Matt Williams (Hindmarsh, Liberal Party) Share this | Hansard source

The Australian economy faces many challenges as it transitions from the mining boom and competes with the growing economies of Asia. People often ask me where the jobs of the future are. I do not intend to attempt to address this point today but part of the answer is in the start-up and entrepreneurial hi-tech sector.

When commenting on the entrepreneurship culture in Australia, EY Partner Annette Kimmit said that, as the mining investment boom wanes, successful entrepreneurial businesses will be more important than ever for future job creation and the sustainability of the Australian economy. Our track record in Australia in the hi-tech sector is something we can be proud of. The bionic ear was invented by Cochlear, and this company employs over 2,000 people. The wi-fi technology that connects billions of devices around the globe was made in Australia. Other success stories that are commonly known include Seek, with revenues of around $500 million; Atlassian, a worldwide leader in software development, employs around 450 people; and Freelancer, whose founder Matt Barrie was born in Adelaide, has over 14 million registered users, with revenues of $66 million and 270 staff around the world, and was listed on the ASX in 2013. But there could be more success stories—and we need more.

Government has a small role to play. Part of our plan to help grow the economy and incentivise business and enterprise is the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. In 2009, the former Labor government made a number of changes to the way that employee share scheme arrangements are taxed. One of these 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. This forced employees to pay tax on their options before they could take any action to realise a financial benefit from those options. This was a major problem. The Labor changes were widely criticised by those in the start-up community and the business sector more broadly.

The member for Rankin, who spoke earlier on this bill, quoted PricewaterhouseCooper's figures. He may have also noted that the same PwC report—which I assume he quoted the figures from—said:

Changes were made to the Employee Share Option Plan in 2009 and...... the startup community would like to see Employee share ownership plans brought into line with the US and the UK where it is still treated as a capital gain and not as income.

The changes in the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 are intended to better align the interests of employers and their employees, and stimulate the growth of start-ups in Australia.

This bill makes two main changes to the tax treatment of employee share schemes. Firstly, for all companies, employees who are issued with options will generally be able to defer tax until they exercise the options—convert the options to shares—rather than having to pay tax when those options vest. Secondly, eligible start-ups will be able to issue options or shares to their employees at a small discount and have that discount exempted for shares or further deferred for options from income tax. An eligible start-up is a business with a turnover of not more than $50 million, is unlisted and has been incorporated for less than 10 years. In addition, employees will need to hold the shares or options for a minimum of three years to qualify for this concession.

Other changes that are being made for all companies include that the maximum time for tax deferral will be increased from seven years to 15 years and the maximum individual ownership limit will be doubled from five per cent to 10 per cent. The government has also addressed this red-tape burden. Like we are doing with so many other sectors of the economy, we are looking at reducing red tape and deregulating those sectors that are causing obstacles for businesses and organisations. In this area, we are developing a standardised documentation that streamlines the process of establishing and maintaining an employee share scheme, and also developing a safe harbour valuation method for unlisted shares. The Australian Taxation Office has recently completed its consultation on both of these changes.

The government consulted on the draft legislation and heard a wide range of views. Consultation meetings were held and around 50 submissions were received. In my state, South Australia, I discussed the employee share schemes with key bodies such as Business SA and the Entrepreneurs Organisation, as well as leading professional advisers like Piper Alderman lawyers, PwC, EY and BDO. They responded positively to the government's proposal, as did the majority of written submissions, which noted that the changes are positive and encouraged the government to implement the proposed changes by 1 July 2015. That is what we are doing here today.

Following these consultations, the bill now addresses technical concerns and further clarifies policy on the start-up concessions. As a result of the draft legislation, the final bill has changed to extend eligibility rules for the start-up concession. Stakeholders will welcome these changes, including that start-up concession recipients will be able to benefit from the 50 per cent capital gains tax concession and that large venture capital investors do not rule out eligibility for the start-up concession.

From my time advising small businesses in Europe and in Australia, I have always been impressed by the talent, passion and commitment of entrepreneurs and leaders in the high-tech sector. One of these is Alan Noble, head of engineering for Google Australia. Mr Noble, who is based in Adelaide, said in Adelaide'sThe Advertiser last year that Australia must move from a country with low start-up rates and venture capital investment into a knowledge-intensive industry and economy. Alan said that, with the right conditions, high-tech companies could add thousands of jobs to the economy. The PwC report stated that the Australian tech start-up sector has the potential to contribute over $100 billion, or around four per cent of GDP, to the Australian economy and over 500,000 jobs by 2033 with a concerted effort from entrepreneurs, educators, the government and corporate Australia.

Most start-ups in Australia are located in Sydney and Melbourne, which is expected. A matter of concern for my state is that only one per cent come from South Australia—lower than Queensland at seven per cent and even the ACT and WA at two per cent. That is not to say that there is not a great entrepreneurial culture in my state. Those involved in the 'engine room' include Marcus Bailey and Conor McKenna of Twoeyes. They are two of a number of individuals I have been engaged with who invest in the South Australian start-up community. Individuals like Marcus and Conor are not waiting for government to act, however. As highlighted in the PwC report, experience around the world suggests that government initiatives are unlikely to be the catalyst for growth. Importantly, by international standards Australian governments are relatively supportive. R&D tax credits and the Innovation Investment Fund contribute positively to the sector. This is supported by an EY report in 2013 that found Australia ranks fifth among G20 countries in having a conducive environment for entrepreneurial activity.

This bill is an important step in better positioning Australia to benefit from the economic benefits from emerging high-tech companies. Naturally, there is more that can be done, but, through other initiatives, such as improving our education system and a greater focus on STEM—science, technology, engineering and maths—by government, industry and tertiary institutions, we are on the right track. I note that the Abbott government has, in its Students First initiative, committed an additional $12 million to restore the focus and increase student uptake of science, technology, engineering and mathematics subjects in primary and secondary schools across the country. But entrepreneurship, as a career, needs greater support at all levels of education. Students should be encouraged to think outside the box of traditional jobs and consider being a business owner, generating wealth and employment.

This is a challenge for governments, policymakers and educators. It is also a challenge for our society, including our media, to profile successful entrepreneurs in the same way that we profile and promote our sporting stars. Research about growing ecosystems emphasises the importance of leadership, communities, culture and education. We need more people interested in entrepreneurship. I again quote the PwC report, which said:

Entrepreneurial activity is heavily influenced by the cultural environment surrounding entrepreneurs. Ecosystems where … entrepreneurial successes are highly visible in the media are good indicators of the population's entrepreneurial intentions and total early-stage entrepreneurial activity.

In closing, I want to quote Maria Pinelli, the Global Vice Chair of Strategic Growth Markets at EY. She says:

Entrepreneurs have the power to create jobs and drive growth—but first we need to give them the tools and the environment that will enable them to succeed.

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