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"Complex & onerous" Steve Baxter on CGT carve outs 🧩⚠️ · Money News

• 0:00
  S1: The Albanese government's plan to scrap the 50% capital gains
• 0:03
  S1: tax discount sparked fierce backlash from start ups, small business
• 0:08
  S1: and investors alike. Well, last week the government Backflipped and
• 0:13
  S1: Jim Chalmers and Anthony Albanese announced $475 million worth of concessions.
• 0:19
  S1: Founders and early investors and employees holding equity as part
• 0:23
  S1: of their pay will now get the option to keep
• 0:26
  S1: the existing 50% discount, rather than the new inflation linked model. However,
• 0:32
  S1: strict conditions apply, start ups must meet a new innovative
• 0:35
  S1: business definition. They must have less than $50 million in turnover,
• 0:41
  S1: be less than ten years old as a company, or
• 0:43
  S1: 15 years for the biotech and med tech sectors, and
• 0:47
  S1: the shares in question must be held for five years,
• 0:50
  S1: with a lifetime cap of $10 million on the capital gain.
• 0:55
  S1: Some of this is mindlessly complicated, I have to say.
• 0:57
  S1: Steve Baxter is the co-founder and executive chairman of 1013,
• 1:02
  S1: one of Australia's largest start up investment platforms. He's on
• 1:05
  S1: the line for us tonight. Steve, many thanks for your time.
• 1:07
  S2: Hello, James. How are you doing?
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  S1: So the government's obviously read the room here as I say.
• 1:10
  S1: And the polling off the back of this has been disastrous.
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  S1: This is $475 million worth of concessions from their original
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  S1: plan announced on budget night. Do these go far enough
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  S1: or is this inadequate in your view?
• 1:25
  S2: I think it makes things more complicated. So that's problematic
• 1:27
  S2: in its own right. And so, you know, the more
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  S2: the more ifs, buts, maybes and sort of workarounds you
• 1:32
  S2: put in place, the more the more avoidance there'll be.
• 1:33
  S2: So I think it'll cost them. Cost them. Don't you
• 1:36
  S2: love how cost is always tax that we don't get
• 1:38
  S2: to pay cost? It's an interesting concept, isn't it? I
• 1:41
  S2: think the cost to them will be a lot more
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  S2: than they think, because also what they fail to understand
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  S2: is that, you know, we're not just sort of pieces
• 1:48
  S2: of timber on a chess board. They can push around.
• 1:50
  S2: If they change the rules, we will react. And the
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  S2: population does that. So look, I think that we had
• 1:55
  S2: a very good stable system of investment taxation and real
• 1:58
  S2: estate taxation at the same time, and they've monkeyed with that.
• 2:02
  S2: They've now made it complicated. They've now made it one
• 2:04
  S2: of the world's most expensive jurisdictions to do so in.
• 2:07
  S1: Well, that's it. And that should be the one sole
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  S1: focus of government. And we hear about governments wanting to
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  S1: cut red tape and get rid of regulation. And this
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  S1: seems mindlessly complicated. When the previous system was very easy
• 2:20
  S1: to follow and understand, it was a basic, straightforward 50% discount.
• 2:24
  S2: Yeah. Look, and people sort of don't realize, I mean,
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  S2: insofar as complication concerns come financial year next year, so
• 2:30
  S2: two months time or thereabouts, we're all going to have
• 2:32
  S2: to review our assets. So this is going to be
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  S2: an absolute industry and revaluation of assets. I don't know
• 2:37
  S2: the rules will yet to come out. And that'll be
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  S2: terrifying in its own right.
• 2:40
  S1: No. And it all points to a government or a
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  S1: bureaucracy Steve, that have never run a business and don't
• 2:46
  S1: understand the risk but don't understand the planning as well. Now,
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  S1: I know you would know this stuff backwards, but the
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  S1: entrepreneurs that I've spoken to over the last few weeks
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  S1: that have gone out on their own, they've worked for
• 2:56
  S1: a big company, learnt the skill set, then gone out
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  S1: on their own to build something. Might be five years
• 3:01
  S1: down the track. The business I spoke to is eight
• 3:04
  S1: years down the track after development, and they were people
• 3:07
  S1: that were looking to eventually sell their shares in the
• 3:11
  S1: company for a lucrative amount of money. The original plan
• 3:14
  S1: was going to derail their entire ambition over the past
• 3:18
  S1: eight years, where people had taken smaller salaries in exchange
• 3:23
  S1: for a share in the company.
