Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I rise to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015, and I move:

That all the words after "That" be omitted with a view to substituting the following words:

"while not declining to give the bill a second reading, the House condemns the government's cuts to Australia's innovation and science capacity."

In 2009 this parliament passed a set of laws relating to employee share schemes. As the then minister, Robert McClelland, noted:

This measure will better target the employee share scheme tax concessions to low- and middle-income earners and decrease taxpayers' ability to evade or avoid tax. The new measures will also protect Commonwealth revenues needed to support jobs and invest in nation building.

The measure was related to a Productivity Commission inquiry then on foot, recommendation 17 of which suggested:

There should be a review of the corporate governance arrangements that emanate from the Australian Government's response to this report.

It said in particular that the review should consider:

… the effectiveness and efficiency of the reforms in meeting their objectives both individually and as a package, including recent legislative reforms to termination payments and employee share schemes

The decision that the government made in the 2009 measure was described in that year's budget as follows:

Removing the tax deferral option will ensure that remuneration in the form of share discounts is taxed at an appropriate time and rate, and reduces avoidance opportunities.

We do know that there are benefits of employee share schemes to firms. Some evidence, such as that put together by my former professor, Richard Freeman, suggests that firms with employee share schemes are more productive. But it is important, too, that we ensure the employee share schemes are not used for avoidance at the higher end. Warren Buffett has raised the issue in the United States of high-income earners being taxed at the capital gains tax rate while low-income earners are taxed at their marginal labour income tax rate. He told an event in 2007:

The 400 of us—

Meaning the Forbes Magazine list of the richest 400 people in the United States—

pay a lower part of their income in taxes than our receptionists do, or our cleaning-ladies for that matter.

That has evolved into what the Americans call 'the Buffet Rule'—the principle that marginal tax rates ought not drop at the very top. That context is important in understanding where we are today.

This is a bill which does not repeal the 2009 changes but, as the explanatory memorandum notes, it makes modest adjustments to employee share ownership schemes. The explanatory memorandum goes into some detail as to how the new law differs from the current law. In the case of ESS deferred schemes, where income tax is deferred, the current law provides that the taxing point is the earliest of the following: when there is no real risk of forfeiture of the benefits and any restrictions on the sale or exercise are lifted; when the employee ceases employment; or seven years after the shares or rights were acquired.

The new law sets two separate tests: one for shares and one for rights. In the case of shares, the test is extended from seven years to 15 years and in the case of rights there is, in addition to the extension from seven to 15 years, an additional principle: when the employee exercises the right, and after exercising the right there is no real risk of forfeiture of the underlying share and the restrictions on sale of the share are lifted.

The current law provides that all employee share ownership scheme rules and concessions apply equally to all corporate tax entities and their employees. The new law provides that employees of certain small start-up companies receive further concessions when acquiring certain shares or rights in their employer or the holding company of their employer. These further concessions are an income tax exemption for the discount received on certain shares and the deferral of the income tax on the discount received on certain rights, which are instead taxed under the capital gains tax rules.

The principles underlying this measure are to ensure that employee share ownership schemes are available to start-up firms. Boosting the number of start-ups in Australia is a national priority. We need, as the investment phase of the mining boom tapers off, to have industries which are continuing to create new jobs. Places without new firms are places whose growth prospects in the future will be placed at risk. It is said that you could tell as early as 1960 that Detroit was going to be in trouble for the lack of new firms in that city at that time. A few old, large firms are not enough to continue the sustainability of employment and economic growth in a nation or a city.

That is why Labor is committed to boosting the number of start-ups. It has been my pleasure recently to visit a range of accelerators and innovation hubs around my electorate and across Australia. I pay tribute to the team at Entry 29 here in Canberra, where entrepreneurs are working cheek by jowl and learning from one another about how to break into new markets and how to crack new technologies.

I was greatly impressed when Sebastien Eckersley-Maslin took me around BlueChilli in Sydney and, indeed, had me participate in a stand-up pitch meeting which takes place on Monday mornings. The principle of holding the meeting standing up is to ensure that no-one waffles on too long. It is, indeed, a principle which could perhaps be usefully employed in this place from time to time! The way in which BlueChilli operates is to allow firms to share the facilities of coders and effectively be able to draw on in-house engineering expertise in the early stage of their start-up.

With the member for Throsby and the member for Cunningham, last week I visited the iAccelerate facility at the University of Wollongong. There it was a pleasure to meet with a range of different entrepreneurs, one of whom is currently in involved in the production of 3D printers that are cheap and ideal for use in schools. They have to be robust for use in schools, but they are also designed in such a way that the kids can see exactly what is going on in the 3D printer. The work being done at iAccelerate is particularly impressive and important given that the unemployment rate in the Illawarra is above the national average. Yet that is a part of Australia which retains better than average manufacturing skills. So the role of start-ups in creating jobs is vital there, too. Companies such as Google are also doing their own work in order to facilitate the start-up ecosystem here in Australia.

Labor's position on changes to employee share ownership schemes was first signalled by opposition leader Bill Shorten in March of last year when he said that Labor would be willing to consider amendments to the employee share scheme rules to make sure that innovative start-up companies are not unnecessarily targeted by those integrity measures. Labor believes that if you are an Australian with a good idea it should be easy for you to attract talented employees. One way in which that is done is through access to employee share schemes. Many members of the Labor frontbench have engaged with the start-up community, including Jason Clare, Ed Husic, Terri Butler—she has engaged deeply with this sector—Chris Bowen and Bill Shorten himself. The issue of employee share ownership schemes and the structure of the government's proposal has been front of mind there.

The start-up concession is based on three rules. Companies have to be an Australian firm that is privately held, less than 10 years old and have a turnover that does not exceed $50 million a year. It is also a requirement of this bill that the employee share or option must not be provided at a discount greater than 15 per cent and, in the case of an option, have an exercise price greater than an ordinary share. Naturally, one could quibble over each of these particular thresholds, but it is important to recognise that each of them is a compromise. There will be some start-up firms which are not able to satisfy all three of those criteria but, in the circumstances, I believe they are reasonable.

The importance of start-ups too, though, turns on having appropriate skills in place. That is why the Leader of the Opposition's budget reply focused so strongly on the jobs of the future. He spoke about the value of introducing coding in schools, a discipline which has moved greatly since the days when I sat down at an Apple II computer to write BASIC programs with my friends. But the rudiments of coding remain the same. The principles are that you need to understand logical thinking, the way in which loops can work and if-then statements. All of those are useful even for those who will not end up working directly in coding jobs.

The Leader of the Opposition also spoke about Labor's plan to ensure that we have more science, technology, engineering and maths graduates. We know that one of the secrets to Israel's success as a start-up nation was the influx of Russian Jewish migrants who came in after the collapse of the Soviet Union. The boost in the number of engineers that that created for the country is a part of Israel's success, although of course not the only part. Australia needs to look to examples such as Israel and the United States in thinking about how to boost the start-up ecosystem. This is an important step, but it is just one of many things that this nation needs to do in order to create a better culture of innovation and entrepreneurship.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Pat Conroy (Charlton, Australian Labor Party) Share this | Link to this | Hansard source

I second the amendment.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Fraser has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the amendment be agreed to.

Tony Smith (Casey, Liberal Party) Share this | Link to this | Hansard source

It is my pleasure to speak on this legislation that has such importance about it. We are here today passing this legislation to rectify the damage that was done six years ago in Labor's budget. I will not take up the time of the House to go through each and every measure in this bill; the previous speaker read out most of the explanatory memorandum. The minister outlined the importance of the main changes around options, eligible start-ups and deferral periods.

But we do need to go to the history of this issue—why we are here today and why this is such an important day on employee share ownership for the start-up sector in particular. Those opposite say they believe in employee share ownership. I would say to them: to have credibility, they should acknowledge they made a monumental mistake six years ago—that is what they should do—and not engage in political point-scoring. The member for Fraser did not quite do that but he knows enough to know that Labor's changes in 2009 were devastating. They snap-froze employee share ownership and they harmed the start-up sector dramatically. That damage has been going on for the last six years, and this legislation repairs what they wrecked. It is important that they acknowledge that if they are to have credibility on the issue.

