Independent MP Allegra Spender has carried her campaign against the government's startup capital gains tax changes into Parliament, proposing a simpler 40 per cent discount for active business assets in place of the 'innovative business' carve-out Treasurer Jim Chalmers introduced this week.
Spender, the Community Strong co-leader and member for Wentworth, made the call as Chalmers put the amendment bill before the House of Representatives. The bill bundles the Innovative Business CGT Concession (IBCC) with changes to the R&D Tax Incentive and venture capital incentives.
Her alternative would remove the legislation's caps on company age limits and thresholds, applying the 40 per cent discount to qualifying business assets, shares and share options, using principles adapted from the small business CGT concessions. Spender said her approach would produce a maximum CGT rate of just over 28 per cent while leaving property and other passive investments under indexation, which she describes as the core target of the government's changes.
"I appreciate the government has introduced the Innovative Business CGT Concession to try to address these issues. But the IBCC is complex and only applies to a narrow range of businesses. It doesn't treat all entrepreneurs equally, it's bureaucratic, and leaves many businesses facing internationally uncompetitive tax rates," she said.
"The core principles of any good tax reform are certainty, simplicity, fairness and driving prosperity, but the IBCC proposal falls short on these."
A policy note prepared for Spender by the Parliamentary Budget Office suggests the proposal would have a small positive budget impact compared with the government's draft IBCC. The note, seen by Startup Daily and provided to Spender on October 22, says the PBO lacked direct data on active assets and used a passive-income test as a proxy. It was also modelled before the revised bill was introduced.
Spender has been joined by business figures including former Rudd adviser Lachlan Harris, co-head of the University of Sydney's Genesis startup accelerator Anna Fitzgerald, UNSW director of entrepreneurship David Burt, Australian Investment Council head Navleen Prasad, Airtree co-founder Daniel Petre, Seek co-founder Paul Bassatt and former Business Council of Australia president Tim Reed.
Harris said defining which businesses qualify was "a problem masquerading as a solution" and represented "bad policy, not hard reform". "Governments should not decide which business are incentivised to grow," he said. Fitzgerald warned: "Don't make the tax department pick innovators." Burt called the innovation test "an unhelpful Kafkaesque maze".
Labor has defended the package. Chalmers told Parliament the new concessions mean innovative firms "still receive a significant discount on a future capital gain". "These reforms give the private sector the tools and the tax concessions to help them succeed in an increasingly competitive world. The bill provides more certainty for investors and more incentives for innovation. Building on the $3.8 billion in new tax relief," he said.
The government says the overhaul of the flat 50 per cent CGT discount is designed to discourage speculation in housing, and some investors will pay lower rates under the inflation-adjusted model. Spender argues the model hurts businesses with low cost bases that grow quickly. She said she supports the government's broader changes but considers their impact on the startup sector an unintended consequence.
Former treasurer Wayne Swan said the reaction to the changes was overblown. "Taxation of capital gains tax and so on is 20 to 25 years overdue," he told an Australian Financial Review summit. "Everybody says what the country needs is strong structural reform. Jim [Chalmers] does it and the world goes berserk."
Analysis
Why This Matters
- The tax treatment of capital gains will shape how much risk founders, employees and investors are rewarded for taking in early-stage companies.
- The bill before Parliament is the vehicle for the government's broader CGT overhaul, so the fight over the startup carve-out could influence the final shape of the reform.
- The outcome will test whether Labor is willing to accommodate crossbench and business opposition to one of its core budget measures.
Background
Labor's budget overhaul replaces the flat 50 per cent CGT discount with an inflation-adjusted model, a change the government says is designed to discourage speculation in housing. After entrepreneurs warned the model created a perverse incentive to invest in established blue-chip firms over fast-growing startups, Chalmers introduced the Innovative Business CGT Concession, a 50 per cent discount on qualifying gains for businesses the government defines as innovative. Spender's alternative keeps passive assets under the inflation-adjusted model but applies a 40 per cent discount to active business assets, a figure closer to that proposed in the landmark Henry Tax Review in 2010.
Key Perspectives
Allegra Spender and her backers: The IBCC is complex, narrow and bureaucratic, and it punishes entrepreneurial risk; a broader 40 per cent active-asset discount would provide greater certainty and similar revenue.
