Kate Cornick, CEO of the Tech Council of Australia, has cautioned federal senators that the proposed reforms to capital gains tax (CGT) risk making Australia an outlier among innovation economies, potentially undermining the country's burgeoning startup sector.
- Early-stage startup equity faces heavier tax under proposed CGT reforms
- Risk of capital and talent migrating from Australia to global innovation hubs
- Calls for CGT concessions aligned with other innovation economies
What happened
Dr Kate Cornick, newly appointed CEO of the Tech Council of Australia, addressed a Senate Economics Legislation Committee inquiry concerning the federal budget’s proposed CGT reforms. Drawing from her decade of experience leading Victoria's startup agency, she highlighted the sector's significant growth—startups have quadrupled in number with valuations soaring from $7 billion to $139 billion and nearly 67,000 jobs created.
Cornick emphasized the risks taken by startup founders, early investors, and employees who sacrifice job security for uncertain future rewards. She pointed out that only a quarter of founders secure external capital and that most startups fail or generate no returns. Despite the government's aim for broader tax reform and fairness, the proposed CGT changes would increase the tax burden on high-risk startup equity investments.
Why it matters
The proposed CGT reforms threaten to reduce the after-tax rewards for founders, investors, and employees who drive Australia’s high-growth startups. This could create a negative feedback loop where investors become reluctant, fewer startups receive capital, and talented founders and employees relocate to more favorable global innovation ecosystems.
This consequence would not only hurt budding entrepreneurs but also stymie Australia’s broader economic goals. Given challenges such as flat productivity, reduced research and development spending, and stagnating growth, nurturing innovative startups is crucial for Australia to capitalize on transformative opportunities like the energy transition and AI advancements.
What to watch next
Stakeholders will be closely monitoring government responses to calls for CGT reform adjustments that better reflect the unique risk profile of startup investments. Proposed concessions include setting preferential capital gains treatment at the point of equity acquisition and maintaining these benefits throughout the investment’s lifecycle, aligning with global innovation economies.
The direction the federal government takes on these reforms will have lasting impacts on Australia’s ability to retain startups and scale new high-growth companies domestically. Future announcements or amendments could signal whether the country supports a competitive, innovation-friendly tax environment or risks economic stagnation and talent exodus.