I welcome the fact that Labor are saying that they are supportive of employee share ownership, but to be believed they have to start with that acknowledgement. We need to go back. The member for Fraser, who is listening and typing intently at the same time, understands this. He mentioned all of those Labor members who he says are supportive, and he mentioned the shadow Treasurer. It was the shadow Treasurer who was then the Assistant Treasurer who carried those 2009 budget measures that were so devastating. If we go back to the media commentary at the time, we had experts in the field from the day after the budget warning of what would happen. Within a couple of weeks of the budget, we had front-page stories in the Financial Review about 450 of the top 500 companies freezing or reviewing their schemes. We had experts across the field pleading with the government to see common sense; but, instead, they stubbornly moved on. The outcome was that employee share ownership, particularly for the start-up sector, was shut down. That was because, as the Minister for Communications outlined yesterday in the matter of public importance discussion, and as the minister outlined, Labor changed taxed options before they could be realised. That made it completely unviable.

The Minister for Small Business and the cabinet have had this legislation as a priority. The announcement was made last year. There has been extensive consultation with the sector on this legislation, and I want to congratulate the Minister for Small Business, the member for Dunkley, for that consultation. I particularly want to mention Employee Share Ownership Australia and New Zealand and the head of that organisation, Angela Perry, for all of her advocacy over what have been a long number of years, for her work on the consultation and for the work that she does with that important organisation.

The member for Fraser made the point that this will help start-ups—and he is right. That is why the government is doing it. But, as I said, the speakers that follow should acknowledge that Labor mucked it up. When you make a mistake, acknowledge it. The disappointing thing—and I am passionate about this issue, as you can tell, Mr Deputy Speaker—is that not only did they muck it up, but at no point over their years in government was there any attempt to rectify it. I am not sure whether the member for Fraser was in the parliament in 2009—I do not think so, but the problem here was obvious from day one and it was obvious in ever year of Labor's government. At no point did Labor ever seek to revisit this issue. In fact, they refused to have a conversation about it. And that, I hate to say, is a reflection on the way they approached this policy.

It is true the Leader of the Opposition at the National Press Club, as the member for Fraser said, outlined his support for employee share ownership, and sitting in the audience was the now shadow Treasurer, who was responsible for wrecking it. I want the policy settings in this area to be durable into the future, and that means widespread support and understanding. These changes today rectify so many of those things. I say to the House: these changes are a great step forward, but if Australia is to fully realise the transformative nature of employee share ownership in a way that other countries are in the months and years ahead then, as a parliament, we need to be committed to doing more. I am very hopeful that. As part of the tax white paper discussion, we can look at what else can be done in the years ahead.

I also think it is important in this area that we have in the future an expert panel of people like Angela Perry and key regulators working in a way similar to the Board of Taxation, looking at all the issues that that need to be rectified and promoting the importance and the value employee share ownership. Whilst tax is a barrier—and we are removing some of those key barriers today—so, too, is regulation in the ASIC area in terms of prospectus. Ensuring that we have got the best settings possible is a priority for our economy—it absolutely is. We should have the ambition as a nation to have the best employee share ownership settings in the world. That will take time, but the changing nature of our economy, I believe, demands it. The United Kingdom is very advanced in this area and, of course, the United States is as well, as everyone speaking in this debate would be aware.

Today is an important day. It restarts employee share ownership, particularly in the start-up sector. It is a shot in the arm; it builds confidence. It will provide the platform for other business owners to positively contemplate the possibilities in this area—the benefits for their business, for their employees and for the wider economy. That is why today should be a beginning; it is why, in the months and years ahead, we as a parliament should be looking at what more we can do to assist this area so that we can have vibrant businesses providing the jobs of the future.

Pat Conroy (Charlton, Australian Labor Party) Share this | Link to this | Hansard source

I am pleased to make a contribution on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. The last speaker, the member for Casey, spent most of his speech demanding an apology from the Labor Party for supposed past sins, but he was remiss in not pointing out why the 2009 changes were made. They were made to stop massive tax evasion being undertaken by established companies through the misuse of employee share schemes. We have to get the balance right, and that is why Labor are supporting this bill—because, on the whole, we believe it gets the balance right between providing an appropriate tool for start-ups and appropriate incentives for start-ups in this country to develop, to grow and to be a vital part of the economy, while ensuring that established companies do not misuse employee share schemes just to provide remuneration to employees in a way that avoids tax. We have to get the balance right.

People can talk about what happened in 2009, but the most important thing is to talk about this bill and the second reading amendment to the bill to understand that this is part of a broader debate, and that debate is about how we support innovation and research in this country and how we support jobs, going into the future. The previous Labor government did make significant reform in this area. We are supporting the sensible amendments contained in this bill. What we do not support are the government's short-sighted and drastic cuts to science and innovation that will have a devastating impact on Australia's economic growth and productivity. I am keen in my contribution to highlight the different approaches of the two parties.

This bill makes three primary changes. It reverses some of the changes of the previous Labor government that were made in 2009 regarding a taxing point for share rights for employees; it introduces further taxation concessions for employees of certain small start-up companies; and it provides for the ATO to work with industry to develop and improve safe-harbour valuation methods for employee share schemes. The Labor amendments made in 2009, as I said, were designed to ensure that employee share schemes were not misused to avoid tax. The government's sensible amendments to the integrity measures on employee share schemes will be supported by Labor. It makes sense for policy regarding employee share schemes to be enhanced six years after the previous reforms. The government's amendments constitute a logical refinement, with the aim of boosting innovation while, importantly, still ensuring that those types of schemes are not used for the purpose of tax minimisation or evasion by wealthy Australians.

It should be noted that these amendments, to a large extent, keep Labor's integrity rules in place. The new concessions are only available to genuinely new enterprises. In March last year, the Leader of the Opposition first indicated that we would consider amendments to employee share scheme rules to make sure that innovative start-up companies are not unnecessary targeted by the new measures. Since that time, Labor has consulted widely with investors, tax experts and, importantly, start-up companies. We have a very clear commitment to ensuring that Australia has the appropriate policy settings in place to support innovation, which is so fundamental to our future economic growth and prosperity. Labor has listened to feedback from stakeholders regarding the current difficulty for start-up companies to offer employees a package with the potential for a higher return through employee shares.

The government's amendments do retain some of the integrity measures of the 2009 changes and provide for more people to defer the taxation of options and shares until they are able to sell the shares. This is a sensible amendment. The proposed amendments provide for a new start-up concession. Employees of certain small start-up companies may receive this concession if their employee scheme meets a number of conditions. It is appropriate that the following limits apply to the concessions: a company must be an Australian company privately held, under 10 years old and have a turnover below $50 million; and the share or option must not be provided at a discount rate greater than 15 per cent and, in the case of an option, have an exercise price greater than an ordinary share.

The bill also provides a new power to the Australian Taxation Office to determine a more straightforward safe-harbour valuation calculator so that new companies are not required to undergo expensive valuations to allow them to access employee share schemes. So the substance of these amendments to the 2009 changes is sensible and supported by the Labor Party. It improves the balance between minimising tax evasion and supporting start-up companies, which are integral to the innovation system of this country.

In the time remaining, I would like to turn to the broader innovation system in this country that this bill needs to be considered within; that is the context of the debate we are having right now. Unfortunately, I must depart from the rhetoric of bipartisanship I have enjoyed over the last five minutes to bewail this government's appalling record on science and innovation more broadly. This bill is an important measure and is a good contribution, and should be applauded as such. But it is in the context of an appalling record on science and innovation more broadly. The result of that will be fewer jobs into the future and less economic prosperity. The last two federal budgets have cut research funding by 17 per cent. That is a straight fact. In the budget before the last one, there was a $528 million cut to science and research, including an incredibly short-sighted $111 million cut to the CSIRO.

On the broader innovation agenda, the government, and these political parties that form the government, have form on not supporting innovation. One of their first acts in 1996, when the Howard government came into power, was to slash the R&D tax concession from 150 per cent to 125 per cent. This had a devastating impact on local innovation. The new coalition government are no better. They have cut $2 billion from innovation programs, and that is having a massive impact out there. Whether it is the Commercial Ready program, Enterprise Connect or various other measures designed to support innovation and research, this impact is being felt—not just by researchers and not just by scientists but by businesses trying to increase their value-adding and increase their international competitiveness.

