Pre-Budget Expectations
- Written by Rakesh Prabhakar, Head of Zoho Australia and New Zealand
“Australian corporates and SMBs are under pressure. Competition from global players is intensifying, margins are under strain, and technology adoption rates lag comparable markets. Budget 2026 offers an opportunity to address these structural gaps.
The budget is expected to include funding for AI adoption and digital capability building. SMEs cite cost and ROI uncertainty as barriers to tech adoption. Practical support for AI integration, cloud migration, and secure digital infrastructure could move the needle. The data centre strategy, focused on sovereignty and security, can help local businesses compete on firmer ground. But support mechanisms will only work if complementary tax policy doesn't undermine them.
Startups are the engine of the ecosystem. The expected move to reduce the capital gains tax discount may create a fundamental problem. When a founder's exit becomes significantly more expensive, investment in that startup becomes less attractive. When investors see reduced returns due to higher tax rates, they redeploy capital into markets with better tax treatment. This directly affects whether Australian startups get funded, scale, and become engines of growth. A budget that simultaneously talks about supporting innovation while making share gains much more expensive to realise sends a mixed signal that will slow startup investment across the ecosystem.
The budget is expected to include support for AI adoption. What would actually help: grants or tax offsets for SMBs adopting integrated platforms that connect HR, finance, operations, and customer management. Targeted support tied to demonstrated productivity gains would accelerate digital-first operations and create immediate demand for vendors selling into SMB.
Foreign software vendors expanding in ANZ need practical signals about growth conditions. This means visibility on hiring incentives, tax settings for new operations, and support for companies investing in local capabilities. What would help the ecosystem: targeted tax relief for companies establishing local development or support centres, and government procurement recognition for vendors investing in local infrastructure. Without clear signals that the policy environment supports return on investment, capital flows to regions with clearer frameworks and more competitive conditions.
Data sovereignty has become a competitive advantage for vendors willing to invest in local infrastructure. The National Data Centre Strategy sets expectations around national interest and compliance. What the budget should do is turn these expectations into procurement advantages. Tax credits for companies maintaining sovereign data centres, or procurement preferences for vendors meeting strict local data standards would create demand for infrastructure that serves security and jobs. Without these incentives, the capital investment in local data infrastructure looks less attractive than pure cloud plays, and the vendors making that investment lose competitive advantage.
The budget will be judged on whether it creates conditions for real growth. Supporting startup investment while hiking capital gains taxes is contradictory. Ignoring vendors who have invested in local infrastructure misses an opportunity. What would actually help: clear tax support for foreign vendors expanding locally, CGT settings that don't penalise startup success, and recognition for companies investing in sovereign infrastructure. These are acknowledgements of where real growth comes from.”
