Eric Hutchinson (Lyons, Liberal Party) Share this | Hansard source

The government is creating the right environment for over two million small businesses across Australia. Since the coalition came to office around a quarter of a million new jobs have been created. Company registrations reached a record high in 2014. Over 280,000 new businesses were established during 2013-14. Ninety-six per cent of Australian businesses are small businesses; 4½ million Australians are employed in small business. Small business provides $330 billion of our nation's economic output annually,

The government is working to support jobs in small business. Since coming to government we have repealed the carbon tax; repealed the mining tax; delivered three free trade agreements, with China, Korea and Japan; announced $2.45 billion in annual red tape savings; established the $484 million Entrepreneurs' Infrastructure Program; created new employment opportunities through a $50 billion commitment to infrastructure; established a $6.8 billion Job Active Employment Service package; delivered a comprehensive reform package for the vocational education and training sector; introduced Restart, a wage subsidy to help Australians aged over 50 to find employment; established the Small Business and Family Enterprise Ombudsman; expanded tax concessions for employee share schemes—and we will discuss that further—begun to introduce changes to support crowd funding; and extended unfair contract term protections to small business. We have improved the balance between franchisors and franchisees, we have done a root-and-branch review of the competition framework, and we have improved government procurement policy for small business. We want to ensure that Australia is one of the best places in the world to start and grow a business. The Jobs and Small Business package announced in the budget delivers further measures that will energise enterprise and help Australians into jobs.

No-one can describe this as a fad or a trend. Since coming to government we have had in Minister Billson a minister who is absolutely committed to this sector. The address today at the Press Club highlighted the passion, the understanding, and the depth of knowledge that the minister has. Under Labor there were five small business ministers, and Minister Billson's contribution at the Press Club today was a vote of confidence in the sector. I encourage every small business employer and every small business employee to listen to that presentation today and the questions that were answered by the minister. It truly is something that will inspire and empower small businesses to know that their government is behind them. We are committed to supporting innovation and creating the right conditions for Australian entrepreneurs.

As part of that commitment we plan to improve the taxation arrangements for employee share schemes. These changes have been designed to increase the international competitiveness of Australia's tax system and allow Australian businesses to attract and retain high-quality employees in a globally competitive labour market. They are part of an extensive package of initiatives contained in this year's budget to support and encourage small business in Australia. Small business is the engine room of the Australian economy, which is why the government made it one of the cornerstones of this year's budget. Ninety-six per cent of all of Australia's businesses are small businesses, employing more than 4½ million people and producing more than $330 billion of our country's economic output annually.

I have received a huge amount of positive feedback to the $5.5 million jobs and small business package in the budget—the biggest small business package in the country's history. I could give examples. Jane Shaw at the Ingleside Bakery in Evandale and Keith Rice, who is a consultant to a number of agribusinesses around Tasmania, will be expanding their businesses and will be looking to make capital purchases to take advantage of the $20,000 instant asset write-off. At the heart of the package are tax cuts for all small businesses with annual turnovers of under $2 million. The company tax rate for those incorporated businesses will be reduced by 1½ percentage points to 28.5 per cent. Businesses that are unincorporated, which is the majority, will have a discount on their assessable income. This will improve the cash flow of incorporated small businesses and increase their capacity to engage in the economy.

Small businesses will be able to immediately deduct each and every asset costing less than $20,000 that they buy from budget night, two weeks ago, to the end of June 2017. As part of that package, the employee share schemes changes have also been introduced to boost the performance of small businesses. In the past, shares or options were taxed when they were provided to the employee. This meant that there was no real way of determining their true values, which meant that employees were hit with a substantial tax liability even though there was probably no means to generate the resources to pay it at the time. That is particularly true for start-up businesses. These amendments will mean that the tax on the options will be paid when there is an actual value on the options—in other words, when those options are exercised. Eligible start-up companies will be able to issue shares or options to their employees at a small discount, with the discount generally exempt from upfront tax. It is an incentive.

The background to this is that, in 2009, the former federal Labor government made a number of changes to the way that employee share scheme arrangements were taxed. One of the changes meant that the discount component of shares or options issued under an employee share scheme was taxed when the employee received those shares or options. The changes that we bring forward today are intended to better align the interests of employers and employees and stimulate the growth of start-ups in Australia. Not only will these necessary changes be made with this amendment legislation but the government will also develop standardised documentation that streamlines the setting up and maintenance of an employee share scheme, thus reducing red tape. This will also develop a safe harbour valuation method for unlisted shares. Small businesses grow into big businesses. It is about encouraging the entrepreneurial spirit that exists within the small business sector and knowing that there is the confidence and the support of the government to see them succeed. The Australian Taxation Office has recently completed its consultation process on both of the changes mentioned above.

Who does this impact? This will benefit employees of companies which offer such share schemes. It will make employee share schemes more attractive, encouraging more businesses to offer these schemes to their employees. Employers will also benefit from these amendments. Employee share schemes are a great way to bring the interests of employees and employers together. Employees are often the single-biggest asset that small business has and they want to keep good people. Research suggests—and it makes absolute sense—higher productivity in companies that offer these schemes.

An eligible start-up company is a company with an annual turnover of not more than $50 million, is unlisted and has been incorporated for fewer than 10 years. Shares must be provided at a discount of no greater than 15 per cent and options must not be 'in the money' when issued—that is, the option must have a strike price that is either equal to or greater than the market value of the company's shares. That is effectively the buying of puts, if you like—the right but not the obligation to exercise the underlying option at the nominated strike price. Without a tax deduction upfront, they may or may not have a value, and that is the very point: there was no incentive in start-up businesses that were offering shares or options that had that tax payable upfront, let alone the cash flow implications. There are no exclusions based on industry sectors. That is really important. There will be great opportunities within the agribusiness sector particularly to see innovation and entrepreneurial skills released because of this policy. The government has targeted the start-up concession to unlisted companies because during consultations last year stakeholders noted that unlisted companies had problems valuing their business and accessing capital.

We have seen the current tax arrangements effectively stop the provision of options through employee share schemes since the 2009 changes. We know small businesses sometimes lack the cash flow to pay salaries which allow them to compete internationally. Employee share schemes allow firms to be globally competitive by supplementing employees' salaries with equity in the company that they work for. It is the ultimate incentive and has a real and positive impact on productivity, with the ultimate reward being the success of the business, because they are part-owners in that business, as stands to reason. They are a valuable tool for employers to attract and retain talented employees—often the very best asset that new start-up businesses have, and small businesses more generally.

Unfortunately, the potential of employee share schemes has not yet been realised in Australia. We are missing out on opportunities for small business to expand and to be competitive internationally. We are not an island. Australia is increasingly competing with businesses in our region and also around the world. We want to do everything we can as a government to kick-start small business and give back as much control to the sector as possible, because they know best how to do business; they just need the tools to do it. As we have seen in the budget, it is about allowing business to do with their money what is going to be best for their businesses. We know that government will never make choices as good as small businesses will make about what is best for them.

As has been mentioned, there is still work to do, but I reinforce the fact that small business is at the heart of this government; it is at the heart of growing the economy. Ninety-six per cent of Australian businesses are small businesses and they know that they have a government that is right behind them and that is allowing them to get on the with doing what they do best.

See this speech in context