“A compass, I learned while I was surveying, it’ll point you true north from where you’re standing but it’s got no advice about the swamps, deserts and chasms that you’ll encounter along the way. If in pursuit of your destination you plunge ahead heedless of obstacles, and achieve nothing more than to sink in a swamp…what’s the use of knowing true north?” – Daniel Day Lewis, in the title role of Lincoln
It’s what happens when you try to solve an innovation systems problem through a tax instrument.
That shouldn’t surprise anyone. And yet, now everyone is surprised that when the reform arrived, it looked exactly like a Treasury-designed compromise document: dozens of eligibility tests, age limits, turnover thresholds, innovation criteria, holding periods, caps, exceptions and transitional arrangements.
Seriously folks…what did you expect now the ink is beginning to dry on the consultation paper?
I outlined prior to the Senate hearing, in a private WhatsApp group on Australian innovation I belong to, a prediction of what the government might do if I were handicapping the outcomes of the CGT reforms:
- Initial proposal creates backlash (that already happened)
- Government realises startup ecosystem concerns are politically salient (we can also check that off)
- Carve-outs emerge (done, the document ink is drying)
- Some startup groups claim partial victory; the main tech lobby group says its a start (press releases and opinion were posted online and in the technology press)
- Government claims it listened (this is what they claimed)
- Treasury privately dislikes the complexity (still waiting for this…)
- Nobody is completely satisfied. The community is divided (almost certainly has happened)
C’mon everyone: You all know that’s usually how Australian tax reform ends, and what the end result becomes, “The general rule is X, except for Y, unless Z applies, except where A qualifies under B, unless C, but only if D applies.”
Ten years later another government commissions a review, and we get another bloody report, because the system has become too complex. You all know this is how it’s going to turn out, right?
I don’t blame you: you wanted to carve out a exemption for the founders and others in the community, after working hard, exiting and for investors that put up the cash to scale. Who doesn’t want that?
Championing that was an ideal. And it should be. But Treasury is always going to be Treasury.
Let me explain…
“Startups are different. Venture is risky. Founders work hard. Angels are important. Do not tax us at 47%. Also…Singapore.”
The startup ecosystem appears to have achieved one of the great miracles of Australian public policy.
It asked for something, received something kinda-sorta, if you squint very hard, resembling the thing it asked for, and immediately began wondering why the thing looked like a dog’s breakfast assembled in a basement by Treasury quants more comfortable in front of a spreadsheet.
After months of lobbying, Senate hearings, submissions, op-eds, LinkedIn manifestos, podcasts, emergency WhatsApp groups, and the occasional founder threatening to move to Singapore for the seventh time this quarter, Treasury blinked. A carve-out has arrived.
Yet the reaction from many founders, investors, operators and ecosystem participants has not been jubilation. Instead, it has been a collective long pause, followed by a national chorus of “what the heck is this?” at the consultation paper.
The policy has arrived carrying enough eligibility tests, thresholds, exclusions, definitions, holding periods and caveats to arm a medium-sized accounting practice. Everyone appears unhappy in slightly different ways, which suggests that perhaps the problem was never the tax treatment itself.
The startup community’s true north was relatively simple:
“Protect the 50% discount,” “Do not tax founders at 47%,” “Preserve startup incentives,” “Do not damage venture returns,” and “Keep Australia competitive.”
Those are entirely reasonable objectives. They are also a founder doing a demo to the wrong customer. Treasury’s true north was also straightforward: reform capital gains tax, improve perceived fairness, protect revenue and simplify the broader tax architecture. Those are also entirely reasonable objectives.
The problem was that both groups became so focused on their respective compasses that they stopped looking out the window. The terrain between here and there remained largely unmapped. Consequently, we have arrived exactly where one might expect.
The Magic 8-Ball says: “Outcome Seems Likely.”
The Senate hearing was never going to be a conversation. It was always going to be a translation exercise without Google Translate, in a room full of people who thought speaking more slowly might solve the whole problem.
Founders and investors arrived wanting to talk about risk, equity, venture returns, employee share schemes, capital recycling, talent, global competitiveness, and how Australia can produce more Canvas and Atlassians.
