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An Aussie crypto pioneer has warned young Aussies should ‘consider leaving’ if the budget’s tax changes are passed.
University of Sydney computer science graduate Michael Kong, director and chief information officer of blockchain firm Sonic Labs, has described Labor’s controversial changes to capital gains tax (CGT) as a “slap in the face” for start-up founders, particularly young entrepreneurs in the crypto industry.
Speaking to Fred Schedbesta, rich-lister and founder of financial comparison website Finder, on the Crypto Finder podcast, Mr Kong was asked what he would say to a 22-year-old university graduate looking to start a business in Australia today.
“I’d say if the budget gets passed and none of that stuff really changes in 2028 … then I’d honestly have to say maybe consider leaving or at least leaving for a period of time,” he said.
“Because you can go to other countries that are far more friendly, not just in the tax jurisdiction but also in the regulatory situation.”
Mr Kong co-founded and has helped grow Sonic Labs, formerly known as Fantom Foundation, since 2018, serving as chief executive until last year.
The company is now based in Nassau, The Bahamas, where Mr Kong says the political and regulatory environment is far more welcoming.
“This is a small country of a few hundred thousand people, [but] they’ve managed to really put in the effort to try and understand this industry and technology industries as a whole,” he said.
“They had this thing called the Digital Assets Regulatory Act or the DARE Act, and when I looked through a draft proposal you could tell that they very clearly understood the industry.
“So these politicians in the Bahamas spend their time trying to understand the industry.
“This is something Australia should do, [it] has a far bigger population and more politicians and that’s what they should be doing, and the politicians don’t really care about it because it’s just not seen as a very popular political issue.”
The federal budget has drawn widespread criticism from the business and start-up community for its proposed changes to CGT, which will remove the blanket 50 per cent discount and replace it with inflation indexation across all asset classes including property, shares and crypto.
CGT is the tax paid on profit made when selling an asset held longer than 12 months.
Taxpayers pay capital gains tax at their top marginal tax rate, which for high-income earners is 47 per cent, minus the discount.
With a top marginal tax rate of 47 per cent, the 50 per cent discount meant the maximum capital gains tax rate was capped at 23.5 per cent.
The new indexation method removes that cap, meaning as a general rule the maximum effective rate could rise towards the full top marginal rate of 47 per cent, depending on investment performance and rate of inflation.
Broadly speaking, the change means investors with lower gains relative to inflation will pay less tax, while those with large gains well above inflation — such as fast-growing businesses — will pay significantly more.
Labor is forging ahead with the legislation despite the backlash, but Treasurer Jim Chalmers last week extended an olive branch to critics, confirming carve-outs for small and start-up businesses were on the agenda.
“I think the politicians don’t really care about this new and emerging industry,” Mr Kong said.
“You start up a business and it becomes really successful, and then the government can take upwards of 47 per cent of whatever you make instead of with the [50 per cent] discount, 23.5 per cent.
“I think that’s really sad because it means that for crypto businesses in Australia, why would you want to run a business in Australia when you get taxed up to 47 per cent when you can go for example to Singapore, or even New Zealand just across the pond, and you’re paying zero per cent capital gains?
“It’s really disappointing. They just seem to be punishing business owners and wealth creators and people who actually like to take risks and have a go with these insane new taxes that they’re proposing at the moment.”
Mr Kong said the Australian ideal of “having a fair go … that you can come to Australia or be born in Australia, take advantage of opportunities and work hard and you’ll be rewarded”, appeared to be disappearing.
“That’s been put to the wayside where you don’t really even hear much of the rhetoric like that anymore,” he said.
“When a society engages in that sort of rhetoric rather than trying to work together and think about how do we become productive, how do we attract talent from around the world, resources and investment … it’s kind of just like a race to the bottom where everyone is just trying to take money from someone else and instead of actually trying to do work, they’re doing work, and then you’re just kind of going downhill.”
For a young, ambitious person, “you kind of want to go to a jurisdiction where you think that your efforts are going to be more rewarded … it’s just going to be a lot easier for you to build wealth”.
“It is a real slap in the face,” Mr Kong said.
Founding a business meant starting from nothing, putting in “time and effort, sleepless nights, the ups and downs”, and then “government just comes in and wants to take almost half of the effort, despite not really helping out at all or in many cases putting roadblocks in front of you by all of these regulations and bad aspects of the law”.
“It’s just really hard to deal with,” Mr Kong said.
“And then you realise that your money is going to government programs, so-called infrastructure, the costs are just way overblown, you’re not getting any value for money, and you just feel like other people who maybe don’t want to take the level of risk and put in as much effort are just getting your rewards that really should just belong to you and the other people at your company that worked hard and grew the company with you.
“You want to attract those sorts of people into Australia. Instead we’re just kind of disincentivising that which doesn’t make sense at all.”
Mr Kong has been contacted for comment.
Mr Schebesta, who joined in the viral AI meme showing Prime Minister Anthony Albanese as his “newest crew member and 47 per cent shareholder”, made similar comments on The Karl Stefanovic Show last week.
He said his first reaction to the budget was “mildly disturbed” and “ready to leave the country”. “I just thought we’re in a spiral down to a government-controlled nation,” he said.
“We’re 150-plus on the world living standards. There are African countries that it’s better to live in than Australia right now and you’ve just basically taken out the innovation, the new jobs, why would you build one of the companies here? You’re going to build it overseas.
“My first feeling was just dejection. Why would I build a company in this country when I can leave, go across the pond to New Zealand, go to Singapore, or even go to America … what’s left to offer here for an ambitious person? My feeling was this country doesn’t seem to be aligned to my values anymore.”
Mr Schebesta said he had received a number of messages from “shocked” young entrepreneurs after the budget, asking for advice.
“I said, ‘There’s nothing stopping you leaving,’” he said.
He warned Australia was fast becoming a place where innovative new businesses couldn’t be born. “Yes, not all of these companies are going to succeed … call it five out of a hundred become very successful, two of them become super successful and one becomes unbelievably successful, a 10,000-people-plus company that will put billions of dollars into Australia,” he said.
“And you’re not going to have those companies here. This is not a country for that. This is a country [of] government businesses, small businesses that can just survive. That’s what this country is becoming.
“And I think that’s anti-Australian. That’s not what got us here.”
It comes after the founder of Australian crypto exchange Independent Reserve warned the CGT changes, which will also see a new minimum 30 per cent tax rate — double the previous 16 per cent minimum rate for those earning less than $45,000 — would punish Australia’s 6.2 million digital currency investors.
“Overall, it punishes lower-income earners more than those with higher incomes,” Adrian Przelozny said.
“Young people, who frequently invest in this asset class, usually have a normal income tax rate under 30 per cent.
“Setting a minimum investment tax floor at 30 per cent means they will often face a higher tax rate on their investments. Which is to me is just a really bad outcome.
“You’re just gonna see a lot less investment a lot less people willing to take on risk.”
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