A quiet contradiction is playing out in Australia’s investment landscape.

On one hand, policymakers worry that too little capital is flowing into the high-risk, high-reward ventures – such as early-stage tech firms, clean energy scale-ups or advanced manufacturing – that drive long-run productivity. On the other, thousands of retirees chasing higher returns are cashing out their super for a spin on the crypto roulette wheel.

This issue sits at the heart of the business investment challenge being considered in the upcoming Economic Reform Roundtable. If we want to lift productivity and ensure a more prosperous future, we need to make it easier and safer for Australians to invest in assets that have national benefit. That means creating better pathways for informed individuals to invest in start-ups and scale-ups, while also making it easier for superannuation funds to deploy capital where it matters.

A feast of capital, a famine for innovators

Australia’s productivity challenge starts with how we fund our most promising companies. Start-ups introduce innovative technologies and business models. Scale-ups create jobs and drive productivity gains, partly by injecting much needed competition into our concentrated markets.

Australia is not short on money to send their way. We have over $17 trillion in household wealth stashed away, putting us second only to Luxembourg for median wealth per adult.

Yet both start-ups and scale-ups struggle to raise the capital needed to survive, expand or compete effectively. Australia’s venture capital investment, for example, sits at around 0.2 per cent of GDP – about a third of the level in the United States or United Kingdom. Innovative small- and medium-sized businesses that are looking to grow face similar constraints, relying far more heavily on short-term, risk-averse bank lending than their overseas peers, particularly in the US where private credit markets are more developed.

These outcomes are underpinned by our regulation and default settings that channel domestic savings into low-risk property, passive equities or offshore assets, with little benefit for national productivity.

Breaking down the barriers

Australia needs a more effective way to direct private capital into productive risk. A good place to start is rethinking who can access early-stage investment. Currently, only “wholesale” investors – those with $2.5 million in assets or $250,000 in annual income – can invest in most venture funds or scale-up equity opportunities.

These rules rightly aim to protect uninformed investors from high-risk products. But they also exclude many Australians with the knowledge, interest and risk appetite to invest meaningfully. Consider an experienced professional approaching retirement with decades of economic insight and substantial savings: under current rules, they are potentially locked out of opportunities that could benefit both their portfolio and the broader economy.

Other countries take a different approach. The UK and US have significantly lower headline thresholds, while focusing on asset bases, excluding the primary residence. The US offers a professional credentials test as an alternative pathway to accreditation. Singapore, meanwhile, is considering a long-term investment fund (LIF) framework that would permit retail investors to access private market investments through regulated fund structures.

We should also strengthen our underused crowd-sourced equity funding system. These online platforms can help start-ups and small businesses raise capital, but Australia’s market has struggled. The recent failure of the Equitise platform highlights its precariousness.

The 2014 Murray Review recommended reforms to expand crowd-sourced funding and simplify small business capital raising. Some changes were introduced, but further reforms are needed, including: streamlining disclosures for small raises, harmonising regulation and expanding regulatory sandboxes to trial new investment models.

The superannuation opportunity

The biggest opportunity, though, lies with superannuation. Self-managed super funds (SMSFs) already play a significant role in start-up and scale-up investing, with many sophisticated investors using them to access early-stage opportunities.

However, the bigger prize is professionally managed superannuation. These funds control more than $4 trillion, yet they remain cautious about higher-risk domestic investments. That caution is not misplaced: they are handling Australians’ retirement savings. But there is scope to prudently lift their currently minimal exposure to start-ups and scale-ups.

While the barriers to super funds doing this are contested, policy settings around how we measure and report their performance is a likely contributor. The Treasurer is already in helpful discussions with the sector about reviewing the annual performance test, which in its current form can discourage investments in companies that require time to deliver returns.

Industry submissions to the upcoming Economic Reform Roundtable have also highlighted fee-reporting rules as a constraint. While intended to improve transparency, current guidance may be unintentionally deterring investment in venture capital and other high-growth assets by overemphasising short-term costs.

Getting better at risk

These reforms are not about pushing Australians toward more risk-taking; there is a whole suite of complementary tax incentives that could support that. Rather, they are about channelling existing risk appetites into smarter, more productive investments. They are about building a bridge between investors and the kind of long-term, national investment we need more of – into the ideas, businesses and technologies that will shape Australia’s future.

We can do this through expanding access to early-stage investments, strengthening our crowd-sourcing markets and reducing barriers for super funds while being mindful of how tax policy affects the incentives for domestic investment.

We have the savings. We have the capacity for innovation. Now we need the policy settings to connect the two.

Jordan Ward is Senior Manager and Head of Economic Policy at the Australian Public Policy Institute.

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