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"Startups are the biggest loser" Founder warns CGT changes could crush innovation 💸 🚨🚀 · Money News

• 0:00
  S1: There are a lot of successful small business and start
• 0:03
  S1: up founders that have made noise about the changes to
• 0:06
  S1: the discount on capital gains tax, which has been in
• 0:08
  S1: place since 1999. And I think part of the reason
• 0:12
  S1: this discount was set up was to encourage people to
• 0:16
  S1: take risk, to be successful, to grow their wealth through
• 0:20
  S1: various different stages, and not eventually rely entirely on the government,
• 0:27
  S1: because there are people that will need to rely on
• 0:30
  S1: the government inevitably, without being able to avoid that. But
• 0:34
  S1: for everyone else, it gives you as many opportunities as
• 0:37
  S1: possible to grow, to take risk, and to make you
• 0:41
  S1: as wealthy as possible by the time that you retire. Now,
• 0:43
  S1: we are also in an AI arms race at the
• 0:46
  S1: moment with tech, and we are also in a situation
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  S1: where in Australia it is very, very hard for people
• 0:53
  S1: to make a living. A lot of businesses don't make it.
• 0:56
  S1: We've got huge rents, we've got skyrocketing energy bills. We've
• 0:59
  S1: got three levels of regulation. It's very, very difficult for
• 1:02
  S1: anyone to make a quid and let alone employ someone
• 1:05
  S1: else and grow a business. Because every cent that you grow,
• 1:09
  S1: you continue paying more tax. So that is why so
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  S1: many start up and founders have been making noise about
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  S1: Labor's tax changes, which are going to punish people for
• 1:19
  S1: taking that risk and helping put Australia on the map.
• 1:23
  S1: One of them is James Bowe, who is the founder
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  S1: of Own Home. They are a Sydney based start up
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  S1: in the mortgage lending space. He's on the line for
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  S1: us tonight. James, many thanks for your time.
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  S2: Of course James, great to be here.
• 1:35
  S1: Yeah, really good to be here. And great to have
• 1:36
  S1: you on the show. I just want to, before we
• 1:37
  S1: talk about property and sort of the implications on the
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  S1: property market, I would you agree with what I have
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  S1: just said there. I mean, it's a huge risk for
• 1:46
  S1: anyone to go out on their own, not work for
• 1:48
  S1: a larger company, start their own business, take risks, fail
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  S1: in those early years and struggle. And this is this
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  S1: is going to make all of that harder, isn't it?
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  S1: By removing this discount on capital gains tax.
• 2:02
  S2: Yeah. James, I think you've spoken about two really important
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  S2: things there. One is about the impact on small businesses
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  S2: and founders and their employees. The other is about the
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  S2: impact on the country. And I think if we think
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  S2: about founders and their ambitions, they start companies because they
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  S2: want to solve massive problems. You know, they feel compelled
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  S2: to solve real challenges in the world, and they win
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  S2: if they they do well, if they win on a
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  S2: global scale, you know, and we that's been true now.
• 2:29
  S2: It's been true back when, you know, Graham Clark founded
• 2:32
  S2: cochlear in Australia. Yes. And we look at, you know,
• 2:34
  S2: the more than 700,000 patients that are lucky enough to
• 2:37
  S2: have a cochlear implant since its founding can now hear,
• 2:41
  S2: you know, and when we think about the fact that
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  S2: there's only 15,000 of those patients in Australia, it's certainly
• 2:46
  S2: not inevitable that cochlear had to be founded in Australia.
• 2:51
  S2: And I think a lot of the criticism, James, that's
• 2:54
  S2: being levelled at the startup community right now is, you know,
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  S2: if you have to pay a lot of tax, well,
• 2:59
  S2: that's because you've done really well. But I think that
• 3:01
  S2: misses a really important source of concern, which is they're
• 3:06
  S2: making so much noise in the startup community because we
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  S2: can see that we're on a train with a really
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  S2: clear path to becoming the clever country, but we're seeing
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  S2: that train get derailed by a tax thing. And I think, frankly,
• 3:20
  S2: you know, both of us think probably an unintended derailment.