Politicians heard something else entirely. They heard tax concession, wealthy founder, investor complaint, special pleading, and a group of people who already looked suspiciously well-connected asking for different treatment while voters are still trying to work out whether King Island cheese is now a luxury item.
The startup side thought it was making a productivity argument. The political side heard a fairness argument in R.M. Williams shoes. Both sides were using familiar words. They were not having the same conversation.
This is the part the ecosystem still does not quite want to admit.
Founders walked into the debate believing they were explaining the machinery of future industries, but too often they described the machinery in founder-native language and expected Canberra to experience enlightenment by osmosis. Cap tables are not a national productivity strategy.
Venture returns are not, by themselves, an argument a Senator can sell to someone in Penrith, Ballarat or Logan who has never met a VC, and assumes an LP is still something on which their parents played Fleetwood Mac.
If the case is that startups create new industries, exports, high-wage jobs, technical capability and productivity growth, then say that, and build the bridge all the way across. Do not stop halfway and complain that Treasury did not swim out to meet you.
The politicians were hardly innocent, of course, because too many still seem to think innovation is what happens after you announce a grant, open a precinct with a ribbon cutting and giant scissors, or stand near a 3D printer and say “jobs of the future” into a microphone.
But the ecosystem’s job was to make the complexity legible. Instead, too much of the hearing risked becoming exactly what we all feared: founders explaining risk to people hearing privilege, and politicians asking about fairness while founders heard ignorance.
The second failure was pretending Treasury would respond to ecosystem emotion with ecosystem imagination.
It was never going to produce a founder narrative. It was never going to return from this process with founder visas, three new LPs, a national syndicate network, a functioning scaleup-finance market, an ecosystem-friendly “flywheel” instrument, and a politely worded apology for every cap table ever harmed by indexation.
Treasury was always going to produce a bounded, defensible, administrable carve-out, because that is what Treasury does.
It thinks in leakage, integrity, precedent, eligibility, revenue, abuse cases, fairness optics, and whether the thing will survive Senate scrutiny without becoming a boutique tax shelter in a hoodie.
So when the consultation paper arrived with eligibility criteria, turnover thresholds, company age tests, innovation principles, holding periods, lifetime caps, exceptions and transitional arrangements, the correct response was not shock.
This is what happens when you ask an internal revenue department to solve an innovation-systems problem with a tax concession.
You get a schedule. You are going to receive thresholds. You are going to receive eligibility criteria. You are going to receive integrity measures.
You are not going to receive a standing ovation, a founder visa, three new LPs, a functioning scaleup-finance market and a biotech accelerator run out of a Brunswick warehouse by someone named Tash.
The startup ecosystem also forgot its own advice.
It tells founders to understand the customer, find the pain point, translate the value proposition, and create the moment of “oh, now I get it.”
Yet when the customer was Treasury, the pitch often sounded like a founder explaining founder dilution, to someone who had asked about housing affordability. That is not nothing, but it is not the “wow.”
Treasury did not need to be told that founders prefer lower tax. It thinks EVERYONE wants lower tax.
Treasury needed to be shown how capital gains treatment, connects to capital recycling, founder formation, employee ownership, syndicate development, LP participation and national productivity.
Treasury needed to be shown how one successful exit becomes 50 angel cheques, 30 LP commitments, ten specialist and marginal funds, 10 experienced operators, a series of university spinout pathways, and a measurable increase in national productive capacity.
The ecosystem sold the feature. It did not sell the system. Then everyone looked surprised when Treasury shipped a feature with the compliance manual attached.
At the same time, government has frequently misunderstood what startups actually are. Startups are not simply small businesses with a pitch deck. Very simply, they are mechanisms for discovering new industries under conditions of uncertainty.
Nobody knew Canva would become Canva. Nobody knew Atlassian would become Atlassian. Nobody knew Cochlear would become Cochlear.
The entire point is that nobody knows! Innovation policy is therefore less about selecting winners than increasing the number of experiments a country can afford to run.
Yet much of Australia’s innovation policy remains rooted in twentieth-century assumptions, what I call “The Long 20th Century,” about grants, programs, committees and linear pathways.
Yet the world has changed faster than the institutions governing it.
A LinkedIn manifesto: put it to the Test-o!
