This is the opening statement from the Tech Council of Australia’s new CEO, Dr Kate Cornick, to the Senate Economics Legislation Committee inquiry into the federal budget’s changes to capital gains tax and other reforms.
Tech is now Australia’s second largest sector, contributing nearly a quarter of a trillion dollars to GDP, and employing nearly a million people.
I’m five weeks in as CEO of the TCA, having led Victoria’s startup agency for the decade prior.
Over that time, the number of tech startups in Victoria increased fourfold. Their valuation grew over 20 times from $7b to $139b, and they created nearly 67,000 new jobs.
There are few industries that can claim this growth. But realising it isn’t easy.
Having helped thousands of working Australians with entrepreneurial ambitions I’ve seen the risks.
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Risks taken by founders who leave stable employment to build a company.
Risks taken by investors who back them early before they know if they’re profitable.
Risks taken by employees who forfeit secure income for equity, hoping a future exit will reward their work and help them create a better future.
In Victoria, our data showed that only 1 in 4 founders actually managed to raise the external capital needed to get their startup idea off the ground.
And when they do get investment, global data shows 70% fail, 25% return funding to investors, and only 5% actually create a return on investment.
Reward for risk
Productive risk taking must be rewarded.
We acknowledge what the Government wants to achieve with its broader tax reform package, including housing affordability and a fairer tax system.
But the proposed CGT reforms will see early-stage startup equity taxed more heavily than the passive assets the reforms are meant to target.
We support broader concessional capital gains treatment that incentivises the creation and scaling of truly innovative high growth businesses.
The concession should be set when the equity is acquired, and run for the life of the investment, providing certainty that when productive risk is taken, that it will be rewarded. This is consistent with peer innovation economies.
Without a technical adjustment for startups, Australia risks becoming an outlier.
While most founders may not begin their startup journey with the Government’s tax settings front of mind, if no change is made, they’ll quickly learn the hard way that talent and capital are mobile.
If you cut the after-tax reward for founders, employees and investors, the negative impact quickly compounds.
Investors back away. Fewer founders get the capital they need to grow, or they move overseas to more attractive innovation ecosystems. They find it harder to attract skilled employees from safe jobs in stable firms.
That’s a poor outcome for budding entrepreneurs. But it’s a poorer outcome for Australia – for our productivity, for jobs, and for our ability to build new industries that will ensure the success of our economy for future generations.
Australia has challenges: flatlining productivity, declining R&D spend, stagnating per capita growth. At the same time, we’re preparing to undergo significant transformation through the energy transition and the impacts of new technologies like AI.
Our ability to mitigate impacts, and capture opportunities, will depend on our ability to foster new, high growth, innovative businesses that can develop scalable products and services with global appeal here, in Australia.
Let’s not give them a reason to forfeit before they’re even out of the starting gate.