I have many advanced manufacturers in my region that are suffering because of these changes. And there can be no greater flagship for this short-term, myopic focus than what they have done around precincts. The last government announced a $500 million policy around precincts to drive applied research, to drive innovation. We identified a problem, and that problem was that there was not enough effective applied research being done in this country. There was plenty of blue sky research being conducted by scientists that was world's best, but too often they were focused on the research and not focused on what business needed. And on the other side there were so many businesses that were so busy, so focused on the day-to-day struggles—which is quite understandable—that they were not engaging effectively with the research community to really mine that research for new ways of improving their competitiveness.

So, in a job statement that we put out in 2013 we put aside $500 million for the precincts, which is all about bringing business and research together to develop the new ideas. We have a great track record of discovery, whether it is helping with aspects of wi-fi, whether it is a black box recorder, whether it is leading solar research in the 1980s and 1990s or whether it is the humble Hills hoist. We are great at inventing things, but we are very poor at commercialising that research in this country and having the jobs dividend that comes with it. So this $500 million package was aimed at bringing together 10 industries in precincts where we would effectively cluster, where you would get lots of applied research, learning by doing, world's best practice to really advance the competitiveness of our industries so that we could grow the industries of the future.

My region of the Hunter was well positioned to benefit in advanced manufacturing, mining related services or energy network research, where we lead the country in that particular aspect. This government has adopted and acknowledged that precincts and clustering is something to be supported, and the growth centres program is effectively the same program with a different title. New governments will change the titles of programs. That is a time honoured tradition, and that is not a problem. What is a problem is that they have slashed funding for this program from $500 million to $188 million—a massive $312 million cut in funding. They have reduced the number of growth centres or precincts from 10 to five, and obviously those five will be woefully underfunded. They have basically stood stock-still for the past two years rather than getting on with the job.

This will have a real impact on applied research in this country, and it is a real missed opportunity. It shows that this government yet again is heavy on rhetoric and light on action. They need to match their rhetoric with action, and, quite frankly, in this area dollars do matter, and that $312 million cut is very significant. And their undermining of innovation and advanced industries is not just related to precincts. We should look at what they have done in manufacturing, which is not just a driver of employment but also a driver of innovation and of research and development. For example, their destruction of the automotive industry, their destruction of an industry that employs 50,000 people directly and 200,000 people indirectly, will actually have an impact on research and development and on productivity in this country. The automotive industry conducts around $700 million worth of business research and development each year. That is about four per cent of the total, which is more than 10 times their employment contribution to this economy. In fact, it is more than 20 times their employment contribution to this country.

So, this single act of destroying the automotive industry, of withdrawing funding, of daring and bullying General Motors and by consequence Toyota to leave the country will have an impact on innovation. Their short-sighted policy around submarine construction in this country will also have a massive impact on innovation. It is well known that not only did the Collins class construction lead to the building of six world-class conventional submarines that the Navy in testimony repeatedly says are amongst the best performing submarines in the world but it also led to a vast modernisation of Australian industry. Before the Collins class project, fewer than 100 companies in this country were specified up to ISO 9000 standard. After the Collins class project thousands of companies were qualified for ISO 9000. I know there is sensitivity on the other side about the submarine project, because it represents a gross betrayal of the Australian community. They made a promise before the election to build 12 submarines in Adelaide, and they are now going to build them, by all likelihood, in Japan. Not only will we miss out on thousands of jobs, and not only will the ability of our Navy and our naval industry to maintain, repair and upgrade these submarines be in peril, but they are actually reducing the innovation capacity of this nation and the ability of the Australian manufacturing sector to be modernised to compete globally.

Another area where they are showing their short-sightedness around innovation policy is in their ideological attack on clean technology, both the industry and research. As part of the Clean Energy Future package that we introduced in 2011 there was $15 billion of industry and innovation research policy. There was the $10 billion Clean Energy Finance Corporation, there was the $3 billion ARENA program and there was the $1.2 billion clean technology program. All these were designed to help do a number of things. One was to help industry transition. The second was to recognise that just as in the 18th century the economies that pioneered research into steam power—the United Kingdom—dominated the global economy and just as in the middle of the 19th century it was the economies that pioneered research into steel manufacturing and railways—the United States and Germany—that dominated the global economy and just as in this century it is the economies that first did research into chemistry and then into the electronics industry through the transistor revolution—that is, the United States and Japan—that dominated the global economy, in the future, just as those industrial revolutions led to a series of economic dominance by those countries that did the research, the clean energy industrial revolution will be massively important to our economic competitiveness.

Those on the other side have betrayed that. They have destroyed ARENA, they have tried to get rid of the Clean Energy Finance Corporation, and they have destroyed the clean technology program—all because they want to stick their head in the sand about climate action, all because they would rather have a rust belt economy next century rather than being clean technology innovators and having clean technology industries that compete with the rest of the world.

And what is the result of all this? The result of all this is that we are facing a jobs crisis now that will get worse into the future. We have an unemployment rate that is at a 14-year high. We have an underemployment rate that is higher than any time since records began in 1978. We have a higher underemployment ratio now than during the 1980s recession or the 1990s recession, which is a massive issue. We have youth unemployment at 20 per cent, well above when we were last in government. We have 190,000 people who are classified as long-term unemployed, more than any time since records began. The long-term unemployment ratio is 25 per cent. One in four unemployed people is long-term unemployed. These people are victims of this government's lack of focus on industry and innovation policy, with a myopic focus on slashing and burning rather than investing in the key drivers of competitiveness in the 21st century: productivity and innovation. Nevertheless, this bill is an important step in rescuing that and we will support this bill. I commend the bill to the House.

Mal Brough (Fisher, Liberal Party) Share this | Link to this | Hansard source

He is good for a bit of a laugh, isn't he? The old ideologue gets up and parrots the lines and just goes on and on and on. Can I take you back to the submarines? Do you want a little lesson on the submarines? Other than the fact that the propellers did not work and we had to buy them from someone else because 'our submarines sounded like a rock concert when they tried to stealthily disappear', other than the fact that the fire control systems were not as advanced as the Oberon, other than the fact they could not communicate with home, other than the fact that salt water used to get into the diesel engine, they were absolutely brilliant! And they were after the coalition came into government, changed the procedures, bought in the US and got something moving: a submarine. It is a wonderful innovation, but if we continued down the path we were on they would have been spending their whole time in the dock.

In 2009, the Labor Party changed this policy. What is this policy all about: employee share ownership scheme? It is actually about people. I say to the member for Charlton, as he wanders off to start to consider the loss that New South Wales are going to have inflicted today—

Dr Chalmers interjecting—

One thing that some of us agree with across the chamber is that Queensland are dominant when it comes to the rugby league tonight. But it is all about people. What the Labor Party did in 2009 was a form of class warfare. We heard it today from the shadow Assistant Treasurer when he said that there was concern amongst Labor ranks that, with an employee share ownership scheme, perhaps those who have the potential to earn more would have a differential tax rate to those able to earn less. What it did was remove aspiration. That is a great Australian tradition: people aspiring to do better, no matter where they started. It does not matter where you start in a company; it is what you contribute to it and what you contribute to your family, your community and your country. By being part of an employee share ownership scheme, you could have some skin in the game.

Let me take you to a good friend of mine, Tom Potter, who was Young Businessman of the Year some time ago, in the early 90s. He was the founder of Eagle Boys Pizza. That is not an innovative company in the form of tech start-ups, but it was innovative. He will tell you the story of good quality managers—that when they became franchisees they had skin in the game. The same stores that they were operating as managers would see marked improvement in their bottom line, sometimes exceeding 30 per cent because they had some ownership. So it is about people.

We have heard the shadow Assistant Treasurer and the member for Charlton wax lyrical about innovation. Innovation comes from the minds of individuals—people who can see things in a way that most of us unfortunately cannot. They see the future and then they try to make it happen through their skill sets. Since 2009, so much innovation has happened throughout the world. The shadow Assistant Treasurer mentioned Israel. He and I both travelled to Israel and saw the Israeli start-up nation founders and key people recently. We appreciate what they have done. What we learnt from them is that they did not hold back their people. They embraced the individual and gave them the opportunities to flourish. In doing so, they created wonderful things. In the other place, Senator Sean Edwards whilst there was saying how he has benefited from Israeli tech start-up businesses by putting their drip-feed irrigation into his vineyards. It shows you what you can achieve if you invest in people.