Everyone is now writing their version of: “This is bad, but also we were right, but also Treasury misunderstood us, but also the government listened, but also this is not enough, but also here is my specific sectoral grievance, but also please continue to treat my bit of the ecosystem as existential.”
One person says founders and investors are being self-interested martyrs. Another says the carve-out is a welcome step. Another says it is fake good news.
Another says biotech or deeptech is special. Another says angels are special. Another says early employees are special. Another says the “missing middle” is the actual problem. Another says SMBs have been forgotten.
Another says Australia needs 0% startup CGT to compete with Singapore and the US. Another says the Senate process was basically ceremonial theatre.
And the annoying thing is that many of them are partly, even mostly, right. And that is the problem.
They are all holding a different corner of the consultation paper and announcing they have discovered the national innovation strategy.
The latest round of LinkedIn commentary has only confirmed the problem.
Everyone has found a way to make the CGT reforms about their own wound.
Angels are worried about angels.
Founders are worried about founders.
Biotech is worried about biotech.
Deep tech is worried about deep tech.
Small business is worried about small business.
Direct shareholders are worried about direct shareholders.
Lobby groups are worried about sounding constructive while not irritating anyone who might still invite them to a consultation. Everyone is pointing at a real issue, but almost nobody is describing the machine. It is a room full of people holding different broken parts of the gearbox and insisting their cog is the vehicle.
And this is why the conversation keeps collapsing into carve-out politics.
One person says the innovation test is too narrow. Another says all direct shareholders should be exempt. Another says founders who stay in Australia deserve better. Another says biotech has longer timeframes. Another says scaleups are being abandoned. Another says the missing middle is ignored.
Again, many of these claims are true. But the problem is that truth is being used as a queue ticket at the innovation deli.
Everyone is effectively saying, “My category of risk is real, therefore my category should be rescued.”
That is not reform. That is a line outside Treasury with each person hoping the next draft of the exemption includes them.
The underlying accusation is not that people are stupid or malicious. It is worse than that: they are behaving rationally inside a broken policy culture. Everyone has learned that the way to survive Australian reform is to get your category recognised before the gates close. So the ecosystem does not arrive with architecture. It arrives with claims.
The argument that active business building should be treated differently from passive asset ownership is better than most of the startup-versus-property framing, but it still stops too early. Yes, a founder-led business outside the startup ecosystem can involve years of risk, reinvestment, illiquidity and value creation.
Yes, Treasury’s prescribed innovation test will almost certainly reward companies that can perform innovation legibly on paper while missing some businesses that are actually building useful, difficult, productive things. But that is still only a fairness argument at the point of exit. It asks who deserves the concession. It does not ask what the concession is supposed to do next. It still treats the tax event as the centre of the universe.
The harder question is whether the concession creates future productive capacity or simply hands another category of successful people a better post-exit outcome. The “exempt everyone” position is at least honest, but it is not innovation policy. It is a tax revolt with a startup logo on it.
Maybe the whole CGT reform is bad economics. Fine, make that argument. But don’t confuse it with building an innovation ecosystem; or make it an excuse for perpetuating a poor commercialisation environment.
The Middle isn’t missing
That is why I continue to believe Australia’s challenge is not primarily a tax problem.
It is an infrastructure problem. We have not built the infrastructure of innovation necessary to allow policy changes to compound into broader ecosystem outcomes.
We have not adequately addressed founder recycling, capital recycling, commercialization pathways, LP formation, syndicate development, ecosystem density, specialist vehicles, procurement pathways, founder-to-founder knowledge transfer, or ways to remove gatekeepers and speedbumps.
We have spent decades building components. We have spent far less time building machines. As a result, every debate eventually collapses into a fight over one isolated lever.
Today it is CGT. Tomorrow it will be something else.
The mistake Australia repeatedly makes is assuming innovation can be purchased one policy at a time.
When growth slows, we announce a precinct. When venture capital weakens, we announce a fund. When founders complain about taxation, we announce a concession. When commercialisation stalls, we launch a pilot program.
We keep building parts and then wondering why the machine refuses to start. No serious engineer would attempt to build a jet engine by randomly accumulating components and hoping they eventually resemble an aircraft. Yet this is often how innovation policy feels. It is less a system and more a collection of receipts.
