Australia loves to talk about catching the artificial intelligence wave, yet the plumbing that actually decides where investment lands, namely the tax system, rarely gets a mention in those speeches. Liberal senator Andrew Bragg wants to change that. In comments reported by Capital Brief, the New South Wales senator has warned that Australia’s current tax settings are poorly matched to the demands of the AI economy and could hold the country back from capturing the opportunities the technology promises.
It is a pointed argument, and a political one. Bragg, who has carved out a niche in the Coalition on financial services, digital assets and technology policy, is effectively saying that grand statements about sovereign capability and productivity gains mean little if the settings that govern investment, research spending and talent still reward the industries of the past rather than the businesses trying to build the future.
The context
The backdrop here is a national conversation that has grown louder through 2026. Treasurer Jim Chalmers has repeatedly tied AI to the productivity puzzle that has dogged the Australian economy, and Canberra has been circulating discussion papers and consultation processes on how to encourage adoption without ceding control of critical infrastructure. At the same time, a steady drumbeat of reports has warned that Australia is strong on AI enthusiasm and adoption but weak on building the underlying capability, from data centres to homegrown models to the deep pool of engineers that turns research into companies.
Tax sits underneath all of it. Where a founder chooses to incorporate, whether an investor backs an early-stage AI startup or parks money in property, whether a multinational routes its research and development through Sydney or Singapore, these decisions are shaped as much by the tax code as by any innovation strategy. Bragg’s intervention lands squarely on that point: that you cannot bolt an AI ambition onto a tax framework designed for a different economy and expect the numbers to add up.
The news
Bragg’s warning, set out in his remarks to Capital Brief, is less a single policy proposal than a challenge to the way government is framing the issue. The senator’s contention is that Australia’s tax system risks acting as a brake on AI, discouraging the kind of risk-taking capital and skilled labour that the sector needs to scale here rather than offshore.
The mechanics of that argument are well worn among people who follow startup policy. Australia’s research and development tax incentive has long drawn criticism for being unpredictable and difficult for software-heavy firms to claim, with companies complaining about clawbacks and shifting eligibility rules. Employee share schemes, the currency early-stage companies use to compete for talent when they cannot match big-tech salaries, have been reformed in recent years but are still seen by many founders as clunky. And the broader settings around capital gains and how investment income is treated shape whether the country’s considerable private wealth flows toward productive, risky ventures or toward safer, established assets. Bragg’s framing pulls these threads together into a single warning: the settings are not fit for the moment.
Two views
Supporters of Bragg’s position, particularly in the startup and venture community, will find little to argue with. They have said for years that Australia produces excellent research and capable founders but loses too many of them to jurisdictions with friendlier treatment of stock options, cleaner R&D credits and deeper capital markets. To that constituency, tax reform is not a giveaway to technology companies but a precondition for keeping the value of Australian ideas onshore.
The counter-view, which the government and some economists are likely to press, is that the tax system is not the primary bottleneck, and that pointing at it is a convenient line for an opposition that does not have to fund the alternative. On this reading, Australia’s real constraints are skills, energy, compute capacity and the slow pace of enterprise adoption, and cutting taxes on a fast-moving, capital-hungry sector risks handing concessions to large foreign players without a guarantee that the benefits stay in the country. There is also the fiscal reality: any tax change that favours AI investment has to be paid for somewhere, and Chalmers has been guarding the budget bottom line closely as he juggles productivity, inflation and interest-rate pressures.
What it means for Australia
For Australian founders, investors and workers, this is not an abstract Canberra spat. The country is trying to decide whether it wants to build AI or simply host and consume it, a question that has run through much of the recent policy debate. Tax settings are one of the few levers a mid-sized economy can actually pull to influence that outcome, because they change the relative attractiveness of building here versus building somewhere with more capital and cheaper compute.
The stakes are sharpened by geography and scale. Australia cannot outspend the United States or China on frontier models, so its best hope lies in specialised, high-value applications, in sovereign capability for sensitive sectors, and in retaining the companies and talent it already produces. If the tax code quietly nudges that activity offshore, the country ends up importing the productivity gains it hoped to generate, and the well-paid jobs and intellectual property that come with them settle elsewhere. That is the future Bragg is warning against, and it is one that plays out in the choices of individual startups long before it shows up in a national statistic.
What’s next
Bragg’s comments are unlikely to produce immediate change, given the Coalition sits in opposition and the government controls the fiscal agenda. Their more likely effect is to keep tax on the table as the AI policy conversation matures, and to pressure the government to spell out how its adoption ambitions square with settings that founders say work against them. Expect the R&D incentive, employee share schemes and the treatment of investment income to feature in submissions and consultations through the rest of the year, and expect the startup lobby to seize on the senator’s framing. Whether any of it translates into legislation will depend on how seriously both sides decide the AI opportunity is worth reshaping the tax base to capture.
Sources: Capital Brief.