• 3:25
  S2: Yeah. Exactly right. I mean, the staff, that sort of
• 3:27
  S2: employee share schemes, you know, people are actually bartering down
• 3:30
  S2: their wages in order to get access to the capital stream,
• 3:32
  S2: get access to equity because they see the value in it.
• 3:34
  S2: And the reality is you have to truly understand that when,
• 3:36
  S2: when someone wins, someone, you know, creates a company themselves,
• 3:39
  S2: it makes a large gain. It's not zero sum. They've
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  S2: actually created wealth. They haven't taken it from someone else
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  S2: and hoarded it themselves. They've actually created wealth and they've
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  S2: dragged a whole bunch of people, employees, investors themselves along
• 3:51
  S2: on that journey. And that can't be ignored. And it
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  S2: also can't be equated to actually picking up a salary.
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  S2: I have no problems. I spent I spent over a
• 3:59
  S2: decade and a half as a salary. I fully understand it.
• 4:02
  S2: I'm not having a go at that. But the risk
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  S2: profile is amazingly different and there needs to be an
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  S2: adjusted reward because of that.
• 4:10
  S1: The limits that have been put in place, the ones that,
• 4:12
  S1: as you say, have made the new tax system and
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  S1: the new regime very, very complicated. Companies will be able
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  S1: to receive the discount if they have turnover under $50 million,
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  S1: they're less than ten years old. The shares held for
• 4:24
  S1: five years, and a lifetime cap of $10 million on
• 4:29
  S1: the gain. Is that are they fair numbers? Are they
• 4:32
  S1: unfair numbers? Where do those figures sit with you?
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  S2: I just as you were saying, I was tilted trigger
• 4:38
  S2: a thousand ways you could drive a truck around them,
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  S2: if you know what I mean. At the same time.
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  S1: So, um, and people will, people will. Of course.
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  S2: It's an avoidance Paradise, to be honest. So I mean,
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  S2: what I mean to me. Okay, so they went out
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  S2: and budget night, they proclaimed a whole bunch of taxation,
• 4:53
  S2: which I think was going over the forwards of the
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  S2: ten years was going to be 77 or $88 billion
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  S2: in revenue, excuse me, in inverted commas in our money.
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  S2: And they had no anticipation that people would actually react
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  S2: and people would actually, you know, change their circumstances to
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  S2: suit the new situation. The big problem is, is they've
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  S2: already spent that $77 billion on something, but they're not
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  S2: going to get it. So, you know, we do need
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  S2: to have a sensible conversation around cost so we can
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  S2: make the taxation system more complex and more onerous all
• 5:21
  S2: we want. But unless we start talking about costs, unless
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  S2: we start reducing the cost of government, the cost of
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  S2: our society, then this is, you know, this is what
• 5:29
  S2: we're doing this again in ten years. James. Not not
• 5:31
  S2: that I don't like talking to you, but, you know,
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  S2: I prefer not to it's not to be the subject.
• 5:34
  S1: No, absolutely. In relation to what you're seeing directly, has
• 5:39
  S1: investment confidence cooled dramatically since the budget? Like are people
• 5:44
  S1: deliberately and meticulously not investing as much as they were previously?
• 5:49
  S2: We are getting a lot more investment business. I have
• 5:52
  S2: two investment businesses, one in particular. People are waiting for
• 5:55
  S2: the legislation to land to get Ticket structuring advice. So
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  S2: they're still keen to invest, but they're trying to understand
• 6:01
  S2: the best structure to put that in. It's somewhat subdued
• 6:04
  S2: out there. There's a lot of talk. It hasn't been
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  S2: that long this year. I mean the investment cycle we
• 6:07
  S2: usually take, we take like 3 to 6 months to
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  S2: close an investment. You know, it's not like TV shows
• 6:12
  S2: where it takes eight minutes, if you know what I mean. Well,
• 6:13
  S2: you know, we sort of we get the picture, then
• 6:15
  S2: it takes 3 to 6 months to, you know, probably
• 6:17
  S2: six months is long, but that's three plus months to
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  S2: close it. And so we're not we're still inside that cycle,
• 6:22
  S2: if you know what I mean. To be quite blunt.
• 6:24
  S1: The voice you're hearing is Steve Baxter, the co-founder and
• 6:26
  S1: executive chairman of 1013, one of Australia's largest start up
• 6:29
  S1: investment platforms. Steve, a lot of people have said that
• 6:33
  S1: by scaling back, the 50% discount will scare investment offshore
• 6:38
  S1: and make it far more attractive to invest in other countries.
• 6:43
  S1: Do you think that's alarmist or do you agree with
• 6:46
  S1: the people that have made that statement?