What the Labor Party did in 2009 was lose an opportunity. It lost an opportunity for Australia to stay at the forefront. Many people who could have contributed to our economy and grown the jobs that the member for Charlton refers to were lost to the Australian economy because the Labor Party decided on class warfare and being concerned about what an individual might earn as opposed to growing the collective pie and letting everyone benefit. When they talk about these things, what they have to acknowledge is that, through their ideology, they have actually driven good Australian potential entrepreneurs out of this country, taking with them their innovation. They have set up overseas and the opportunities and jobs that come from them have been lost. So it is timely that an Abbott-led government leads the way, values people, puts people first and says that the only way you get good innovation is to make sure that people have skin in the game and they can do so without a tax burden.

Those who are listening to this debate must be wondering how this worked under Labor's proposal. What Labor did for the last six years meant that, if I had a start-up company and I needed to employ a programmer or a software engineer and I really had nothing but my own sweat capital, my intellect and the idea to offer them a position, giving them a stake in the business meant that they had to recognise and realise a tax liability before they made any money. How familiar is that? It is like having a mining tax that does not raise any tax. In fact, it can cost the Commonwealth. The Labor Party has form on this. They did not do it once; they did it on several occasions. Here, it impacted upon the fastest-growing sector in the world economy, which of course is the digital revolution.

These changes that are being introduced today and that come into effect from 1 July this year are not only important; they are critical. They are critical because we have been behind the curve. Where we are seeing more innovation occurring each year, and growing at a rapid rate, time is of the essence. A great thinker in this field and a futurist told me recently that, for all of the innovation that the world has seen over the last 40 years—if you think about that for a moment and reflect, that is everything from the mobile phone, the internet, plasma screens and a million different bits and pieces—we will see four times as much innovation in the next 10 years. What the Labor Party did in 2009 is deny Australia's best and brightest the opportunity to work in Australia, to have skin in the game and to use their intellect, their vision and their passion to create jobs for Australians.

This is all about the ideological divide. Begrudgingly, the Labor Party come in here today and say out of one corner of their mouth, 'We are going to back this. However, here are all the awful things that the coalition do.' But this is good. It is rectifying a crucial mistake that the Labor Party made that, in four years in government, they did not see fit to overturn. When you fail, when you make a mistake, there is nothing wrong with that: we learn from our mistakes. But, when we fail to rectify them, that is when we compound the issue. That is what Labor have done here. Start-up companies and their owners will benefit from this, as the Entrepreneurs' Infrastructure Program, the research and development tax incentive, and the venture capital, limited partnerships, small business and capital gains tax concessions will all be of benefit to this incredible ecosystem.

On the Sunshine Coast, we intend to grow our economy, to deepen our connection with the start-up community, to make sure that companies like atmail, which is now taking the world by storm, are not isolated but become the norm. We will use the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 that we are debating here today to say to young entrepreneurs, to university graduates: come to the Sunshine Coast, because here you can enjoy lifestyle as well as the ecosystem to make your dreams a reality. Create the jobs that we need there. Broaden our economy from health, construction and tourism. Show people that working from your own home, starting in a garage, is not where you end. Some of the biggest businesses in the world today started in garages. They started because people could work together and have skin in the game by owning part of that business. This is a good policy. This is the way forward for Australia, and we need to do a lot more.

Shortly in the other place, in the second chamber, in addressing the appropriations bill, I will share with that chamber a few other ideas and ways in which we can take the innovation world and make it ours. We are competing against places like Singapore, which are giving tax-free status for seven years; Israel, being the second largest ecosystem; and of course Silicon Valley, which we all know about. But we have really talented people here. Let me read some comments from some of the people that I refer to in relation to this policy. An article by Paul Smith in The Australian Financial Review on 25 March states:

StartupAUS Peter Bradd said the changes would help attract and retain talent for innovative companies and make Australia's startup eco-system globally competitive.

We have no choice here but to be globally competitive. The member for Charlton talked about rust belts. Rust belts happen when you do not invest in your people and give them a chance to flourish. The article continues:

"Changes to the ESS [Employee Share Scheme] will help Australian start-ups become strong drivers of increases in job creation and, because many help to drive technological change, this will lead to productivity gains and job creation for our economy," Mr Bradd said.

There were many similar comments from people such as founder and CEO of Engagement Innovation, Tim Glover, also a former PwC director. He agreed, as the article states:

"Start-up leaders can consider this a green light to inviting key employees to participate in an ESS with little downside tax risk to the employee," Mr Clover said.

I come back to where I started from. This all happened because of the ideological beliefs of the Labor Party and class warfare—that someone should not get ahead, that we all should be equal. We are here because of our intellect, because of our capacity to drive change and to drive innovation. People should be rewarded. They were not getting something for nothing, which is Labor's way. They were having to put the hard yards in, with no return. What Labor was giving them was a tax liability before they had realised any potential income—unbelievable. Now they can invest their time, their intellect, their passion and their commitment. In doing so, if they are successful and they return a profit to that business and it grows and their shares become of value, only when it is realised or when they leave that company will they have a tax liability. I am sure everyone listening to this would say: 'Isn't that just common sense? Isn't that the way it should be? How the hell can you be asked to pay a tax on something that has not actually realised an income or a profit?' Well, that is what the Labor Party do. They come in here and wax lyrical about innovation and science and technology, but let's look at their record. They did not back people. They did not back the intellectual capacity and the innovative capacity of Australians, and the coalition does.

I say to the innovators of Australia: come and look closely at the Sunshine Coast. We are going to set the world on fire. We want you to be part of it. We have an exciting future up there. Enjoy the lifestyle, enjoy the generosity of the people and, using the share ownership scheme, make sure that you are part of growing a stronger ecosystem in this start-up community for all of Australia.

Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

I am pleased to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. I am particularly pleased to follow my great colleague, the member for Charlton, who spends a lot of this time working up and thinking about innovation policies. He is one of the authorities on our side of the House in these matters. It is a pleasure to follow the member for Charlton, but when it comes to the member for Fisher, who is leaving the House now, it is fair to say that his side is so desperate to look for division and disunity that he seems to have missed him the point that we are supporting this bill. Our amendment concerns a related matter, but we are supporting the employee share schemes bill, which makes changes to the tax arrangements for share schemes to incentivise firms to introduce such schemes and to encourage more employees to participate in them.

I have been following this debate in the House, and it is worth providing the context for this decision. In about March last year, the Labor opposition called upon the government to reconsider the employee share scheme legislation to better support entrepreneurs. There is some history to this measure of course, and I played some part in it when the original changes were made in 2009. It is worth putting on the record that if that decision were taken again, we would not go down the path we went down. I am very pleased therefore that Labor is supporting the changes proposed by the government. We are also pleased that some of the important integrity measures that we put in place in 2009 are being retained by the government. The original purpose of the 2009 changes was to ensure the integrity of the scheme and so maintaining those measures is good. I acknowledge that changing the taxing point for employee share schemes is an important initiative, and I will come back to the taxing point issue in a moment.

In my contribution, I want to focus particularly on smaller and start-up firms for three reasons. Firstly, larger companies have the means to compete for employees in other ways. Secondly, the valuation of shares and options for larger companies is immediately more obvious than for start-ups—so the taxation treatment and timing is less a problem. Thirdly, the bill itself explicitly singles out start-ups with the start-up tax concession, which the government is introducing. As I said, we are pleased to be supporting the legislation. We have moved an amendment which notes, outside this area, sub-optimal performance by the government when it comes to investing in science and technology but we do support the specific measures in this legislation.

