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December 7, 2020

Top 5 Reasons To Start A Business in Melbourne

For aspiring entrepreneurs, the post-COVID-19 world presents opportunities and optimism. There is a host of new players considering their options going forward, particularly with increasingly widespread acceptance and uptake of flexible business modes.

Melbourne is an appealing base for startups. Part of its attraction is the availability of government support programs and incentives along with international market connectivity. However, Melbourne also provides a city rich in resources, local talent, dynamic industries, a diverse and inclusive culture and livability. This article highlights the top reasons that make Melbourne a great place to start an entrepreneurial business.

  1. Melbourne’s “Factors of Production”

‘Factors of production’ is an economic term that refers to the inputs used in the production of goods or services in order to make an economic profit. Melbourne’s factors of production are considered accessible, abundant and of world-class quality.

We are the land of plenty! While Australia is rich in natural resources, the drawcard of Melbourne (and its surrounds) is the copious amounts of physical space available for economic activity to take place - agricultural land within reach, existing manufacturing facilities and plenty of vacant lots to establish factories. The economic downturn and changing expectations of office use has freed up commercial real estate and office spaces for lease or purchase and increased retail property vacancies.

Melbourne enjoys a clean environment; its air, water and agricultural produce and processed foods are of an extremely high quality thanks to rigorous government standards of land management, sustainable practices, food safety and management of industrial and domestic pollution and rubbish disposal.

Melbourne has a population of 4.968 million people, of which approximately 65% are of working-age, and has a typically low unemployment rate outside of the COVID-19 pandemic. Census data of 2016 paints a large and industrious labour force rich in human capital - well educated and well trained – with a reputation for high productivity and efficiency. Of people aged 15 and over in Greater Melbourne, 27.5% report having completed a Bachelor Degree or higher, 9.5% an Advanced Diploma or Diploma and 12.8% a Certificate III or IV. The data also displays a diverse, multilingual and multicultural population. In Greater Melbourne, 59.8% of people were born in Australia, while the remainder were not, and 46.2% of people have both parents born overseas. The multicultural workforce is attractive to startups, bringing diverse market knowledge and skills, helping businesses expand and prosper. In addition, the Victorian Government’s visa nomination program allows access to highly-employable skilled migrants to fill job vacancies.

Australia outranks most developed countries for the soundness of its banks, according to World Economic Forum’s 2019 survey, and, post COVID-19, capital and credit continues to flow in Melbourne. A secure banking system coupled with low interest rates is attractive for startup businesses who need to borrow money for the purchase of land and real assets.

The Reserve Bank of Australia’s (RBA) Financial Stability Review of October 2020 stated that while risks were elevated, the Australian financial system is in a strong position to support economic recovery.  “Given their strong balance sheets, banks will be well placed to continue lending, supporting the economic recovery and so in turn the Australian financial system.”  According to the RBA, Australia is a world leader of financial card transactions and in having the most cards in circulation. It also has the second largest stock market in the Asia Pacific region and a currency that is highly traded around the world.

Entrepreneurs are responsible for guiding their startup to take on the economic risk involved with pulling together the other three factors of production – land, labour and capital. The Victorian State Government is encouraging new businesses by using a combination of policies and incentives to make starting a business accessible. This is covered in points 4 and 5.

Whilst technology is not considered a ‘Factor of Production,’ it does help facilitate the other factors of production. Melbourne is home to a reliable telecommunications network of satellites and submarine fibre optic cables to support access to global business and boasts one of the world’s best broadband networks, covering 99% of the population. A $626 million investment to the state’s digital infrastructure and skills – with a focus on regional Victoria – has been provided for as part of the Victorian Budget 2020/21. Multiple deregulated service providers offer competitively-priced services and free Wi-Fi is available in Melbourne and regional centres. Local tech companies have been paving the way for technology and digital development, encouraging local talent and the tech industry to flourish.

  1. Local and International Market Connectivity

For startups trading physical goods, Melbourne is the perfect geographic location from which to service domestic and foreign markets. Its sophisticated network of road, rail, sea and air transport enables fast movement of goods.

Domestically, the city sits in the middle of the Australian south east triangle (encompassing South Australia, New South Wales and Tasmania), a heavily concentrated area of economic prosperity with a combined economic output of over A$1.2 trillion (ABS Cat 5220 - as at June 2019).  

Melbourne is in prime position to service Asia Pacific markets – the world's fastest growing economic region and home to over 4.5 billion people. Twelve of Australia’s 15 largest markets are in Asia and Oceania. Overlapping time zones allow close working and direct flights are an efficient option for person-to-person meetings.

Aside from COVID restrictions, Melbourne’s International Airport is Australia's largest 24-hour, curfew-free, freight and passenger airport. It is serviced by 37 international airlines offering direct flights to 43 international destinations and deals with 35% of Australia's international air freight market.  Time sensitive products can arrive in international markets the day after they leave Melbourne.

