Investors warn $36B venture capital pipeline at risk under Labor's tax overhaul

For institutional investors and asset allocators, the proposed capital gains tax changes represent a regulatory risk that could fundamentally alter the return profile of Australian venture capital. With $36 billion already deployed under the existing 50% discount, any reduction in after-tax gains could shift the risk-reward balance, pushing capital away from domestic startups toward international alternatives or safer assets. The testimony of Navleen Prasad and Tim Doyle provides a real-world lens on how policy risk translates into portfolio decisions.

Australia’s startup ecosystem is at the center of a fierce policy debate as the Albanese government pushes to overhaul the country’s capital gains tax (CGT) regime. The proposed changes, which would replace the existing 50% CGT discount with an inflation-indexed model and a 30% minimum rate, drew stark warnings during a parliamentary inquiry on June 16, 2026. Australian Investment Council CEO Navleen Prasad testified that without the current tax settings, which have underpinned venture capital and early-stage investment over the past two decades, iconic companies like Canva and Employment Hero “wouldn’t exist.” She quantified the scale of the potential disruption, noting that venture capital and early stage venture capital limited partnerships have channeled $36 billion into the venture and growth sectors under the existing policy framework.

“

With $36 billion already deployed under the existing 50% discount, any reduction in after-tax gains could shift the risk-reward balance, pushing capital away from domestic startups toward international alternatives or safer assets.

The inquiry, part of a broader examination of Labor’s Tax Reform Package, highlights a deep divide between the private capital sector’s reliance on tax incentives and the government’s push for fiscal consolidation. The current 50% CGT discount, long a cornerstone of Australia’s investment landscape, effectively halves the tax on capital gains for assets held longer than 12 months. Its proposed replacement with a system that adjusts the cost base for inflation and applies a 30% minimum effective rate represents a fundamental shift, potentially erasing the after-tax return advantage that has drawn both domestic and international investors to Australian startups.

The testimony underscored the symbiotic relationship between tax policy and venture capital formation. The $36 billion figure—accumulated through limited partnerships such as ESVCLPs and VCLPs—demonstrates the capital fuel that has enabled Australia’s tech sector to scale, from early-stage rounds through to growth equity. Without the discount, the risk-reward calculus for limited partners, including superannuation funds and high-net-worth individuals, would deteriorate sharply. Prasad’s warning aligns with global research showing that CGT concessions are a primary driver of venture capital allocations, particularly in markets like Australia where domestic risk capital pools are smaller than in the U.S. or Europe.

However, not all voices in the inquiry framed tax as the decisive factor. Tim Doyle, CEO of digital health unicorn Eucalyptus, which was recently sold to a U.S. competitor for more than $1 billion, argued that startup founders are driven by an “irrational desire to change the world” rather than tax optimization. He downplayed the reform’s impact on founder behavior but stressed a more urgent concern: employee equity. Doyle called for genuine employee equity in early-stage companies to be carved out from the CGT changes, noting that employees often “come last in the stack” behind investors and founders. This plea echoes a growing international trend, from the U.K.'s EMI schemes to the U.S.'s qualified small business stock exemption, aimed at making startup compensation competitive against larger firms.

The $1 billion-plus Eucalyptus sale provides a concrete case study. Employees who held shares likely realized significant gains, and any increase in tax on those gains could reduce the attractiveness of equity-based compensation for talent. With Australia’s tech talent already facing strong poaching pressure from global players, a less favorable tax environment for employee equity could exacerbate brain drain. For investors, the proposed changes would increase the effective tax on exits, potentially lowering valuations and exit multiples. Given that Australian VC returns already lag behind U.S. benchmarks in some periods, a further drag could reallocate institutional capital toward offshore opportunities or less risky asset classes.