• 3:23
  S2: You know, what's actually driving, you know, the engines of innovation. Um,
• 3:28
  S2: and what, who, who's building the future? Um, you know,
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  S2: and it's the words of Bob Hawke, actually, certainly a
• 3:34
  S2: hero of the government who 30 years ago declared we
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  S2: can't just be the lucky country. Yeah. We've got to
• 3:40
  S2: aspire to become the clever country.
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  S1: Well, perhaps what they don't realize, and I'll just give
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  S1: you a moment to explain this for anyone that does
• 3:47
  S1: go out on their own and take risks and turn
• 3:50
  S1: into a start up venture, is that, um, because a
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  S1: lot of these people, James, that are in Treasury or,
• 3:55
  S1: you know, ministers in government have never employed anyone in
• 3:58
  S1: their lives, they've never worked for the private sector. They
• 4:00
  S1: don't understand the risks and the responsibility involved. But just
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  S1: to explain, for those that do get into the start
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  S1: up space, when you're trying to recruit someone to run
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  S1: the IT department or your marketing space or your PR
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  S1: or whatever that is. Often in those early days, you
• 4:16
  S1: say to them, look, we can't pay you the market
• 4:19
  S1: rate for your salary, but we'll give you 5 or 10%
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  S1: of this company. And in 5 or 10 years, if
• 4:26
  S1: we go public or get sold, that money is going
• 4:28
  S1: to be worth a whole lot more. Um, under the
• 4:31
  S1: current settings, it's pretty attractive. But this change hurts that
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  S1: aspiration and that risk, doesn't it?
• 4:39
  S2: Yeah. Well that's right. Like, so if I think about
• 4:41
  S2: the 50 employees at own home. Yeah. Um, proud that
• 4:47
  S2: all of them are part owners of the business. And
• 4:49
  S2: for a long time, that trade that you described for
• 4:52
  S2: joining a startup has been, yep. I'm taking a risk.
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  S2: But for me as an employee, there's participation in that
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  S2: value that I'm going to create. And weirdly, I think
• 5:02
  S2: in taxing this asset class seemingly identically with property, they've
• 5:07
  S2: actually made startups the biggest loser of the budget. And
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  S2: that's what startups are really worried about. And so maybe, James,
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  S2: it's helpful if I just sort of explain a little bit,
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  S2: of course, why that's the case. So so why does
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  S2: this disproportionately impact startups or small businesses? Well, the capital
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  S2: gains changes right. Have eliminated the 50% discount and and
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  S2: applied an indexation of the cost base. And so the
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  S2: simple math is if we take someone that's investing in property,
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  S2: it's an enormous cost base. You buy $1 million home.
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  S2: There's $1 million cost base. And so the new indexation
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  S2: approach means you're growing the discount from that really enormous
• 5:44
  S2: cost base. If we take a really simple scenario where
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  S2: the property grows in value by 3% and inflation is 3%,
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  S2: which is lower than the current inflation rate, you sell
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  S2: it under the new capital gains regime, the government actually
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  S2: says there's zero capital gains tax that you're going to
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  S2: pay in that scenario on the property. If we take
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  S2: the equity that an employee was granted in a startup, like, say,
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  S2: as a young designer in Canva, um, that new indexation
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  S2: approach provides zero discount. You can't index zero cost base.
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  S2: And so that's really the nub of why start ups
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  S2: or small businesses have become the biggest loser from these changes. Um,
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  S2: and I think for us, like the frustration for us
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  S2: as a company that's really focused on building pathways to
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  S2: home ownership and expanding access to home ownership with own
• 6:31
  S2: home and also peach property is that, um, we have
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  S2: one side of the debate right now, understandably saying everything's
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  S2: changed completely for the better when it comes to housing.
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  S2: And on the other side of the debate, saying everything's changed,
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  S2: but for the worse. Um, and the reality is that
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  S2: these changes are much more nuanced when it comes to property,
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  S2: but I think they're really black and white when it
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  S2: comes to employees thinking about joining startup.