Labor and Treasurer Jim Chalmers: The new concessions give innovative firms a significant discount on future capital gains, provide more certainty for investors and more incentives for innovation, and claims of much higher taxes are overblown.
Former treasurer Wayne Swan: The reaction to the changes is overblown; reform of capital gains taxation is 20 to 25 years overdue.
What to Watch
- Whether the government amends the bill in response to the crossbench push or holds its ground and lets the fight move to the Senate.
- Any updated Parliamentary Budget Office costing of the final bill; the current note was modelled before the revised bill was introduced and used a passive-income test as a proxy for active assets.
- The economic backdrop, with an inflation update due and the Reserve Bank weighing another rate rise as the government manages the political blowback.
Checked
12 claims in this story checked against 2 sources: 11 supported.
Show each claim
- SupportedSpender takes the startup CGT fight to Parliament with a 40% alternative to Chalmers’ innovation carve-out.Startup Daily: “calling on Labor to scrap the complex CGT carve-out and replace it with a 40% discount for active business assets”
- Partly supportedThe summary says Spender called the test complex and unfair, and that Labor defended the changes as overdue reform.Startup Daily: “the IBCC is complex and only applies to a narrow range of businesses. It doesn’t treat all entrepreneurs equally, it’s bureaucratic”
- SupportedSpender took her campaign into Parliament, proposing a 40% discount for active business assets in place of the startup carve-out.Startup Daily: “Wentworth MP Allegra Spender, cofounder of the Community Strong party, calling on Labor to scrap the complex CGT carve-out and replace it with a 40% discount for active business assets”
- SupportedSpender said the IBCC was complex, applied to a narrow range of businesses, treated entrepreneurs unequally and left many businesses facing uncompetitive tax rates.Startup Daily: ““I appreciate the government has introduced the Innovative Business CGT Concession to try to address these issues. But the IBCC is complex and only applies to a narrow range of businesses. It doesn’t treat all entrepreneurs equally, it’s bureaucratic, and leaves many businesses facing internationally uncompetitive tax rates,” she said.”
- SupportedHarris called defining qualifying businesses “a problem masquerading as a solution” and the policy “bad policy, not hard reform.”The Age - Latest News: “Harris, an early critic of the budget ... said defining innovative businesses was “a problem masquerading as a solution” which represented “bad policy, not hard reform”.”
- SupportedFitzgerald warned, “Don’t make the tax department pick innovators.”Startup Daily: ““Don’t make the tax department pick innovators. Having gone through the IPO process twice and now working with dozens of early-stage startups through Genesis, I’ve seen how unpredictable innovation really is,” she said.”
- SupportedBurt called the innovation test “an unhelpful Kafkaesque maze.”Startup Daily: “UNSW director of entrepreneurship David Burt calls the innovation test in federal government’s startup capital gains tax “an unhelpful Kafkaesque maze”.”
- SupportedChalmers told Parliament that innovative firms “still receive a significant discount on a future capital gain.”The Age - Latest News: “The treasurer told the parliament on Tuesday that the new concessions meant innovative firms “still receive a significant discount on a future capital gain”.”
- SupportedSwan said CGT taxation was 20 to 25 years overdue and that the world went berserk when Chalmers pursued structural reform.The Age - Latest News: ““Taxation of capital gains tax and so on is 20 to 25 years overdue,” he told an Australian Financial Review summit. “Everybody says what the country needs is strong structural reform. Jim [Chalmers] does it and the world goes berserk.””
- SupportedSpender’s alternative removes the legislation’s company-age and threshold caps and covers qualifying business assets, shares and share options.Startup Daily: “Her proposal would remove the legislation’s caps for company age limits and thresholds from the alternative concession, covering qualifying business assets, shares and share options.”
- SupportedSpender said her approach would produce a maximum CGT rate of just over 28%, while property and other passive investments would remain under indexation.Startup Daily: “The entrepreneur and busiensswoman says her approach would produce a maximum CGT rate of just over 28%, while leaving property and other passive investments – the core target of the government’s changes – under indexation.”
- SupportedThe PBO note suggested Spender’s proposal would have a small positive budget impact compared with the government’s draft IBCC.Startup Daily: “Spender said analysis by the Parliamentary Budget Office (PBO) found her proposal would have a small net positive budget impact compared with the government’s draft IBCC.”