that it is economic participation and commercial enterprise that will lead to better outcomes for Indigenous Australia,” said Peter Nash, Chairman of KPMG Australia.

“The imperative to drive economic growth is central to our national interest debates, but Indigenous Australia has largely been excluded from these discussions. Instead, the Indigenous narrative tends to revolve around how to ‘fix’ Indigenous Australia, largely through government and corporate welfare.”

Professor Marcia Langton AM, Foundation Chair of Australian Indigenous Studies at the University of Melbourne added: “We’re presenting a collection of ideas we sincerely hope will extend the conversation and inspire action. We advocate that supporting entrepreneurism, financial literacy, and better educational attainment among Australia’s First People is a much better use of taxpayer funds than passive welfare – which most Indigenous leaders agree is poison to the dignity and self-esteem of their communities.”

The KPMG report, Igniting the Indigenous Economy:

  • proposes a range of tax and economic measures that could assist Indigenous enterprise by opening up new investment streams, such as impact investment;
  • presents ideas for stimulating growth and success of Indigenous businesses (which are 100 times more likely to hire Indigenous Australians than non-Indigenous Australians);
  • casts forward to how the fourth industrial revolution will deliver particularly acute challenges and opportunities to Indigenous Australia (especially when you consider the relative youth of Indigenous Australia – 60 percent are, today, aged under 35 years);
  • presents ideas about the need to re-examine national structures such as our superannuation regime, which, while designed to be universal, may actually contain blind spots in terms of serving the needs of Indigenous Australians;
  • proposes more innovative ways for Indigenous communities to use and leverage their land and other assets to better provide economic opportunities for communities;
  • suggests some ideas encouraging government to step out of the traditional directing role, and shifting to a support position.

Economic advancement of Indigenous Australians

The infamous gap between Indigenous and non-Indigenous Australians is finally showing some signs of closing in key areas. However, progress on employment has been poor. The key to stimulating Indigenous economic growth is to stimulate meaningful employment. And for Indigenous Australians who attain a high level of education, the employment gap vanishes. However, there are many challenges.

For Indigenous business, the Commonwealth’s Indigenous Procurement Policy has ignited a new wave of Indigenous entrepreneurism, increasing the Government’s expenditure on goods and services provided by Indigenous businesses from $6 million to $156 million in less than a year.

The combined income of the top 500 Aboriginal and Torres Strait Islander corporations has jumped 250 percent from 2004-05 levels, with these companies employing more than 11,000 Indigenous people in 2014-15. And over the past decade, the average annual growth rate in total income for these corporations was a strong 9.4 percent.

The report comments: “Indigenous business development is not only possible, it’s happening – including in the most remote parts of Australia. And the success of Indigenous business will be a core driver of Indigenous employment. The broader business community also has a genuine responsibility to take a good, hard look at why employment opportunities are so elusive to Indigenous Australians.”

Recommendations for economic growth include:

  • Recognising education is the key to Indigenous employment and must be invested in strongly, including through a needs-based school funding model.
  • Governments should contribute seed funding to impact investment funds for Indigenous enterprise.
  • The federal government should build on the success of its Indigenous Procurement Policy by insisting that state and territory governments reach Indigenous employment and procurement parity targets in all projects funded by federal infrastructure grants.

Indigenous entrepreneurs

The educational, socio-economic, and often geographic disadvantage of Indigenous Australians today would suggest most may miss out on the opportunities the new digital economy brings. Without the skills and capital to evolve their commercial offerings Indigenous Australians will be left behind in the ‘old economy’, while non-Indigenous businesses leap into the ‘new’.

According to the authors: “In order to play fairly and equally in the future of enterprise, Indigenous Australia needs to have the equal opportunity to build skills such as STEM and in particular coding capabilities, and have equal access to capital as other Australian entrepreneurs.”

“We know from research that the overwhelming majority of Indigenous Australians are already engaged with new consumer technology, with a very high rate of smartphone useage. The blurring of physical and virtual realms provides an opportunity for remote Australia to more effectively compete within Australia and globally. Technology and improving access to bandwidth mean physical location is becoming less relevant.”

