The Genius Startup Brigade Demands Their Right to Fail Tax-Free

Nearly fell off my rocker last night at the shock and awe of some Business Council spiv on our ABC, Australia’s Business Channel, where a plunge of coffee shop bosses, a wave of hairdressers and a tunic of pharmacists are suddenly go-to experts on the budget. Up they pop: neighbourhood oracles treating the mindless pursuit of profit as moral philosophy, tinpot budget sages who’ve never read an economic text, all clutching their pearls over Labor’s ‘crushing’ capital gains tax reforms.

Rocker? That’s the five dollar canvas and laminated plywood, mock Ikea, bargain from our local St Vinnies Op Shop. It’s as ugly as sin. Unless you love Nordic spruce brutalism on skis.

I have to fight my way out of it, these days.

But it’s a spring of beauty and a joy forever to Bella the rescued cat, the emaciated dilute calico kitten we rescued after Ringo abandoned her in an old night cart lane at the back of Blake Street, Ararat’s trotting track, a sacred site which embodies Australia’s holy trinity: gambling, cruelty to sentient beings, and wage slavery (harness drivers scraping by on a fraction of what thoroughbred jockeys earn, most working part-time because the prize money barely covers the petrol).

Ringo was ten-year old Tabitha’s mother’s boyfriend. Told the kid that the cat would have to go because her mother was allergic to cats. You pick up a lot of local colour as an emergency teacher.

So there we are. Fifteen years down the track. Picture Bella, all three kilos of her running the house with an iron paw from the chair that doubles as her bed while I, the interloper, have to untangle my synapses as some undischarged bankrupt in a collar and tie has conniptions. The sky is falling. The entire Australian innovation ecosystem, that delicate flower, will wither and die because startup founders might actually have to pay tax on their capital gains like the rest of us plebs.

The genius inventors who would otherwise save the nation with their revolutionary widgets are now fleeing to Singapore, taking their brilliant ideas with them. Or so it goes.

Why? Lucky Jim Chalmers has the cheek to hint that capital gains should be taxed on actual inflation-adjusted gains. No longer should they enjoy a cosy 50 per cent discount that treats property speculators and startup bros exactly the same.

Here’s what the Business Council forgets to mention: most startups fail. Not some. Not many. Most.

Let’s look more closely at the nation’s “backbone of innovation.” In the latest data, over 75 per cent of Australian startups fail within their first few years. The SaaS sector, those disruptive tech geniuses who move fast and break things and who are definitely not just repackaging Excel spreadsheets, boasts a 92 per cent failure rate within 18 months. AI startups? A catastrophic 99 per cent failure rate. Blockchain and cryptocurrency ventures clock in at 95 per cent.

So when the Business Council bleats about startup founders being discouraged from “taking risks” and “building the future,” they’re really asking for tax concessions on ventures that have about the same success rate as a punt on the Melbourne Cup, but with much less entertainment value.

The mythology requires us to believe that some coding wizard labouring, in a Collingwood co-working space is being held back from manufacturing the Widget That Saves The World solely because of punitive taxation. Never mind that 42 per cent of startups fail because there’s literally no market need for their wares – soft or hard. Another 29 per cent simply run out of money. That’s not because of tax, but poor judgement; Australian startups burn through venture capital just as fast as their Silicon Valley idols. Fat salaries, catastrophic customer acquisition costs, and blowing more on advertising and marketing than they will ever earn. A 75% failure rate proves that the whole enterprise is essentially a casino for rich people’s money, except the house doesn’t always win.

Startups aren’t the backbone of anything. Not the economy. Not innovation. Certainly not employment.

So. What actually keeps this country running? The health sector employs 1.9 million Australians and accounts for 10.1 per cent of our entire GDP. That’s $270.5 billion in 2023-24.

Education employs another big chunk of our workforce and remains our fourth-largest export earner after coal, iron ore, and natural gas, bringing in $16 billion annually. Forget speculative ventures hoping to disrupt the sandwich industry with blockchain technology. Remember the doctors keeping you alive, the nurses working double shifts, the teachers trying to educate your kids. All for less pay than a junior marketing manager at a Series B fintech startup that will fold in 18 months.

Meanwhile, in Startup Fantasy Land, we must genuflect before every 28-year-old who attended a weekend “founder bootcamp” and emerged with a pitch deck for an app that creates apps. Probably involving AI. Leveraging the cloud. Solving a problem that nobody actually has.

The Business Council’s lament reaches peak stupidity when discussing capital gains tax reform as if it were the Apocalypse. St Canva, St Atlassian, and St Afterpay are invoked, the holy trinity of grift. “We revere unicorns with awe,” intones one startup advocate, alarmingly unaware that unicorns have the same existence rate as profitable Australian AI startups.