Australia also has a habit of mistaking reaction for reform. A single problem appears, everyone panics, a minister announces a targeted measure, Treasury designs a narrow instrument, the sector says it is a start, and then the whole thing gets added to the existing pile of starts.
That is how you end up with ESVCLPs, VCLPs, ESIC, ESS concessions, RDTI rules, grants, state programs, federal programs, precinct strategies, export schemes, accelerator initiatives, and now another CGT carve-out wandering around the paddock looking for the coach.
Each one may have had a logic at the time. Each one may have solved a specific problem for a specific cohort under specific conditions. But reforms that do not work together eventually stop behaving like reforms.
They become policy sediment. They become acronym soup.
They become a system where the user experience is basically, “Please consult your accountant, lawyer, grant writer, local member, AusIndustry contact and nearest spiritual adviser.”
This is why I struggle when people ask me, “Jim, what are the two or three things we could do now?”
It sounds practical, but it is often the wrong question.
Innovation ecosystems are not built by picking three heroic priorities and hoping the rest of the machine develops manners. Sometimes the problem is not that we have failed to choose the most important cog. Sometimes the problem is that the cogs we already have do not turn together.
Capital recycling, employee equity, fund formation, procurement, commercialisation, scaleup finance, founder visas, syndication, LP education, university spinouts and deep-tech pathways are not always competing priorities.
Some of them have to move in parallel, because they are parts of the same machine. If you fix one cog and leave the others jammed, you do not have reform.
You have a shiny cog in a broken gearbox. Australia keeps asking for priorities when the problem is choreography.
Exit, stage right…
The most revealing aspect of the current debate is, what happens after a successful exit?
The ecosystem behaves as though value has been created and the work is complete.
In reality, the most important question has only just appeared. Suppose a founder sells a company for a significant sum. The ecosystem celebrates. The government taxes.
Then what?
Does the founder become an LP? Do they become an angel investor? Do they help establish a specialist fund? Do they mentor first-time founders? Do they support commercialisation efforts? Do they build bridges into overseas markets? Or do they purchase property, establish a family office, and largely disappear from the ecosystem?
None of these choices are immoral. They simply produce radically different outcomes for the broader economy.
That is why I have become increasingly interested in capital recycling rather than capital creation.
The question should not simply be how much tax a founder pays. The question should be what happens next. Does that capital become passive property investment? Does it become a series of isolated angel investments? Does it become a professionally managed LP commitment? Does it support university commercialization, specialist funds, syndicates, deep-tech ventures or emerging industries?
These outcomes are not economically equivalent. Yet our policy discussions frequently treat them as though they are. We have become obsessed with the tax event and largely ignored the system effects.
Australia does not necessarily suffer from a shortage of capital. It suffers from a shortage of capital coordination. Money exists. Talent exists. Expertise exists.
What often does not exist are the mechanisms that connect them effectively. Capital remains fragmented. Networks remain fragmented. Expertise remains fragmented. Institutions remain fragmented.
Consequently, promising founders frequently spend as much time navigating the ecosystem as they do building companies. This is not a feature of a mature innovation system. It is a pathology of evidence that one is still under construction.
I do not believe Australia has a problem creating and producing remarkable startups. We are considerably less successful at capturing the second-order and third-order effects of those companies.
But we are also not going to create the compounding effects of startups if the funding for programs, like LaunchVic, IGP, or the AEA, are taken away either.
We celebrate the first Canva. We struggle to produce the 10 companies created by former Canva employees.
We celebrate the first Atlassian. We struggle to capture the ecosystem effects generated by Atlassian alumni. We are remarkably good at creating sparks. We remain less effective at sustaining fires.
The first Canva is remarkable. The 10th Canva is systemic. We don’t do ourselves any favours…
Australia also has an oddly conflicted relationship with exits. We spend years complaining that the American venture system is too obsessed with them. We tsk-tsk about Silicon Valley’s fetish for unicorns, blitzscaling, massive rounds, liquidity events, power-laws and founders in fleece vests.
We say we want something more patient, more grounded, more Australian, presumably involving a sensible board pack and a discussion about sustainable growth, over a flat white and muffins.
Then, when an Australian company actually does produce the kind of exit that can recycle capital through the system, we suddenly discover that the tax treatment of exits is existential. Apparently we do not like America’s exit culture, except for the part where exits generate the liquidity required to fund the next generation of founders.