Speakers from both sides have acknowledged that innovators face difficulties when trying to get a product off the ground. We know that founders take all of the risk of the new venture: they quit their jobs, work for no pay and leave themselves open to financial risk. At the same time we have also heard the famous start-up success stories—think about Bill Gates or Steve Jobs and Steve Wozniak involved in Apple. Closer to home, think about Greg Ellis and Sean Teahan, who mowed lawns at odd hours for two years while they put every cent they had into developing the small-loan platform called Nimble. These well-known stories remind us that there are huge risks involved with innovation, but there is no doubting that the rewards for success can be substantial as well—and not only for the individuals involved in the start-ups but for the broader economy too. If we are to succeed in the 21st century as a nation, it is crucial that we benefit from the sum total of all the effort, enterprise and entrepreneurship that goes on around the country.

PricewaterhouseCoopers estimates that the Australian text start-up sector alone has the potential to contribute $109 billion, or four per cent of GDP, to the Australian economy and 540,000 jobs by 2033. But, as they say and we agree, this will require a concerted effort from entrepreneurs, educators, the government and corporate Australia. It is part of what this bill wants to achieve. One of the major difficulties that start-up companies face at the moment lies in attracting employees. As a business starts to grow, new employees need to be hired, and it is hard for start-ups to compete with the established companies for employees; they cannot hope to match the salaries, bonuses and work conditions that companies like Google or Microsoft can offer to employees. We need to offer employees equity in the company as a supplement to wages, and that is what this bill promotes—employee share schemes.

It is important to understand that such offers are not usually in the form of shares, but rather options to buy shares, which is a means for protecting employees from the downside risk of shares. Options for equity are not only a good financial incentive for new employees in lieu of wages but they also give employees a stake in the business. On this I agree with the member for Fisher: giving employees a stake in the business gives people an interest in the success of the enterprise, a reason to work hard, to think hard and to make big contribution to the company.

Some schemes are really successful. In the United States there are almost 14,000,000 people participating in employee share ownership plans, which benefit employers as well. Studies in the United States have found that companies with such schemes grow 2.4 per cent faster than otherwise. US studies have also found that participants made between five and 12 per cent more in wages and had almost three times more retirement assets than workers in companies without these schemes.

If these schemes are work in the interests of start-ups, employees and the economy, why are not more of them being taken up in Australia? I come back to where I began my contribution—with the taxing point of these schemes. The current taxation system makes these schemes less attractive for employees due to the period over which the scheme is taxed. The market value of the equity given to employees can be very high, based on the valuation of the start-up. But, practically speaking, an employee is not going to want to sell their equity stake at the start of employment, and there is unlikely to be a market for such an equity. The prospects of selling equity for a start-up at a fair price are not going to be good, so the value of the employee equity is more theoretical than it is practical.

The real value of the shares or options only comes after holding them for some time. For example, Ron Wayne, one of the original founders of Apple, has been called—as others have noted in this place—the unluckiest man in the world. He drew the first Apple logo, he wrote the partnership agreement and he wrote the Apple-1 manual. In 1976, after a disagreement with Steve Jobs, he sold his 10 per cent share in Apple for $800. If he had retained his company shares, today they would be worth $35 billion. The moral of this story is that the real valuation of equity in start-ups is very difficult to make at an early stage in the company's existence.

So with difficulty in valuation comes difficulty in taxation. The current legislation charges income tax on the value of the equity at the time that the shares are granted. Or, in the case of options, income tax is charged when the option vests—when it can be exercised. That means that employees can receive a tax bill for options even when they have no cash benefit from the shares and, worse than that, even when they have no ability to derive cash benefit from the shares. That makes employee share schemes options unattractive for individuals that are not liquid enough to cover the type up-front tax cost of the option. So we do need to change the taxation point of employee share schemes again, and that is what the bill does.

Among other important initiatives, one of the most consequential changes will be that change of the taxation point. Schemes will now be established either as deferred or up-front tax schemes. Start-ups can then design schemes that suit their employees. They can have an up-front tax scheme, which attracts a $1,000 tax exemption for people with income of less than $180,000 a year, or they can have a deferred tax scheme, which attracts tax when options are actually exercised. This will make it easier for more employees to take up the scheme and will, therefore, make it easier for start-ups to attract employees. The bill will also introduce new provisions to allow for a simpler safe harbour valuation tool to make it easier for firms to value their company in order to access employee share schemes. That means that they can avoid costly valuations. Again, all of this makes it more attractive to take up employee share schemes.

Smaller start-up companies are the ones that will most benefit from the schemes and from this bill; they are also the ones who face the most difficulties in setting these schemes up. So the bill contains some provisions to specifically target smaller start-up companies through tax concessions for these schemes. So employees of small start-up companies will not be required to include any discount on ESS interests in their assessable income, and the bill sets out the eligibilities and various characteristics of that scheme and how to access it. In the time remaining, I will not go through that.

As I said, we are supporting the specifics of the bill. My colleague the member for Fraser has moved an important amendment. The amendment is important because it goes to the broader issue of investment in science, technology and innovation in our economy. If you had to think of the things that would determine the success or failure of our nation in the most dynamic region on earth, they would be our ability to innovate, keep up, train our people, and invest in science and technology as well as our capacity to benefit from change and not be a victim of change. The member for Fraser's amendment notes that, when it comes to this government, their record is poor; their first budget cut $3 billion from science, research and innovation, and this year's budget does nothing to reverse or rectify those savage cuts. The government abolished programs such as Enterprise Connect and Commercialisation Australia, and they also abolished innovation precincts. I think it is fair to say that they are now dragging their heels on crowdsourced equity funding as well—something that my colleagues the members for Chifley and McMahon, and others, have put a lot of work into and done a lot of thinking on as they lead the debate in this building on crowdsourced equity funding.

Labor is the only party with a proper plan, a forward-looking plan, for the jobs of the future, driven by science and driven by technology. As I said before, one thing above all will determine the success of this generation and the ones that follow: the ability to benefit from technological change. That means mastering the necessary skills. In that context, the commitments made by the Leader of the Opposition in his budget reply are just so crucial to the future of the country. They go to teaching kids computational thinking and getting them involved in coding, which is the language of the 21st century; making sure that our universities are graduating people who are skilled in science, technology, engineering and maths; encouraging people to complete those degrees by writing off their HECS debt, which will mean 100,000 extra graduates; and making sure that teachers in our schools are literate when comes to the language of the future.

We do want a country that is fuelled by aspiration, and we do want a country that is fuelled by economic and intergenerational mobility. We do want a dynamic economy and an economy that is powered by people who are prepared to start their own businesses. They might have an idea which they want to turn into a big job-creating enterprise, and on this side of the House we want to do whatever we can to encourage that aspiration. The future of this country and the future of its economy will be determined by people's capacity to innovate, to create new things and to create new jobs based on the ideas and their imagination.

So we will support the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. We will support the bill, because we are interested in supporting start-up businesses, especially in the technology sector. The bill, of course, does not go far enough to make up for the government's cuts to science, technology innovation. As I said, Labor is the only party with a plan for future economic prosperity fuelled by innovation, aspiration and creativity, and that puts us in direct contrast to this short-sighted government motivated by politics not economics.

David Coleman (Banks, Liberal Party) Share this | Link to this | Hansard source

I am particularly pleased to be able to speak on this very important legislation to end this disastrous policy in relation to employee share schemes, which was implemented in 2009 by the former Labor government. It is something that I know a little about because, prior to coming here, I spent the majority of my career working in and with the Australian internet industry. I have both participated in employee share schemes and helped to design some, and I have talked with founders and employees about how these things might best be structured over quite a number of years.

It is a truism—it is something of a motherhood statement—to say that we all want the Australian technology sector to succeed. It is very, very easy to say that, and I dare say that it is a little bit fashionable to say it. The reality is that the successes of the Australian technology sector will be created by that sector, not by government. The role of government is minimal. Most importantly, it is not to make life difficult for companies that are creating value through start-up activities in our economy. Unfortunately, the previous policy of the Labor government, which we will happily undo through this legislation, created a world of pain for Australian technology start-ups.

In very practical terms, let's explain how Labor's 2009 policy change was such a disaster for the Australian start-up sector. The situation that the sector faces is that most start-up companies do not have much money. That is a pretty important starting point to bear in mind: there is not a lot of money. Therefore, it is generally not possible to attract employees by paying very high salaries. The people that Australian start-ups want to hire, of course, are highly educated, highly entrepreneurial, sophisticated employees who have the dynamism and drive to really create new opportunities, and they are people with options. Often the question that is faced by the potential employee is, 'Do I go to this interesting start-up company on a low salary, or do I go for a more traditional job, maybe in banking, management consulting or law on a higher salary?' Often, it is a materially higher salary. The argument of the star-up company to the employee is: 'We can't pay you as much as that bank or that law firm can pay you, but what we can offer you is (a) the opportunity to be part of something very exciting and building a brand-new business from scratch and (b) the possibility of being part of the success of the company, should we succeed.'

