Bert Van Manen (Forde, Liberal Party) Share this | Hansard source

It is with great pleasure that I rise to speak today on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. Employee share ownership is something that, in Australia, has been around since the 1950s, but we never hear particularly much about it. In the year 2000, the Shared Endeavours report noted that employee share ownership plans have been around for a significant period of time and have also enjoyed legislative support since the early 1970s. In that time, they also enjoyed bipartisan support.

The history of employee share plans in Australia has two facets: their evolving significance in business, where they undergo constant modification in response to global pressures being experienced by business, to contemporary business management practices as well as to changes in taxation corporation law; and the gradual evolution of the legislative arrangements and changes, which have attempted to foster employee share plans and participation in them while at the same time, understandably, limiting their use as vehicles for aggressive tax planning.

As I am sure many of the other speakers on this bill have already noted, this bill seeks to redress a number of the changes that the former Labor government made in 2009 to the taxation arrangements for employee share ownership plans. Those changes effectively put a stop to their use for the past six years. It is important in a global marketplace that Australia is able to compete with other countries such as the United Kingdom and the United States, and is able to land new enterprise opportunities here. The current arrangements that are in place impede the opportunity for that to occur. They impede opportunities for innovation and entrepreneurship in our economy. The way we have done business in the past around employee share ownerships schemes is not conducive to the commercialisation of great Australian ideas. It has not enabled the unleashing of the 'have a go' enterprising spirit that we are trying to encourage in order to grow our economy and employment potential. The changes in this bill are intent on better aligning the interests of employers and their employees, to stimulate the growth of start-ups in Australia.

Sometimes, when discussing these topics, I think it is interesting to look at a little bit of history. The importance of the aligning of interests through employee share ownership was first recognised by philosopher John Stuart Mill in 1848 when he wrote:

The form of association, however, which if mankind continue to improve, must be expected in the end to predominate, is not that which can exist between a capitalist as chief, and work-people without a voice in the management, but the association of the labourers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves.

He went on, interestingly, to give the example of Parisian painter who had complained about the frustrations of being a business owner and being unable to get the results that he wanted from the work that his tradesman were doing. He complained that if they were working for themselves and producing that quality of work, they would be soon out of a job, so he decided to change the way that he operated his business, and introduce a yearly profit-sharing plan. It was so successful after the end of the first year that his business became one of the leading businesses in Paris, recognised for the quality of their work, and the business grew remarkably.

This is just one example of why the government—in listening to enterprising Australians through the extensive consultation that the previous speaker touched on—are taking this road to open up again employee share ownerships to the Australian business community and the employees in that community. Time and again, we have heard business say to us that the current taxation regime for employee share schemes is uncompetitive. Of the 50 submissions received, the majority of written submissions noted the changes were positive and encouraged the government to implement them. This is why the coalition will unwind the harm caused by the former Labor government's amendments to the taxation of options issued under employee share schemes. One of the biggest problems faced was that options were taxed when they were provided to the employee and there was no real way of determining their true values. This means that employees were hit with a substantial tax liability, even though there was no material capacity for them to generate the resources to pay it.

The two main changes to the tax treatment for employee share schemes are presented in this bill. Firstly, for all companies, employees who are issued with options will generally be able to defer tax until the exercise of the options, rather than having to pay the tax when those options are vested. Secondly, eligible start-ups will be able to issue options or shares to their employees at a small discount and have that discount exempt or further deferred from income tax. The other changes include the maximum time for tax deferral, which will be increased from seven to 15 years, and the maximum time for the individual ownership limit will double from five per cent to 10 per cent.

The government will address the red-tape burden by developing standardised documentation that streamlines the process of establishing and maintaining an employee share scheme. Following consultation on the draft legislation, the bill will also address technical concerns and further clarify policy on the start-up concession.

All companies in some way will benefit from these changes. Employees who are issued with options will generally be able to defer tax until they exercise their options, rather than having to pay tax when they receive them. This is a huge win for employees who were hit, as I said before, with a substantial tax liability and no way to pay it. Unwinding the changes to the tax treatment for employee share schemes will make employee share schemes more attractive and encourage more firms to offer these schemes to their employees, who will ultimately benefit if the company is successful.

It is vitally important that these amendments are introduced to allow the application of employee share scheme interests that are issued on or after 1 July 2015. Stakeholders have emphasised the preference for this to be achieved so that employers and employees can begin to benefit from these amendments. It is clear that, when employees have a stake in the business, they have a clear path of participation and control. When business leads directly to worker success, worker-owners will be willing to put forth extraordinary efforts to assure the economic success of the firm. As CentreForum, in its 2012 report Employee ownership: unlocking growth in the UK economy, identified:

There are good reasons why now is a good time to be promoting employee ownership, co-ownership and employee share ownership. Employee ownership and share ownership have been shown to improve company performance and productivity. Employee ownership reduces absenteeism, and fosters greater innovation and a longer term approach to business decisions. Greater employee ownership within the firm leads to less of a differential between the high and the low paid, and wages which are at least as high as in comparable firms.

Employee share schemes are a fantastic way to align the interests of employees with those of their employers.

I do not support the amendment. It is a political stunt from those opposite because they have nothing better to offer. However, I commend the bill in its original form to the House.

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