We want the outlier without the outlier economics.
We want the Canva without the cap table consequences. We want the Atlassian without admitting that liquidity, ambition, reinvestment and asymmetric upside are part of the same machine.
We ought to make the pie higher
That contradiction matters because it exposes how shallow the current debate has become.
The question should not be whether Australia wants founders to become rich. That is the wrong frame, and it sends everyone into immediate ideological costume.
The question is whether Australia understands what a major exit is supposed to do inside an innovation ecosystem. In a mature system, an exit is not just a payout. It is a recycling event.
It creates angels, LPs, mentors, operators, second-time founders, specialist funds, syndicates and new institutional memory. In Australia, too often, it creates a house, a family office, a few mate-driven cheques, and another guest speaker on a conference panel.
Australia wants exits to matter when tax is being calculated. It wants exits not to matter when culture is being discussed. It wants founders to be ambitious but not “too American”, even when they find themselves there, cap-in-hand.
It wants venture returns but not venture behaviour. It wants global companies but local manners. It wants capital recycling but does not want to say too loudly that the recycling starts with people making a lot of money.
That does not mean founders should be told what to do with their money. They earned it.
They can buy property, sit on cash, start a family office, angel invest (badly, or well), or disappear to Byron and become a semi-professional paddleboarder. Fine. Nor does it mean property investment is always inherently undesirable. The point is simpler.
If public policy chooses to provide concessions for innovation activity, then those concessions should ideally encourage behaviours that strengthen the innovation system. A CGT concession that simply protects an exit is a tax preference.
A concession that encourages capital recycling becomes industrial policy.
The ecosystem keeps saying, “Protect the exit.”
My argument is, “Make the exit useful.”
Without the right incentive architecture, exit money will often leak into property, passive income, or sole-investor behaviour.
The founder becomes an angel, but not necessarily a useful one. They invest based on their own story: “This worked for me, therefore it will work for you.”
Sometimes that helps. Sometimes it becomes egotistical parochial capital.
A mature ecosystem needs exited founders to become LPs, syndicate participants, mentors, board members, operators and funders inside governed systems, not just wealthy people with opinions.
That does not mean the state should force founders to allocate money.
It means government should distinguish between passive asset accumulation and productive innovation recycling. Founders could receive additional benefit if a meaningful percentage of exit proceeds were recycled into properly governed innovation vehicles: VC funds, specialist funds, deep-tech funds, biotech funds, aerospace, frontier tech, primary industry tech, energy, medtech, university spinout vehicles or emerging manager funds. The exact percentages can be modelled. The principle is the point.
We keep allowing this to happen
Meanwhile, while we debated CGT, Goterra plunged into darkness. While everyone is screaming and arguing about how founders should be taxed after a successful exit, Goterra is the reminder that a whole category of companies may never get to the exit.
We have avoided the other debate: Australia can produce serious companies with real customers, real technology and real impact, and still fail them because the investment architecture falls apart between early validation and commercial scale.
If we frame Goterra’s collapse as a missing-middle failure, not simply a company failure, then the plausible argument is that Australia lacks the financing system to carry capital-intensive technologies from pilot, to platform, to scale.
We are arguing about the champagne tax while the brewery is on fire.
On the surface, Goterra and CGT look like different debates. One is about a climate-tech company collapsing before scale. The other is about how founders and investors are taxed after gains. But they are connected by the same missing architecture.
Goterra shows that Australia does not have enough fit-for-purpose capital for capital-intensive scaleups.
The CGT debate shows that when exits happen, we have no serious machinery to recycle that wealth into the next Goterra before it hits the valley of death. The IBCC tries to protect some upside for some eligible people at the end of the line. It does not build the line. That is the distinction the ecosystem keeps missing.
We need to start talking about incentives at the infrastructure-system level.
The “missing middle” is not just a funding gap. It was an architecture never built to begin with. It is a nearly 60-year design failure.
It is what happens when early-stage funding, government grants, university research, private capital, superannuation, procurement, export support and scaleup finance were never built to connect. It is what happens when we build another precinct, cut a ribbon, call it an ecosystem, and then wonder why the companies inside it still need customers, growth capital, regulatory support, global market access and patient capital. A precinct without pathways is just real estate with a newsletter.