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  S1: That was a very, very well explained and I appreciate
• 6:59
  S1: you providing that explanation to us tonight, James. The other
• 7:02
  S1: thing is, and you would have seen some of these
• 7:03
  S1: stories around in the last few days, it's clear that, um,
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  S1: everything about this budget has been sold on the assumption
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  S1: that we need to get more young people into homes,
• 7:13
  S1: and this is the best way to do that. Now,
• 7:14
  S1: if that was truly their number one and only target
• 7:19
  S1: of these tax changes. They could have done something like
• 7:22
  S1: limited negative gearing on a certain number of houses. So
• 7:25
  S1: you could only do it on 3 or 4 properties.
• 7:27
  S1: I'm not suggesting that would be a good idea, but
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  S1: that could have been something that they would have considered
• 7:31
  S1: if this was just about housing. They could have also
• 7:34
  S1: removed the discount on capital gains tax of 50% only
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  S1: on housing, but instead all these other sectors that are
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  S1: vital in terms of enterprise and growth and putting Australia
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  S1: on the map have been swallowed up in this. And
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  S1: you'd also know through your business own home, James, as well,
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  S1: that there's a lot of young people that in order
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  S1: to get a housing deposit, have taken risks outside of
• 7:59
  S1: their income. And that could be shares. It could be,
• 8:01
  S1: I don't know, Bitcoin, crypto, whatever, but they're investing and
• 8:05
  S1: moving their money around like never before. And they've all
• 8:08
  S1: been caught up in these tax changes as well.
• 8:11
  S2: I think that's right James. I mean, I like to
• 8:13
  S2: think that the business we started own Home and peach
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  S2: Property has done more than any start up in the
• 8:18
  S2: country to help Australians into their own home with the
• 8:20
  S2: thousands we've supported. But the reality that you're alluding to
• 8:23
  S2: is that that probably still belongs to Canva. You know,
• 8:26
  S2: they've helped thousands and thousands of younger Australians achieve their
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  S2: dreams of home ownership. And that's, you know, one example
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  S2: of like a pathway that young Australians.
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  S1: Are you talking about their employees, by the way? You're
• 8:39
  S1: talking about their employees directly. Yeah.
• 8:40
  S2: Their employees. Yeah. Who have participated in the value that
• 8:44
  S2: Canva has brought about to, you know, has created in
• 8:46
  S2: the world.
• 8:47
  S1: That's right. Yeah.
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  S2: Yeah. Yeah. And so I'm, I think we're both looking
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  S2: at this thinking there's a bunch of unintended consequences of
• 8:54
  S2: these capital gains changes, but I'm energized that it does
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  S2: sound like the Treasurer's, you know, own plans to engage
• 9:01
  S2: with the start up community. Um, sound like there's a
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  S2: path that we can get the train back on the
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  S2: tracks to, you know, not just become the lucky country,
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  S2: but also the clever country.
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  S1: Just lastly, do you think there's any early evidence of
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  S1: young people? Um, like, I mean, the budget numbers are
• 9:17
  S1: very rubbery in terms of young people getting into the
• 9:20
  S1: housing market. I guess we'll know with time, but I
• 9:23
  S1: think the jury is out if this is actually going
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  S1: to allow property prices to come down enough to get
• 9:29
  S1: young people in, and it's going to get young people
• 9:32
  S1: into homes for the first time, I don't think there's
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  S1: any sort of concrete proof that these changes are going
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  S1: to make that easier for the next generation to get
• 9:39
  S1: into homes, right?
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  S2: Yeah. I mean, James, you know, hashtag not financial advice,
• 9:44
  S2: but I think the reality is that property in Australia
• 9:48
  S2: right now is likely always going to be a great
• 9:52
  S2: way for people to achieve financial security. And all these
• 9:56
  S2: all these things that we're talking about are in service
• 9:58
  S2: of people being able to achieve that security of, of,
• 10:02
  S2: of home ownership. And so I think that what's clear
• 10:05
  S2: is that that's going to continue to be like the
• 10:09
  S2: number one aspiration for so many young, young Australians. What's
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  S2: not clear is how these changes are going to translate
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  S2: into that outcome for them.
• 10:18
  S1: James. Yeah, 100%. I really appreciate your time tonight, James.
• 10:21
  S1: Thanks for joining us.
• 10:22
  S2: Thanks, James.
• 10:23
  S1: As James Bowe, the founder of Own Home, a start
• 10:26
  S1: up in the mortgage lending space.