The Port of Melbourne is Australia's largest and most modern container, automotive and general cargo port, operating 24 hours a day, and Victoria also operates regional ports. Almost all (97%) of Australia’s worldwide trade is carried by ships, making Melbourne the perfect base to import and export items, especially with its seamless links to the Asia Pacific.

The government is currently investing heavily into integrated freight transport systems to make huge improvements in the way freight moves in Victoria. These investments include: Melbourne Metropolitan Rail tunnel, north east link, Airport Rail, Western Rail metro electrification,  Geelong high speed rail, Suburban Rail Loop, level crossing removals, a new on-dock rail at the Port of Melbourne, on-dock rail to Swanson Dock, Port Rail Shuttle (dedicated for freight), creation of intermodal terminals at Truganina and Beveridge, signal automation at the Geelong Port and investments in the regional freight network.

Australia’s has 14 free trade agreements in place, enabling Melbourne businesses to enjoy liberalised access to overseas markets. Free trade agreements with Asian nations include: China, Japan, South Korea, Thailand, Malaysia, New Zealand, Hong Kong and Indonesia; and a free-trade agreement between Australia and India is currently under negotiation.

  1. Stability

Political stability, strong institutions, a transparent regulatory system and sound governance frameworks underpin Australia’s economic resilience, and as a result Australia is ranked fourth out of 186 countries in the 2020 Index of Economic Freedom. Melbourne startups are reassured by strict measures that provide a safe and secure business environment and fair administration of justice, safeguard of personal security and protection of property rights.  The obligations around applying and operating a business in Victoria are set out in a stable legal environment and the World Bank gives Australia some of the highest scores in the Asia-Pacific for the integrity of its legal system.

Melbourne has a quality of life that is rated one of the highest in the world. It also has a lower cost of living compared to major cities in the Asia-Pacific region. The Economist Intelligence Unit’s (EIU) annual Global Liveability Ranking compares 140 cities for their quality of life. Melbourne was ranked the world's most liveable city for seven years in a row, from 2011 to 2017, and second most livable city in 2018 and 2019. Melbourne is anticipated to have low economic exposure risk according to Lloyd's City Index 2015-2025, which measures 18 economic exposure threats.

  1. Assistance for budding entrepreneurs

The City of Melbourne prides itself on offering support to entrepreneurial businesses and fostering a collaborative culture and the Victorian State Government has many programs to help companies establish a presence in Melbourne. These include:

  • Co-working spaces
  • Accelerator programs
  • Startup incubators
  • Small Business Mentoring Service (SBMS) mentors
  • ‘Upskill My Business’ program: free online courses, live and on-demand events and a range of business resources
  • Business Victoria workshops on topics such as business planning, marketing and cashflow.
  • Export support
  • Small business grants

More information on these programs is available on the websites of City of Melbourne (see ‘Start a business’), LaunchVic, Business Victoria and Austrade.

  1. Incentives

Existing government incentives remain appealing to startups, along with the announcements made in the Victorian Budget 20/21, which is aimed at reinvigorating the economy. The state will spend $49 billion over the next four years on concessions, subsidies and projects in a bid to get hundreds of thousands of people back to work and set up Victoria for a strong recovery.

Government incentives include:

  • The AusIndustry R&D Tax Incentive, providing targeted R&D tax offsets designed to encourage more companies to engage in R&D. Two core components are:
  • a 43.5% refundable tax offset for eligible entities with an aggregated turnover of less than $20 million per annum
  • a 38.5% non-refundable tax offset for all other eligible entities
  • Enhanced Instant Asset Write-Off limit extension to 30 June 2020 and increasing depreciation deductions.
  • The Entrepreneurs’ Programme, including The Growth Roadmap, High Growth Accelerator & SMART Projects and Supply Chains services.
  • Victorian Export Recovery Package to address logistics and supply chain issues caused by the coronavirus pandemic and establish new export channels.
  • Introduction of additional tests that increase the number of startups eligible for the JobKeeper program.
  • Provision in the Budget for $186.2 million to support Victoria’s startup ecosystem. LaunchVic will receive $40 million over four years to continue its role as Victoria’s startup agency.
  • The Budget allows for a 50% stamp duty concession to be brought forward to January 2021, on the purchase of commercial and industrial properties in regional Victoria, encouraging more businesses to open, relocate or expand.
  • The Budget includes a $619 million jobs package, with $250 million for direct wage subsidies aimed at getting women and young people back in the workforce. There will be $836 million in payroll tax relief to encourage employers to hire new workers.

For more information, or assistance with applying for the R&D Tax Incentive or government grants, contact the Mark Bouw Group.

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