The way that start-up companies typically do that is by offering employees share options—sometimes shares but generally options. Basically, an option is a capacity to buy a share at some point in the future for an agreed price, with that price being agreed today. So it might be that I can buy shares for 50c and it might be that I can buy them in a year's time or in two years, three years, four years and so on—but the price is still 50c, even if the shares might be worth, say, $5 in four years time. That is potentially a really important benefit for an employee. It only works for the employee if, in fact, the company is successful and if the shares over time are worth significantly more than the value agreed at which the option can be exercised. Most of the time, unfortunately, that does not actually happen. Most of the time, small start-up companies do not reach the great heights that they would like to reach; and, most of the time, employees who take on those option plans do not end up making a huge amount of money from them. There are of course exceptions, when things go really well. But in all cases, even if things go exceptionally well, the employee does not actually make anything from the option until they exercise it at least one year—and, often, many more years—after it is issued.

What Labor did—and this just implausible; I find it quite extraordinary that this was implemented in 2009—was to say that, even if you have not exercised the option and you have obtained no practical financial value from that option, you should pay tax immediately, effectively, on the perceived value of the option. So the option is worth nothing in cash terms and it cannot be sold because it is in a liquid company; it really has no practical financial value. But Labor said, 'You have to pay tax on it now.' Something that, effectively, has no value to the employee becomes a millstone around their neck and something on which they have to pay tax.

So, in my example earlier, where the employer was saying, 'Don't take the higher salary'—with that bank, law firm or whoever—'take the lower salary with us,' the proposition became, remarkably and appallingly: 'Take the lower salary with us; and, by the way, you're going to have to pay tax now on share options that are of no practical value to you.' The proposition of share options went from being the quite attractive one of, 'We'll see how it goes and, hopefully, they will be worth something one day,' to, 'I effectively have to pay a penalty tax now on something from which I can get no value.' If the salary were $80,000, the tax payable might be $5,000 or $10,000 and the employee would be worse off, in a cash sense, than they would have been if there were no options granted.

It is absolutely unbelievable to me that the previous government insisted upon that policy. It is pleasing that they have seen the extraordinary folly of that policy and are supporting these changes, but it is appalling that that was ever allowed to occur. It says a lot about their lack of practical understanding of how start-ups work that the policy was ever seriously proposed, let alone implemented. What this bill does—and with great credit to the Minister for Small Business, who has pulled together this very attractive package for the start-up sector—is to basically say that you will only pay tax on share options when you exercise them. They are often exercised around the same time that they are sold as shares. Usually the time of exercise is a similar time to when you get some cash for these things, and that is the appropriate time at which to pay tax on their value. It is very simple—incredibly simple. Rather than forcing people to pay tax up-front for something that there is a good chance will have no value, ask them to pay tax when they actually realise some value and actually have some cash in their pocket as a result of making money from these share options. It is incredibly simple. It is extraordinary that we have to have this debate, and it is really remarkable that this was implemented by the previous government.

We are fortunate to have a start-up sector which, I think it is fair to say, punches above its weight in global terms. We had the first wave, of course, in the technology sector in the late nineties. Companies have gone on to be multibillion-dollar organisations, like SEEK and carsales.com.au and realestate.com.au and various others, and as we have moved through the last 15 years we have seen more and more Australian internet companies and technology companies really grow.

I was very fortunate in 2007 when I came across a company called 3P Learning for my then employer, PBL. It was the sort of company that we absolutely want to encourage in this country. The next 3P Learning will benefit from these policy changes we make today. When I found 3P Learning in 2007, it was a pretty small group of people situated above a shopping centre in Gordon, working on a product called Mathletics, which was pretty new. It had been CD-ROMs, and they had decided to try it out online. They had a few customers, but it was very early days. Through the extraordinary industry perseverance and vision of that company, they have now grown into a business which employs hundreds of Australians, is a world leader in the area of online mathematics, is listed on the Australian Stock Exchange and is worth about $350 million. It has created an enormous amount of economic activity in Australia and has created lots of well-paying jobs. Those are the sorts of businesses that we want to encourage.

In these provisions in the bill, we also provide some particular incentives for smaller start-up companies. Of course, it is not limited to the technology sector; it is start-up companies generally. There is the capacity to provide a discount on a share issue of up to 50 per cent without the employee being liable for tax on the difference between the market value of the share and the price at which those shares are issued and a number of other important provisions for the start-up sector because we all want to see this sector succeed.

I must admit I do find it a bit amusing when those opposite purport to be the friends of this sector. The 2009 changes could not have done more damage to the start-up sector if you had expressly tried to do so. If you had said, 'How can we actually make things really, really difficult for small Australian start-ups who want to grow?' you would probably have come up with an idea like this. You would probably say, 'How can we make it hard for them to hire employees?' Anyway, it was just an extraordinarily foolish idea. So those opposite really have no credibility in this space.

I have to say that it does help, when you are seeking to legislate in an area, to have some practical understanding of it, and I think those of us on this side of the House have a clear understanding of this sector and why it is so important. It is not about the government determining the outcomes. It is not about the government picking winners. It is about the government giving them the space to grow and not taxing them out of existence.

I do find the opposition's policies in this area quite extraordinary. I do not think they have learnt from their manifest failure in this area. We saw the announcement in the budget reply a couple of weeks ago by the opposition leader where he is clearly wanting to get on board this high-tech train, so to speak. Just as the former leader, Mr Rudd, would parade around holding laptops, the current opposition leader clearly wants to be seen to be associated with technology and growth, which is just ridiculous, given the record in this space. It is a concern when the opposition seeks to align itself with the start-up sector when, in the opposition, there is no practical understanding of how to run a start-up or how to build a business or anything of that nature.

The opposition leader, to much fanfare, announced the proposal in relation to the forgiving of HECS debts for STEM students in the budget reply. He said it was going to cost $300 million. At some other point it was $45 million. Then they thought it might be about $1 billion. It is actually a pretty simple calculation. There are about 100,000 STEM students in the time period. The debt of each student on average is about $22,500. So the cost is $2.25 billion. It takes probably five minutes to calculate, maybe less. But they got that wrong and showed a real lack of understanding of even the most basic statistics.

You do worry when the opposition leader stands up on budget night and says he is going to set up a smart innovation fund to invest in Australian technology start-ups. This is the same party that smashed the Australian technology sector through implementing this completely absurd tax on the payment of employee share options. The notion of those opposite running around investing in start-ups is, I think, something to give grave concern. So it would not be running around with a laptop a la Kevin Rudd. It is the opposition leader clutching a bunch of share certificates and saying, 'We're on your side.' They are not on the technology industry's side. They have made that very clear through their past record. This is very good legislation, and I am very pleased to support it in the House.

Alannah Mactiernan (Perth, Australian Labor Party) Share this | Link to this | Hansard source

I could not disagree more with the member for Banks. In fact, he epitomises the problem of the current government and their misunderstanding of the role that government does need to play in the development of a knowledge economy and an innovative community.

We strongly support this legislation, the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015, and we recognise that the very important amendments that we introduced in 2009 to protect the integrity of the taxation system had an unintended consequence when it came to start-ups. So we are acknowledging that this correction does need to take place. I just want to put it on record that these very important integrity measures—which were designed to ensure that the granting of share options to employees was not used as a rort in a more general sense—have indeed been kept by this government, but we have acknowledged there was an unintended consequence which was having an impact on start-ups, and we are prepared to acknowledge that and to support this legislation.