Recommendations for innovation and entrepreneurship include:

  • Investment in education and training of Indigenous Australians at the school level and beyond in the areas of STEM, entrepreneurship, agile management, lean startup, human centred design, commercialisation, and IP management.
  • Create programs to expose Indigenous entrepreneurs and potential Indigenous entrepreneurs to incubators and accelerator environments.
  • Create platforms on which to expose Indigenous entrepreneurs to venture capital, angel investors, and other forms of funding.

Tax reform

The long term economic empowerment of the Indigenous population would be greatly enhanced by the creation of four types of investment bodies, each with specific taxation characteristics – an investment vehicle, Indigenous Community Development Corporation; an entrepreneurial vehicle, Indigenous Business Enterprise; a 10 year tax holiday for large Indigenous projects; and Indigenous Equity Funds (investment funds).

The report argues: “Tax reform can boost the Indigenous economy. And a key philosophy of our reform ideas is strong tax compliance – as this provides a discipline for small businesses, which can give rise to an understanding of ‘the numbers’ and better decision making.”

Recommendations for tax reform include:

  • The federal government should create the Indigenous Community Development Corporation, designed so the Indigenous community can hold assets, make investments, and receive income from royalties.
  • Indigenous Business Enterprise should be legislated, which would pay a small amount of tax if profitable, with the rate dependent on the level of Indigenous ownership and employment.
  • A 10-year tax holiday for large scale projects in Northern Australia where certain criteria on Indigenous employment are met.
  • Indigenous Equity Funds should be established, and consideration given to federal government fund matching on a dollar-for-dollar basis.

Superannuation reform

Indigenous Australians face unique issues when participating in Australia’s compulsory retirement savings regime, including low levels of financial and language literacy, the onerous administration requirements of the superannuation industry, and relatively low incomes.

Many Indigenous Australians live in remote and regional areas where depressed labour markets leave a significant number of people dependent on welfare and receiving no superannuation at all. Indigenous Australians who are in employment and do receive superannuation payments face a myriad of issues that substantially reduce the efficacy of the system for them, their families and communities.

The report argues that the Australian superannuation system needs to respond better to the unique needs of Indigenous people.

Recommendations for superannuation reform include:

  • Increase Indigenous financial literacy through more innovative uses of software tailored specifically for mobile technologies.
  • Make financial literacy sessions a mandatory component of the Community Development Program (CDP) scheme.
  • Recalibrate identification processes to compensate for a common lack of valid ID, as well as cultural and geographical barriers.
  • Increase the $10,000-per-annum limit for early access to superannuation savings in cases of severe hardship for Indigenous Australians.
  • Re-assess the appropriateness of providing an insurance benefit, and improve cultural awareness for dealing with Indigenous Australian members making insurance claims.

Indigenous millennials and education

The economic implications of Australia’s ageing population for the millennial generation are becoming increasingly clear – extra tax burdens, budget deficits and a decline in skilled workers. But the challenges for Indigenous millennials are even greater, and they are facing them right now.

KPMG Intern, of Yiman decent, Ruby Langton-Batty said: “Aboriginal and Torres Strait Islanders differ, as a group, from the rest of Australia. Our population is younger – over 60 percent are under 35. Given the huge gap between Indigenous and non-Indigenous Australians in terms of employment, however, our burden will not come later, as with our peers – it faces us right now. We must become educated to overcome poverty.”

Recommendations for youth education reform include:

  • Reverse funding cuts to Indigenous Education Units and not-for-profits that support the tertiary education of Indigenous Australians
  • Reform the ABSTUDY means testing system to acknowledge complexities around income, and widen eligibility to a larger cohort of tertiary-ready Indigenous students
  • Corporates who give internships to Indigenous students should consult with IEUs (Indigenous Education Units) to enable flexible tailoring to the needs of individual students.

Unlocking the Indigenous estate

Across the Australian landmass, Indigenous groups have rights and interests over vast landholdings, but without the wealth or influence that such ownership could be assumed to bring. Poor health, inadequate education, and stubbornly low living standards have hindered development, and the capacity to effectively leverage assets.

