Can Australia make housing more affordable without hurting tech start-ups?

SYDNEY – Australia’s attempts to make housing more affordable by curbing property speculation has exposed a new economic dilemma: whether policies designed to curb property speculation could inadvertently weaken the country’s ambitions to build globally competitive tech companies.

Discussions between the government and the tech industry have intensified in the days since Treasurer Jim Chalmers proposed changes to capital gains tax (CGT) concessions in his federal budget on May 12, prompting a sharp backlash from start-up founders and venture capital investors.

They argue that the measures could undermine venture investment and employee equity incentives that are critical to early-stage innovation, and push talent and capital abroad.

The CGT reforms, which will come into force on July 1, 2027, emerged amid mounting public concern over housing affordability in Australia. Tax settings such as capital gains concessions and offsetting of property-related losses against taxable income have long encouraged speculative investment in real estate that has driven up property prices.

Under current rules, individuals who hold an asset for more than a year receive a 50 per cent discount on capital gains tax. The latest budget proposes to remove this concession and change how the cost base is calculated, meaning gains are taxed more heavily and sooner.

Start-up leaders argue, however, that such changes would discourage foreign investments, push founders to countries with more favourable tax environments and weaken Employee Share Schemes (ESS) that help them attract talent.

The ESS rules applying to start-up companies – when introduced in 2015 – were specifically designed to enable participants to be taxed under the CGT regime with the benefit of the CGT discount.

“Investors are already feeling a little nervous and jittery about the entire announcement, and they have put their funding plans on hold,” Mr Rehan D’Almeida, chief executive of industry lobby group FinTech Australia, told The Straits Times. 

He said some start-ups that had been close to finalising funding rounds were now being asked by investors to pause discussions until there was greater certainty around future tax treatment.

Industry concerns extend beyond higher taxes to whether prolonged uncertainty could accelerate the move of founders, talent and capital overseas.

The issue carries growing significance for Australia as it simultaneously tries to tackle a housing affordability crisis especially affecting young people, lift productivity growth and position itself competitively in the regional race for AI and tech investment.

Challenges for start-ups

The concern reflects broader anxieties in Australia’s start-up ecosystem, where investors and employees often accept years of risk in anticipation of capital gains realised only when a company is acquired or listed, or exits.

Founders and venture capitalists say that reducing the concessional treatment of those gains directly weakens the economics of backing high-risk start-ups, particularly in a market that already struggles to retain companies as they scale.

While Australia has produced globally recognised technology firms – including buy-now, pay-later service provider Afterpay, design platform Canva and project management software maker Atlassian – many founders eventually relocate operations offshore or seek overseas listings, particularly in later funding stages.

Structural issues already constrain domestic start-up funding, especially in regulated sectors such as fintech and healthtech. Existing venture programmes leave funding gaps at the Series B and C stages.

International capital remains available, but founders say overseas investors often expect high-growth companies to scale or structure themselves beyond Australia’s relatively small market and high-tax environment – pressures they fear could intensify under the proposed CGT changes.

Venture capital investors say the debate also highlights deeper structural questions about where Australian start-ups ultimately scale and realise investor returns.

Dr Michelle Deaker, founding partner at OneVentures, which specialises in later-stage growth funding, told ST that securing Series B and C capital had long remained challenging for Australian companies expanding offshore and building global leadership teams.

She said tax settings mattered because founders and investors increasingly evaluate where companies should ultimately domicile, scale and exit.

Still, she said the government’s decision to launch a dedicated consultation process with the start-up and venture capital sector was a constructive signal for investors, adding that “the direction of travel is encouraging”, referring to a stabilising venture capital environment.

For founders, the issue extends beyond investors to the challenge of attracting skilled employees in an increasingly global labour market. Workers often accept below-market salaries in exchange for equity, betting that a future acquisition or listing will compensate for the shortfall.

Under current tax settings, those gains are generally taxed at capital gains tax rates when realised, including access to a 50 per cent discount if the shares are held for more than 12 months and eligibility criteria are met. Industry leaders say this feature is central to making equity-based compensation viable.

Mr Stuart Stoyan, CEO of fintech SkyCredit Group, who previously founded digital lender MoneyPlace before its exit to Liberty Financial, warned that weakening the tax attractiveness of those equity incentives could slow hiring and expansion across the sector. “If the government takes that equity incentive away, start-ups will scale much more slowly because they simply won’t be able to afford to hire as many people or the right quality of talent,” he told ST.

Balancing act

Some policy experts believe the government will fine-tune its proposals before they result in long-term behavioural shifts in the start-up sector.

Governments globally take very different approaches to capital gains taxation, with countries such as Singapore and New Zealand not taxing capital gains, while others like Britain have tightened tax treatment, said Dr Tamara Wilkinson, who researches venture capital and start-up regulation at Monash University. The comparison carries weight because Australia competes with regional hubs, including Singapore, for capital, talent and high-growth companies.

Neither Singapore nor New Zealand imposes a broad-based capital gains tax, though both tax certain gains under specific circumstances.

Dr Wilkinson added that the attraction of regional hubs like Singapore lies not only in their lower tax environments, but also in how proactive their governments have been in encouraging innovation, start-up creation and venture capital funding. “That means it’s going to be cheaper to operate and fund a start-up there, and to a certain extent, from a tax perspective, that’s not something Australia can really compete with,” she told ST.

Industry groups have floated several alternatives aimed at preserving incentives for early-stage risk-taking while limiting concessions for passive investment, including retaining the 50 per cent discount for long-held start-up equity, exempting employee share scheme gains, and a tapered system where concessions increase with holding duration.

Dr Chalmers, speaking at the Bloomberg Business Forum in Sydney on May 19, said the government was “working with the start-up sector” and consulting “in good faith” to find a way through on the issue.

“We do recognise that start-ups and venture capital, and particularly the tech sector, have got a different kind of cost-base calculation,” he said.

The outcome of that process will ultimately determine not only the shape of Australia’s tax settings, but also whether it is seen as a place where globally competitive companies are built and scaled – or one where founders increasingly choose to take their companies elsewhere.