I want to reflect on the fundamental concepts that we heard from the member for Banks and that we have heard over and over again. These concepts really bring to the fore the very important questions of whether or not, in the 21st century, a government does enough by ensuring that we have a macro-economic environment and a legal and physical infrastructure that supports private-sector funding, and whether or not that is indeed enough for us to advance to a true 21st-century innovative economy. The fundamental view of our conservative friends is: 'Yes, that is what we do—we provide the macro-economics, we provide the physical infrastructure, we provide that legal framework, and,' as they love to say, 'we just get out of the way.' But really that has proven to be an intellectually very primitive point of view and not one that is going to see Australia becoming a technology maker rather than a technology taker. So if we are going to truly leverage off the intellectual and temperamental assets of Australians—and, when I talk about the temperamental assets, I mean the nature of Australians, of being a bit iconoclastic, of not being hidebound by tradition or traditional ways of thinking but being a community where people are encouraged to think for themselves, be different, create their own ideas and follow their own dreams—then government actually has to do more, and that is what international experience tells us.

Recently, even the Minister for Industry and Science—who probably is a little bit more ahead of the pack than the rest of the coalition—acknowledged at a recent forum that Australia had come 81st out of 143 in the global innovation efficiency rates. That is an index which records the comparative ability of nations to convert innovation inputs—that is education and research—into innovation outputs. He described that performance as average, but I have to say that I think it is considerably worse than average. Let us look at some of the countries that rated more highly than Australia. They include Saudi Arabia, Pakistan, Bulgaria, Thailand and Costa Rica. They are all perfectly fine countries, I would imagine, in many ways, but not ones that necessarily spring to mind as the leaders in innovation, and yet each of these countries rated more highly than we did in their ability to convert these fundamental inputs into real, live, operating business innovation. I think that, with all of the economic and cultural advantages that we have here in this country, we should be seeing ranking 81st in the world as being something of a crisis and demanding urgent action, rather than there just being a few bland exhortations that we must do better accompanied by budget settings that are in fact going to take us backwards rather than forwards.

There has been an unpacking of this data by Dr Paul Jackson of the Edith Cowan University in collaboration with the Humboldt-Institut in Berlin and Cambridge University. They have shown that, while we do relatively well in education, R&D and institutional infrastructure, we do poorly in high-business innovation performance. They have done some analysis of why this might be. They have looked at whether or not we perhaps favour tax concessions over direct funding—indeed, in other countries this whole role of direct funding has a more central role in R&D than it has in Australia. They also reflected upon the reduction of a local level of high-tech procurement in defence spending—another way in which countries are able to drive the innovation within their local economies. They also noted that in Australia we have a high degree of foreign ownership and that companies that are foreign owned within Australia invest very little in R&D. They also looked at the other structural problem that Australian business had very low levels of business collaboration. So, whether or not you were looking at the interbusiness collaboration, collaboration with suppliers and customers, or collaboration with universities and other institutes, our rate of business collaboration was one of the lowest in the OECD.

What has been the response of the current government to this?

It has been a response that has cut back the level of scientists in the CSIRO. There have been 800 scientists' jobs cut—those important collaboration scientists embedded within industry have been cut back. In this last budget we had another round of cuts to the CRCs, the Cooperative Research Centres. These centres are one of the ways that we foster interbusiness collaboration, and collaboration between those networks of businesses with scientists and universities. They are the very instruments we should be beefing up—but they are reducing funding there too.

The response seems to be just a 'get out of the way' mantra accompanied by the idea that if we cut wages, penalty rates, for baristas and waitresses somehow or other that will lead to the fluorescence of our economy. I cannot see that. Tradies tax incentives were introduced. Whilst we are supporting that, we do recognise that under the current settings of government the economy has tanked and we do need a bit of a sugar hit to generate a bit more economic activity. Getting people to buy utes, coffee machines and ovens will provide a short-term economic boost. None of us should think this will be, in any way, a response that will produce a long-term sustainable 21st century industry. It is a very short-sighted perspective from a government that does not understand, cannot come to grips with, what the true role of government is, in the 21st century, in creating industry engagement and industry policy. I note there has been some very powerful analysis in Bloomberg Business about what the impact will be on Australia of our focus on a barista-led recovery.

The member for Banks picked up on the conventional wisdom of the government in this area and said that this is not about picking winners, that we cannot get into this business of picking winners. In fact, I would say that the debate has to be a little more sophisticated than that. I want to reference the work of Dr Mariana Mazzucato, a very important writer in this area. She talks about the need to see the state as a catalyst, a leading investor, as having a role of sparking that initial reaction in a network that will cause knowledge to spread. We need to get to an understanding of the true nature of innovation and how we can foster that. And we need to dispel some of the myths that it is all about venture capital, getting together with these small start-ups and that this will make everything happen.

In reality, over and over again, we can see that strategic government intervention has been absolutely critical. Take for example the Google algorithm. That algorithm, which enabled Google and its search engine to go out there and attract this massive private-sector funding, was initially funded under a National Science Foundation grant in the US. Likewise, most of the molecular antibodies that are fuelling the biotech industry were initially funded through processes like the UK Medical Research Council—well before venture capitalists ever got involved. Many of the most innovative young companies, in the USA, were funded first not by private capital but by public venture-capital organisations, such as the Small Business Innovation Research centre.

The US came to realise this after the Russians beat them with Sputnik and the first man in space. They became very concerned that the industrial military complex was not producing the degree of innovation that they needed. So they changed tack. They said, 'We are going to start funding, now, a lot more blue sky. We are going to go out there and fund people to come up with ideas. We are not going to have a success with each one.' That is critical to this—understanding that not all of these will be a success. They said, 'If we do not do this, we are not going to get anywhere.'

Where do we have a structure like this in the Australian arena? It is the Australian Renewable Energy Agency. This is a fantastic example of a government organisation, with a highly experienced commercial board, that has been able to make strategic interventions, funding a little pure research but mostly funding that early commercialisation phase—where you take it from a laboratory concept to something that is nearing the ability to attract private-sector funding and provide some of that funding for implementation.

This is a perfect example of what has been done in other countries. Those countries that are successful, those countries that come within the top 10 of the innovation conversion states, have governments that do it. It is done in the 'home of the free'. In the United States they are aggressively funding—through their defence agencies, energy agencies and small-business agencies—this early stage of research and capitalisation.

We are completely naive if we think embracing a 'let's get out of the way' small-government approach, in this area, will 'bring home the bacon' for Australia in the 21st century. We have all of the talent and ability out there to do this. What we need is a government that is able to move beyond its narrow neocon ideology and actually understand why countries are doing well, why countries that are ranking other than 81st are there.

Alex Hawke (Mitchell, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. Listening to that fascinating dissertation from the member for Perth on how the Russians beat the US and the US changed themselves to become more like the Russians, you would think that no-one in human history would ever have been able to function without a government handout, but the reality of the west and of free societies is that people put together their own capital and their own enterprise without the help of the government and do it for their own innovation, profit and development of their businesses and their companies.

It is strange that the member for Perth and the Labor Party continue to talk about strategic government intervention. When you look at the record of the last government, I wonder if they would say the government's intervention into the insulation industry was a strategic government intervention. They engaged with industry as the member for Perth was talking about. They engaged heavily with the insulation industry, and the government learnt they really had no idea how to do insulation. The industry knew how to do it better than you did. That strategic intervention from the government was disastrous. It shut down the whole industry and destroyed the competitive nature of it. That strategic intervention into the insulation industry was a total disaster.

The strategic government intervention into the live export market was a complete and utter disaster. That strategic intervention did not go very well either. In fact, you might need to look at that strategy again, Member for Perth.

The strategic intervention into the green cars program—cars which were already high on the demand list of the consumer, being the new variant models of cars that were energy and fuel efficient and were already being bought by the consumer—had the government intervene to in some cases pay money to car manufacturers to provide cars at three times what the taxpayer would pay for these cars. They would pay with the green car subsidy and in the fleet acquisition of the government when actually the demand in the market was very high and the companies had already developed the innovation. Another strategic intervention into a marketplace.

This bill is so important because it also acknowledges yet another failed strategic intervention into the marketplace, as the member for Perth will tell us, and that is into employee share schemes. She mentioned the United States and how it is a great story. The United States, the freest society on the planet, constructed on the freedom and rights of the individual, as a model of success of government and government intervention in the marketplace. It is a really interesting thesis; she should put together something for the newspaper.