Past investments have largely failed to deliver intergenerational wealth — the economic wellbeing that underpins other forms of wellbeing. There is a need to create new pathways towards maximising the economic value of Indigenous land asset holdings, while appropriately preserving the social and cultural value of the land.

The report advocates: “Developing the appropriate settings for the management and control of the Indigenous Estate is critical to enable it to achieve its potential, to generate opportunities and choice and to bring Aboriginal and Torres Strait Islanders benefits and influence to the national stage.”

Recommendations for unlocking the value of Indigenous land assets include:

  • Develop a clear, concise and consistent framework in which each key institution/agency or sector participating in Indigenous economic development understands its strategic role, required capabilities and areas of focus, and its interrelationship to other key stakeholders
  • Appropriately map and identify the potential key areas of the Indigenous Estate so as to develop innovative approaches and thinking to develop ventures through which the Indigenous Estate can be leveraged into “future waves” of business activity
  • Identify and fashion links between the Indigenous Estate and the broader Australian economy for the benefit of Aboriginal and Torres Strait Islanders
  • Ensure Aboriginal and Torres Strait Islander people can choose governance mechanisms that are fit for purpose, allow them to focus appropriately on achieving both financial and social impact
  • Develop a consistent and robust measures of success and impact, which in turn engender greater accountability
  • Establish mechanisms for Aboriginal and Torres Strait Islander people to work together to share experiences, and to leverage their collective scale to access commercial advice, solutions and partnerships that might otherwise not be available to them individually

Empowered Communities

Empowered Communities was born of agreement among Indigenous leaders that current government policies are not working sufficiently to advance Indigenous communities, and well-intentioned funding is being wasted.

Conceived as a new approach for Indigenous communities and government to more effectively work together, Empowered Communities was first publicly announced at the August 2013 Garma Festival in Arnhem Land. The Empowered Communities: Empowered People’s Design Report was delivered to the federal government in March 2015 and articulates a fundamentally new approach to Indigenous policy development.

The authors say: “It is a significant thing to ask government to switch from its role as a fixer of Indigenous problems, to an enabler of local Indigenous approaches.”

“We must be diligent in not relying solely on government. The power of business must be enlisted to grow the capacity of Indigenous-controlled organisations, leaders and communities to meet the challenges they face today and into the future.”

Recommendation for empowering Indigenous communities:

  • The federal government should move immediately to enact the Empowered Communities reform at the national level to sustain the progress made at the regional level, based on the advice of the government-sponsored Empowered Communities Design Report.

Our report

Report collaborators are:

  • Josephine Cashman, Managing Director, Riverview Global Partners
  • Craig Emerson, KPMG Economics
  • Liz Forsyth, Global Lead – Human and Social Services, KPMG Australia
  • Eddie Fry, Indigenous Land Council & Indigenous Business Australia
  • Sean Gordon, Chair, Empowered Communities National Leaders Group
  • Paul Howes, Head of Wealth Management Advisory, KPMG Australia
  • Catherine Hunter, Partner, KPMG Australia
  • Professor Marcia Langton AM, Foundation Chair in Australian Indigenous Studies, University of Melbourne
  • Ruby Langton-Batty, Intern, KPMG Australia
  • James Mabbott, Head of KPMG Innovate, KPMG Australia
  • Peter Nash, Chairman, KPMG Australia
  • Ken Reid, Head of Innovation, KPMG Australia
  • Bernard Salt, Head of Demographics, KPMG Australia
  • Jonathan Taylor, Indigenous Development Specialist, KPMG Australia
  • Grant Wardell-Johnson, Leader, Australian Tax Centre, KPMG Australia
  • Gary Wingrove, CEO, KPMG Australia

Igniting the Indigenous economy

This report presents a collaboration of ideas focused on the economic development of Indigenous Australia.

Read more

Further information

Kristin Silva
Head of Communications, KPMG
T: 02 9335 8562 / 0411 110 953

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