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  S2: I totally agree without a doubt that it's going to
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  S2: do that. I mean, to what degree is the question? So,
• 6:53
  S2: you know, it won't be it won't be a zero.
• 6:55
  S2: There won't be zero entrepreneurs in Australia, but in the
• 6:58
  S2: space I occupy in the tech startup space, you have some.
• 7:02
  S2: There's some impolite language as in a zero, a hero.
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  S2: You have the one that goes bust. We have Google,
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  S2: you know what I mean? So, you know, do we
• 7:08
  S2: want to actually have a system that rewards someone who
• 7:11
  S2: may have a business the size of Google or Facebook?
• 7:13
  S2: So we said Atlassian in Australia, Airwallex, for example, those
• 7:17
  S2: generational businesses that change things. Yeah, they're the outliers. So
• 7:21
  S2: they're the ones we want to attract and they're the
• 7:23
  S2: people we need change things in Australia. The other thing
• 7:27
  S2: that's interesting about, you know, if if it's going to
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  S2: force capital, mum and dad, shareholders capital or, you know,
• 7:33
  S2: other strata of capital into more safer, you know, dividend
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  S2: paying stocks, for example, they're great businesses. I have no problem.
• 7:40
  S2: I love every everyone who's an honest business I love
• 7:43
  S2: I think they're fantastic. But most of the innovation in
• 7:46
  S2: any ecosystem, the most innovation in Australia does not come
• 7:49
  S2: from dividend paying businesses. It comes from businesses who take
• 7:53
  S2: their revenue. They take what they would have in profit,
• 7:55
  S2: and they put it back in to build new products
• 7:56
  S2: and services, and they take risk and they grow. And
• 7:59
  S2: a lot of times it doesn't work. But I mean,
• 8:00
  S2: all the innovation comes from those who and shareholders. And
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  S2: owning a share is the most voluntary thing you can do.
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  S2: You can't have a gun held at your head to
• 8:08
  S2: buy a share, if you know what I mean. You
• 8:10
  S2: volunteer to buy that share and you volunteer to follow
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  S2: that company and that management. I mean, it might go wrong.
• 8:14
  S2: It often does. But when it goes right, it goes
• 8:16
  S2: spectacularly right. And people are willing to take that risk.
• 8:18
  S2: And now we're capping it or we're making it more complicated.
• 8:21
  S1: I know, I know this show and you haven't been
• 8:23
  S1: on this show for many years, Steve, but I'm just wondering,
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  S1: with these mindlessly complicated changes, if there was a new
• 8:29
  S1: season of Shark Tank, you'd have to be working out
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  S1: the maths on the run. It would be far more
• 8:34
  S1: complicated to do a deal on the spot knowing, um,
• 8:37
  S1: you know, where, where this business is going to end up.
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  S1: And if they reach limits, it's going to be a
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  S1: marathon program.
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  S2: We just see less people apply, right?
• 8:48
  S1: 100%, 100%. Yeah.
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  S2: It'd be different. I say that because I still, I
• 8:53
  S2: still start business. It would be a different style of business.
• 8:55
  S2: It would be a lower growth, higher profit rate. That's
• 9:00
  S2: higher profit, you know, with with with with high growth
• 9:03
  S2: and low profit businesses comes fast. Growth comes innovation comes change.
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  S2: And everyone likes that. That's what's given us all these
• 9:09
  S2: great toys and gadgets and systems we like. So you've
• 9:11
  S2: got to understand what you're sacrificing. There's no perfect answer.
• 9:14
  S2: Everything comes at a cost. You have to understand what
• 9:17
  S2: you're willing to trade off. In some respects, I'm not
• 9:19
  S2: too concerned. We will we will go back to the
• 9:21
  S2: system as it was or as it currently is, because
• 9:24
  S2: if they do implement this in 12 or 18 months time,
• 9:27
  S2: they'll wake up, they'll look around this absolute wasteland and
• 9:29
  S2: they go, what the hell have we done? And they
• 9:31
  S2: will change it.
• 9:32
  S1: Yeah.
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  S2: I'm guaranteed. I guarantee it'll break everything. I don't want
• 9:35
  S2: it to happen. I think we should. We can avoid
• 9:37
  S2: the middle harm bit, but it'll be that obvious and
• 9:40
  S2: that stark that it'll change. It'll kind of have to otherwise,
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  S2: I don't know. You know, it's a bad thing for
• 9:45
  S2: the country.
• 9:45
  S1: Hey, Steve, we really appreciate your time. Thanks for joining
• 9:47
  S1: us tonight. Cheers, James. Steve Baxter, the co-founder and executive
• 9:51
  S1: chairman of 1013, one of Australia's largest start up investment platforms.