Australia has spent an extraordinary amount of time discussing innovation precincts over the past decade.
We have acted as though proximity is the missing ingredient. Build enough buildings, commission enough branding consultants, and innovation will emerge naturally from the earth like a geothermal resource. Precincts have their place. Density matters. Proximity matters. Collaboration matters.
However, ecosystems are not created by real estate. They are created by interactions. A mediocre ecosystem in a new building, remains a mediocre ecosystem. A fragmented ecosystem with better architecture remains fragmented. Sometimes a precinct is simply a very expensive way of avoiding a more difficult conversation. This is not an argument against precincts, but we need to think about how they work hand-in-glove with, say, capital recycling.
That difficult conversation concerns gatekeepers. Every ecosystem develops them. Some gatekeepers are useful. Some provide quality control, governance, expertise and trust. Others simply accumulate influence.
Over time, barriers emerge. Fund formation becomes difficult. Specialist vehicles become difficult. First-time managers struggle. Operators struggle. Domain experts struggle. Former founders struggle. Meanwhile, those who have already navigated the system continue to navigate it successfully. The result is an ecosystem that gradually becomes more institutional and less experimental. Nobody intends for this to happen. It simply happens anyway.
Innovation infrastructure also includes small, weird, specific, marginal things. Not every intervention should be a national flagship.
Sometimes the right thing is a single-topic biotech accelerator, an LGBTQ-founder-friendly deep-tech program, a primary industry robotics syndicate, a founder-to-LP education pathway, or a university spinout operator network. These things sound small, but ecosystems are made of bridges.
Australia keeps wanting monuments. It wants to open the big thing, launch the big fund, announce the big district, and name the big precinct. But the real ecosystem often depends on the small connective tissue nobody wants to cut a ribbon in front of because it does not photograph well.
This is also where the conversation becomes awkward. Australia often talks about venture capital and venture culture.
Australia is an investment banker version of VC, not the VC version of VC
The distinction matters. The investment banker version optimises for stewardship, credentials, process, committees, risk control and institutional comfort.
Venture capital venture capital optimises for discovery, asymmetric upside, founder insight, domain expertise, network effects and outlier formation. One asks how to avoid losses. The other asks how to discover outliers. One is built around process. The other is built around experimentation.
Australia says it wants more venture, but it often regulates and legitimises the version, and creates the barriers, that looks most like traditional finance.
Australia has also protected incumbents while pretending it is protecting investors. In the US, you can run a small fund if you play by SEC rules and file your tax documents.
In Australia, the pathway is more credentialed, more compliance-heavy and more favourable to incumbents. That does not mean “no regulation.” It means asking which regulation protects trust and which regulation protects the people already inside the tent.
The question is not whether regulation should exist. Of course it should. The question is whether the regulatory structure produces more capable participants or simply narrows participation to the people who already know the forms, can pay the advisers, and speak “fluent Canberra”.
TAS: The acronym soup
This is one reason I have become increasingly skeptical of the argument that government should never pick winners.
Government already does. It picks winners every day through regulatory settings, licensing structures, accreditation requirements, tax arrangements, procurement systems, grant criteria, RDTI eligibility, skilled visa pathways, university incentives, superannuation rules and compliance frameworks. It may not pick the winning startup directly, but it absolutely picks which kinds of actors get to participate.
It picks incumbents. It picks people who can afford advice. It picks investment banker venture capital over venture capital venture capital.
It picks credentialed capital over experienced operators. It picks the people who know the forms over the people who know the frontier.
Then everyone says, gravely, “We must not pick winners.”
Mate, the winners have already been picked. They are just wearing better shoes.
Take Australia’s funding and venture structures. ESVCLPs, VCLPs, ESICs, ESS concessions, innovation grants, commercialisation programs, state-based initiatives and federal initiatives have accumulated over time like geological layers.
Each was introduced for a reason. Each solved a problem. Each added complexity.
Eventually the ecosystem became less a coherent system and more a museum of previous policy interventions. The current CGT debate has merely added another exhibit. Australia should not respond to complexity by adding another acronym.
