Australia recorded a net inflow of tech talent in 2025. It’s first since 2017.
Engineers who had spent years at companies in Silicon Valley and London came home, bringing operational knowledge, commercial instincts, and networks that took a decade to build overseas. That return is not a lifestyle story. It is the kind of compounding asset that ecosystems take years to generate and seconds to lose.
The 2026 Federal Budget threatens to do exactly that.
Treasurer Jim Chalmers handed down the 2026-27 budget on May 12, replacing the long-standing 50% capital gains tax discount with a cost-base indexation model and a 30% minimum tax on net capital gains.
The reform was designed to curb property speculation. It applies equally to startup equity, with no carve-out for founders, early employees, or the engineers who accepted below-market salaries on the bet that their shares would eventually be worth taking.
Policy, meet unintended consequence.
“Tech professionals will vote with their feet,” wrote Benjamin Humphrey, CEO and co-founder of Dovetail Software.
Tax Inequity
Picture the pitch. Sydney, some years ago. Two founders, a product with genuine bones, and a hiring market dominated by Atlassian, Canva, and the looming gravitational pull of global tech. When Humphrey and co-founder Bradley Ayers started Dovetail, competing on cash was not an option. The pitch was equity: lower salary now, meaningful upside if the company succeeded.
People took that risk. Rows of talented engineers, designers, product managers, each making a calculated, asymmetric bet on their own hard work. Dovetail grew into a global enterprise software platform with over 100 employees, bringing tens of millions of dollars in revenue into the Australian economy annually. Twenty percent of Fortune 500 companies use software built in Sydney.
That outcome required a specific financial proposition. A senior engineer joining a scaleup accepted real risk, deferred compensation, and a high probability of failure in exchange for equity that, under the existing CGT rules, was taxed at a rate that made the trade worth making.
The budget changes that calculation sharply. Take an early employee with a 1% stake in a company that exits at $200 million. Under current rules, the 50% CGT discount puts their effective tax rate at around 23.5%. Under the new regime, indexation provides no meaningful relief on equity with a $0 cost base. The full 47% top marginal rate applies, effectively doubling the tax bill and stripping an extra $470,000 from their take-home. Someone who spent years on a below-market salary, betting on a company that could just as easily have folded, deserves better than a rather repulsive doubling of their tax bill as a reward.
“An engineer choosing to join Dovetail next year will bear the full, unmitigated brunt of a top marginal tax rate on their equity in the event of an exit,” Humphrey wrote.
Brain Drain, Take Two
The reform lands at the moment Australian tech is finally accumulating something it has lacked for a decade: people who have built at scale and chosen to come back.
Imagine the scene. A senior engineer, FAANG-seasoned, bags unpacked, telling colleagues over a Sydney lunch that yes, actually, this is where the interesting work is now. That Australia has the talent. The capital. The ambition. That the time feels right. Net arrivals of Australian citizens in technology-related roles turned positive in 2025 for the first time since 2017, according to data from the Department of Home Affairs. Several significant Series B and C rounds completed in 2025 had recently returned Australians in key leadership positions.
Australian venture capital investment reached $5.4 billion in 2025, per Cut Through Venture data. The ecosystem is accumulating mass. Talent is circulating. The infrastructure for a serious tech economy is more visible than it has ever been.
The CGT changes threaten to price the founding proposition out of the market at precisely this moment. The startup sector pushed back hard. A cross-industry lobbying effort secured an acknowledgement in budget supplementary papers that the government “will consult on the interaction of the capital gains tax reforms and incentives for investment in early-stage and start-up businesses.” That consultation is ongoing. Industry analysts project domestic venture investment could contract between 15% and 20% over the next two fiscal cycles if the changes pass without meaningful protections.
Google Doesn’t Need the Tax Break
The case for joining a scaleup over a global incumbent has always been asymmetric. The salary is lower. The hours are longer. What made it rational was the equity structure, and the tax treatment that preserved enough of the upside to justify the trade.
Remove that and the asymmetry flips. Spectacularly.
A senior engineer with global options does not need to take the scaleup bet. Global incumbents already win on base compensation. Strip the equity upside through taxation and the equation collapses. The talent that Australia spent a decade watching leave, and only recently celebrated watching return, will find the offshore option far more appealing again. And I don’t think that frenzy would end quickly.
Humphrey says, “We cannot talk about a ‘Future Made in Australia’ while writing policy that penalises the startups and innovative companies required to build it.”
Dovetail Software is not an edge case. It is the model the ecosystem is trying to replicate: a company built in Sydney, with engineering talent drawn from Canva and Atlassian, that now serves enterprise customers across North America, Europe, and beyond. The conditions that produced that outcome included the financial architecture that made early joining worthwhile. Policy that degrades that architecture does not only affect current scaleups. It changes the founding conditions for everything that comes after them.
No Cost Base
The government acknowledged the problem within 24 hours of the budget dropping. The consultation process that followed is where a meaningful carve-out might be secured.
What that carve-out looks like matters enormously. The structural failure Humphrey identifies is specific: indexation provides no benefit when the cost base is zero, which it almost always is for early employees investing time and expertise rather than capital. A policy fix that treats startup equity like residential property has not solved the problem. It has only rebranded it.
Long, painful, sometimes policy-wonkish, but the consultation matters. The talent return of 2025 is a genuine and rather seismic moment for Australian tech. Whether the government moves quickly enough to protect the conditions that made it possible, before the budget closes them off, is the question now sitting, rather urgently, on the table.