But let’s be clear about what we’re actually discussing here. The government isn’t eliminating capital gains tax concessions. They’re replacing the blanket 50 per cent discount with inflation indexation and a 30 per cent minimum tax. So. If you bought shares in a rare startup that succeeds (against the 75 per cent failure odds,), you’ll pay tax on your real gains, not your nominal gains.

This is portrayed as innovation Armageddon.

The political theatre is exquisite. Forty startup founders under 40 pen an open letter claiming they’d been “ambushed” by the budget. Ambushed! As if the government snuck up on them in a dark alley rather than announcing tax reform in the most public financial document in the world. The Tech Council of Australia warns of a mass exodus of talent. LinkedIn goes into meltdown.

And yet, the budget is very business-friendly. It simultaneously introduces loss refundability for startups, expands venture capital tax incentives, maintains R&D tax credits, and keeps the $20,000 instant asset write-off. In other words: more tax concessions specifically designed for startups, just without the property-speculation-level capital gains lurk. The tabloid shock market hates it.

The consultation process Canberra promised has been seen as weakness rather than sensible policy development. The startup smart set has discovered that LinkedIn activism combined with some friendly journalists can generate enough heat to make governments nervous. Even Albo’s low-target Labor-lite. Whether it can generate successful businesses is another matter entirely.

Time for a few hard truths. Australia has 2.7 million actively trading businesses. About 10.7 per cent of new businesses created in any given year actually employ anyone. And even then, 60 per cent of all Australian businesses remain non-employing, just sole traders and partnerships. The churn rate is 30.3 per cent every year. Yes. You read that right. Three out of every ten businesses either start or stop trading each year.

This is not the engine of innovation. This is economic churn, most of it representing someone’s attempt at self-employment that may or may not work out. Calling it “the backbone of the economy” is like calling lottery tickets a retirement strategy.

But that doesn’t make for good Business Council theatre, does it? Can’t exactly hold a press conference demanding special consideration for nurses. Can’t write an open letter about how teachers are being “crushed” by having to pay the same tax rates as everyone else. There’s no mythology around the ICU ward or the Year 9 classroom. No unicorn poo in staff rooms.

The startup mythology is still a winner: it allows those who already have wealth (often inherited) to argue for special treatment while wrapping themselves in the language of innovation and risk-taking. How most of these “risks” result in failure funded by other people’s money (venture capital) rather than personal ruin somehow never makes it into the heroic founder narrative.

When the Business Council talks about startups, they’re not talking about the plumber who goes out on his own or the graphic designer building a freelance practice. They’re talking about venture-backed plays for rapid scale and exit, where “success” means selling to a larger company or listing on an exchange.

Forget the sustainable business that employs people and serves a genuine market need.

The language gives it away: “unicorns,” “disruptors,” “ecosystem,” “innovation economy.” Jargon. Pretentious persiflage. A turd-polishing industry cons itself that grift is good; speculation equals innovation and that failure at scale is more noble than success at a modest level. And tax concessions alone are preventing Australia from becoming the next Silicon Valley.

Spoiler alert: we’re not the next Silicon Valley. We’re 26 million people at the arse end of the world, as Paul Keating quipped. It’s a good 14-hour flight from anywhere that matters to global tech. Our successful few startups, such as Canva and Atlassian, succeed despite our geography, not because of it, and they succeed by going global immediately: the home market simply isn’t big enough.

The Business Council knows this. They also know that every dollar not collected in capital gains tax from startups (successful or failed) is a dollar that has to be collected somewhere else. Take a bow, poor PAYG wage earners who can’t restructure their income as capital gains. But acknowledging that reality would require admitting that their special pleading is exactly that: special pleading by people who want to keep more of what they have.

The genuine innovators, those building real businesses solving real problems, will succeed regardless of tax treatment. They’ll grumble about tax, certainly. They might even preference their own financial interests when voting. But they won’t stop building things because they might have to pay a fair rate of tax on their eventual success.

The ones who will stop are the grifters, the speculators, the serial “founders” who’ve mastered the art of extracting salaries and options from venture capital while delivering nothing of lasting value. And frankly, the economy could use fewer of those.

So when you next see a Business Council spokesman on the television, trembling with righteous fury about how Labor’s modest tax reforms will destroy Australian innovation, remember this: they’re not talking about your local cafe owner or the electrician who started her own business. They’re talking about protecting the tax lurks of people who already have wealth, arguing that they deserve special treatment because they’re taking risks with other people’s money to build businesses that will almost certainly fail.

The backbone of the economy, they call it.

From my rocking chair, it looks more like a rigged game of musical chairs, where founders never risk losing their seat and everyone else pays for the music.

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