It should use the CGT moment to start a decade-long simplification: grandfather existing structures, transition away from ESVCLPs, VCLPs and ESICs, rework ESS as talent infrastructure, and replace the whole mess with a simpler innovation-capital framework.
Venture capital policy should become comprehensible to founders without requiring specialist tax advice. Employee equity should become understandable to employees. Fund formation should become more accessible to operators and founders.
Capital recycling should become a central design principle (a kind of ‘central dogma’) rather than an accidental side effect.
A malaise
This is why the current debate feels strangely unsatisfying. Yes, we need radical CGT reform and carve-outs for startup founders and investors; but we need a lot of other stuff too.
The startup ecosystem pushed for reform. Treasury delivered reform. The Senate held hearings. Stakeholders were consulted. Concessions were announced. Yet almost nobody appears particularly happy.
Founders think the result is overly complex. Investors think the result is incomplete. Government believes it has acted pragmatically. Critics believe the process demonstrates weakness. Startup lobby groups will say they shifted policy. Government will say it listened. Treasury will say the concession is targeted and proportionate. SMEs will say they were ignored. Biotech will say it still does not work. Angels will hate the complexity. Founders will complain about caps. The press conference will contain the words “not perfect,” which is political language for “please stop asking questions.”
My pragmatic self may argue that while I personally believe this is a bad attempt at policy reform, none of this means the reform is necessarily or wholly an abject failure. Although doubtful, it may yet prove useful or have a silver lining if it proceeds as written.
It may preserve some incentives. It may improve outcomes for some founders, employees and investors. Those are worthwhile achievements, if this is “all we get”.
The problem is that the debate has encouraged people to treat the reform as though it were the destination. And it never was.
At best, it is a waypoint.
If you design this correctly, CGT becomes one spoke in a capital-recycling “flywheel”. If you design it badly, which it increasingly appears to me to be, it becomes either a tax hit or a tax concession, but not an innovation policy. Not “founders deserve a reward.” Not “investors took risk.” Not “we are patriotic.” Not “everyone will move to Singapore.” But a better argument is that successful exits should become useful inputs into the next generation of companies.
The larger challenge is modernising government to where CGT can be as close to zero as possible, but by using incentives to demonstrate CGT is a blunt instrument.
Innovation systems do not behave like traditional industries. They are dynamic, networked, recursive and globally connected. They require governments capable of understanding feedback loops, capital flows, loss leaders, talent mobility and ecosystem density. This should not be negotiable!
They require institutions comfortable with experimentation and iteration. They require policy frameworks capable of measuring throughput rather than merely activity. Government still thinks in programs, departments, grants, announcements, reviews and press releases. Innovation systems think in loops, networks, velocity, density, recombination, talent mobility, technology stacks, and capital recycling.
A modern government would not simply ask how many startups were funded. It would ask how much throughput increased. How many exits became LP commitments? How many employees became founders? How many founders became funders? How much capital moved from passive assets into productive experimentation?
This is not really about startups. It is about capital productivity, new firm formation, future industries, economic complexity, some might even say sovereign capability, and whether Australia can turn one generation of success into the next. Canva and Atlassian were not just heroic founder stories. They were ecosystem events. The question is not how to create one Canva.
The question is how to make the 10th Canva more likely because the first Canva existed. The question is not how to protect one exit. The question is how to make an exit useful. The question is not how to create another program. The question is how to make the cogs turn together.
That is why I keep returning to the compass.
The startup ecosystem was not wrong to identify a direction. Treasury was not wrong to identify their direction. The Senate was not wrong to identify theirs.
The ecosystem knew true north: protect startup incentives. Treasury’s north: reform CGT. Government’s: claim fairness and consultation.
But nobody mapped the swamp: the “missing middle”, capital recycling, LP formation, gatekeepers, ESVCLP complexity, ESS friction, property leakage, scaleup finance, procurement, commercialization and government capability.
Everyone spent months arguing about the compass. Very few people discussed the terrain.
If in pursuit of your destination you plunge ahead heedless of obstacles and achieve nothing more than sinking into a swamp, what is the use of knowing true north?
Australia’s problem is not that we lack a compass. It’s that we keep mistaking the compass for a map.
- US-based Jim Cooper is an NSF I-Corps instructor across multiple US hubs, and advises and mentors widely across the US, Canada and Australia.
