Mar 28 2019
The Australian tech sector has grown rapidly over the past five years. The Software Publishing Industry is expected to generate revenue of $4.1 billion in 2018-19, and the Data Storage Services Industry is expected to generate $2.5 billion in revenue in the same period.
However, the industry is facing a potential threat in the form of new encryption busting legislation that could drive away foreign investment, force existing tech companies to move overseas, and weaken the tech sector over the next five years.
The Telecommunications and Other Legislation Amendment (Assistance and Access) Bill 2018
The Telecommunications and Other Legislation Amendment (Assistance and Access) Bill 2018, which gives law enforcement agencies and intelligence agencies unprecedented power to request access to encrypted data, passed through the Senate on 6th December 2018. The legislation will help these agencies gather intelligence, but IBISWorld Senior Industry Analyst Liam Harrison says it may also have far-reaching negative economic impacts.
Prior to this legislation, law enforcement agencies have not been able to compel providers to help them access encrypted data on their systems. The new legislation will force these providers to design ways of accessing this data that do not introduce ‘systematic weaknesses’ into the data environment. However, what constitutes a systematic weakness is not clearly defined and this has become a key issue for businesses, according to Mr Harrison.
“International firms have already used the uncertainty this legislation has created to draw business away from Australian firms. Without amendments to reduce the secrecy and far-reaching powers of the legislation, Australian firms may not be able to convince foreign clients and investors that Australia’s technology sector is completely secure,” said Mr Harrison.
The Bill’s Impact on International and Australian Tech Businesses
Potential requests from law enforcement agencies, which may introduce weaknesses in their systems, may also lead larger tech companies to downsize or leaving Australia entirely. Law enforcement agencies have made requests for encryption busting before, both in Australia and around the world. However, there has previously been no legislation forcing them to comply.
“US tech firms such as Apple have already shown they are unwilling to compromise on encryption. Apple has gone to court multiple times to prevent the FBI from accessing encrypted data in locked iPhones. The threat of legal coercion to access encrypted communications and data could force technology providers to simply pack up and leave the Australian market,” said Mr Harrison.
“Australia’s start-up tech sector is expected to be most significantly affected by these new laws. Many of these firms sell new and innovative technology, typically designed for niche markets. The risk of coercion to access encrypted data and communications may dissuade foreign investors and customers from dealing with these firms,” Mr Harrison added.
Uncertainty regarding Research and Development tax credits, which have come under recent scrutiny by the Australian Tax Office, presents a further threat to the Australian technology sector. The Federal Government has sought to clarify issues surrounding what can be claimed for R&D tax credits but this has only heightened concerns. For example, the government has specified that time spent on R&D must be carefully logged to be eligible for tax credits, but tech firms that work in fields such as software development often do not have an easily determined development timeline.
Opportunities for New Zealand Tech Industry
The fallout of these Australian encryption-busting laws may present an opportunity for the New Zealand tech industry.
“Although the typical destination for many tech firms is the United States, the new legislation could attract more Australian tech firms to New Zealand. Working in New Zealand would allow Australian firms to continue attracting Australian talent and business without being subject to the new encryption laws,” said Mr Harrison.
According to Mr Harrison, there are a large number of New Zealand cloud systems also stored in Australian data storage services at present.
“These services would be likely subject to the encryption busting laws, regardless of the data’s point of origin. This has concerned New Zealand’s tech firms, and could encourage them to invest in data storage centres in New Zealand to avoid the new legislation,” said Mr Harrison.
“If the government fails to address the concerns of the Australian tech sector and amend the encryption busting laws, New Zealand may become a new hub for technology in the region.”
IBISWorld Industry Reports used in this release:
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