By Josh Hohne
Australia’s peak body for the venture capital sector has told the Senate inquiry into the Albanese government’s proposed tax changes that some of the nation’s most successful companies would not exist without the current tax settings.
Australian Investment Council chief executive Navleen Prasad said her organisation started in the early 2000s when there was very little venture capital activity in Australia and argued that without policy support companies such as Canva and Employment Hero would not have got off the ground.
“Through policy settings that have been supported by parliament over the last 20 years, we now have a sector in which, at least through the venture capital and the early stage venture capital limited partnerships, have channelled $36 billion of capital into the venture and growth sectors,” Prasad said.
“I would argue that if we didn’t have that policy support, we wouldn’t have companies like Canva or Employment Hero with us today.”
As day two of the Senate inquiry kicked off on Tuesday, Treasurer Jim Chalmer defended the shortness of the CGT taxation probe.
“This is not the first time, even this year, that the Senate has had an inquiry into capital gains tax arrangements,” Chalmers said. “This is actually the second one this year. I think people too easily forget that there was already a lengthy inquiry when it comes to CGT.”
Investor Geoff Wilson told the inquiry his $6 billion asset management group would directly benefit from the current form of Labor’s tax changes, but he opposed them because of their implication for investors.
“We could simply stay silent and benefit from these changes. Instead, we are here because we believe these proposed changes are not in Australia’s long-term national interests,” he said.
Wilson said Wilson Asset Management has no objection to taxing unproductive assets such as housing, but was concerned that the capital gains tax changes would weaken investment incentives and drive capital offshore.
Wilson said that 7.7 million Australians own shares in their own name “but because of the non-netting basis … they’ll want to put their money with fund managers like ourselves. We have nine listed investment companies, and yeah, we’ll be a major beneficiary”.
On day two of the hearing into the government’s budget changes, Treasury department officials said they expected the grandfathering of the government changes to negative gearing to wash out of the system in about six to seven years, as investors tend to require that amount of time before their property becomes neutrally or positively geared.
“Some people will actually go longer depending on the asset, but we see a significant proportion of people kind of washing out in that six-, seven-year period, and then there will be some others that will struggle, but the majority come through in around that period,” Treasury official Shane Johnson said on Tuesday.
The prime minister has argued that the normal movement of investors out of a negatively geared phase means grandfathering the change will not permanently divide existing investors and first home owners.
Former Treasury official and tax law professor Miranda Stewart questioned the claim that changes to the capital gains tax will force start-up founders’ businesses overseas in search of more favourable tax regimes.
Stewart argued that capital is mobile, but people may not be, and that while empirical evidence shows some people move in response to tax changes, the majority do not.
“Our individual founder, who wants low tax on capital gains, who wants to be taxed differently from workers, they have to go and live in Dubai, live in the US in order to achieve that. So we’re talking not about mobility of capital here; we’re talking about mobility of people,” Stewart said.
“If Australian innovative businesses want to establish in New Zealand because capital gains tax is zero there – all power to them. Why aren’t they there already?”
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