But actually the reason we are uncompetitive in relation to the United States is the bills and legislative measures the Labor government in the last six years brought into place, including in 2009. The Minister for Small Business made an excellent point on this when he said just one minor example—I can give dozens more if I need to—about the competitive nature of Australia and America. He mentioned that stakeholders revealed that companies offering an employee share scheme in Australia are required to have a company valuation completed. The cost of one in Australia is $50,000. The cost in the United States is $2,000 to $5,000—10 times more expensive in Australia for a start-up. That is a product of Labor's thinking, Labor's legislative red tape and other measures they have brought in over many years. There are so many more examples where the United States recognises small start-ups and venture capitalists.

The member for Perth was quite derisive about small business, quite derisive about baristas and coffee shops, but these are the backbone family businesses of the economy, and we should not be derisive about anybody's small business, whether it is a cleaning business, whether it is a gardening business, whether it is a coffee business, whether it is making toast and sandwiches. Anybody's small business, anybody's enterprise, I do not care. It does not have to be high-tech. We do have a high-tech sector and we do have an important future in technology, but the ordinary service provision of our economy every day is not something to be derided or put down even casually by members in this place.

When we consider bills like this, there is a reason why start-ups cannot get going in Australia today: it is because of laws like this that we are amending here in this bill. That is because the Labor Party felt it was a good idea when you offered options to employees up front to pay tax before you could realise a benefit from any option you had been given. In other words, you paid the tax up front. And they wonder why this was never going to succeed. At the time, of course, the opposition spoke about this. The opposition pointed out this was never going to work.

The Labor Party has been lecturing us in the last 24 hours about how they have a plan. They have a plan for a vision, they have a vision for a plan, they have a plan to have a plan to have a vision and they have a vision to have a plan to have a plan. It is so wonderful that they have this great plan and vision for the technology sector in Australia. What would the technology sector do without the plan and the vision of the Labor Party? The answer is that, if the Labor Party would get out of the way on stupid regulations such as the one they put in here saying you have to pay tax up front, venture capitalists, start-up companies and employee share schemes would already have been going for six years now. All of that innovation is much more than could have been delivered by any government five-year plan the Labor Party is so fond of—and there are many statist governments in the world who are big fans of five-year plans.

For six years Australia has suffered under this regime which was never going to work in the first place. Labor thought that, if you tax up front, people will somehow still take up employee share options. Of course, this was a complete naivety about human behaviour, a complete naivety about the functioning of the economy and a dangerous naivety about the role of government in our society. To say people should pay tax before they can realise any benefit from anything is to get no tax and to have something completely and utterly stunted.

We are six years behind in Australia because of the Australian Labor Party, and we do not have time to be behind. We do not have time to be behind our Asian neighbours. We do not have time to be behind the United States. The member for Perth talks about industry engagement and strategic intervention; if she engaged with industry more often, she would learn the No. 1 complaint of businesses large, medium and small in particular in this country is that they are overburdened with red tape and regulation—ridiculous, inefficient regulation that, as the Minister for Small Business pointed out, can cost an Australian business getting a valuation 10 times what it does in the US. If you want to get something approved by the FDA, they recognise small start-up companies and allow for smaller fees to be paid in the US. In Australia, the TGA, one of the most inefficient and bureaucratic regulators in the country, does not recognise small start-ups or Aussie manufacturing. It is the same here with the taxation treatment of employee share schemes.

The Labor Party says: 'Yes, okay, we apologise. We had an unintended consequence of this legislation.' Once again, six years of unintended consequences and Australia is the one that suffers, because all companies which wanted to do this or progress down this path were unable to and, naturally, the taxation treatment that the Labor government put in place meant that you could not even access capital gains tax concessions when you realised your options.

So the government is, again, amending this very important legislation so that those capital gains tax concessions can now be accessed in a reasonable time frame and, importantly, give flexibility to the tax commissioner in order to be realistic with people and not so brutal. We know that, under the previous government in the race for revenue, everybody was a source of revenue. The tax commissioner was sent out to get as much revenue out of the economy as possible, naively, not realising that the more you crack down on that, the less revenue you actually produce. Working with business, working with people realistically and working with the tax commissioner in a flexible way, ironically, enables the collection of more revenue, rather than this heavy-handed approach.

I think the government's amendments here are very worthwhile because they really do understand the nexus between capital gains tax, capital gains tax concessions and the viability of options, especially in the early start-up phase of any business, enterprise or any venture capital work.

While we have heard some apology from the Labor Party, it is more a case that they have been mugged by reality on this topic and so they should be! Six years of going backwards, under this particular legislation they brought in, has really hurt the venture capital market in Australia. And of course they continue to—

Alannah Mactiernan (Perth, Australian Labor Party) Share this | Link to this | Hansard source

If you were so on the ball, why did it take you so long to bring this in? It was so obvious.

Alex Hawke (Mitchell, Liberal Party) Share this | Link to this | Hansard source

We only just came to government. You were in government for six years so that is why it has taken so long. You have been mugged by reality. You have to support these measures.

Warren Snowdon (Lingiari, Australian Labor Party, Shadow Parliamentary Secretary for External Territories) Share this | Link to this | Hansard source

You were in government for 11 years before that!

Alex Hawke (Mitchell, Liberal Party) Share this | Link to this | Hansard source

You brought these measures in in 2009. This was your legislation. So if you had kept up and if you were paying attention, you would realise that. This was your idea. Let us just go over it again: to tax options up-front before anybody could realise the benefit from those options. You do understand this, don't you? You do understand what we are doing here today? I really hope you are paying attention because, if you put the tax up-front, nobody can realise the benefit. People are not going to pay the tax up-front. There will not be any options. You are not going to take them, are you, because you have to pay the tax up-front?

Was that ever going to work? That was a very silly idea, wasn't it? You could say that paying your tax up-front was a very silly idea. Do you think it is surprising that any taxpayer in any start-up venture is not going to take these options—

Ms MacTiernan interjecting—

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

Order! Member the Perth! There are options, if she wishes to make a personal explanation. The member for Mitchell has the call.

Alex Hawke (Mitchell, Liberal Party) Share this | Link to this | Hansard source

Thank you, Deputy Speaker. Member for Perth, I do think you should make a personal explanation on this and explain to the Australian people why we have had to suffer for six years under such an onerous regime, really setting us back. All of your government planning, all of your wont for borrowing money or for taxing, appropriating people's money so you can pick the winners and losers shows a really naive lack of understanding about how the real economy functions. It is not the role of government to pick the winners and losers. For every success story that the member for Perth has raised, there are millions of success stories in the private economy, in the private sector space. For every one that the former government had a hit on, there were hundreds of thousands of government misses. And of course I should mention their strategic interventions in all those industries I have mentioned, including insulation, live export, green cars, which were graphic failures—a government picking absolute losers, costing the taxpayer borrowed and appropriated money in the hundreds of millions of dollars, and including, tragically, some lives in some cases. The role of government is not to pick the winners and losers, it is not to strategically intervene into these areas; it is to allow people to have options given to them up-front, with the appropriate tax concessions.

The government has some amendments here that are appropriate tax concessions, which are reasonable and which are small incentives to incentivise people to have their own employee share options and schemes. These schemes are much more competitive in our competitor nations—the UK, the US. These are very attractive schemes. They provide great benefit for start-ups, employees and employers. They enhance the employee-employer relationship because the employee has a direct involvement in the wealth and success of the business, something that we in this place should all welcome. They seek to break down the negative industrial barriers that the retrograde union movement in Australia so often sets up, which is the employee versus the employer all the time. It is actually a great partnership. We should do anything we can do to provide those incentives for employees to have a great investment in their own business, in the success of their business. It is good for employees, good for employers, good for business and good for the country more generally. So it is vital that we pursue these amendments and make these arrangements more competitive.

I want to commend the approach of the Minister for Small Business. His approach to deregulation for small business is vital. It is the No. 1 thing you will hear from industry and from business on all scales. His moves in this space and, in particular, his getting rid of these ridiculous arrangements the Labor Party put in place that were never going to work in employee share schemes will of course mean that we are much more competitive internationally, attracting more capital and the ability of valuable employees from around the world, who will be able to exercise these options. We just simply cannot compete on the international labour market, the global labour market, with arrangements such as this where options are not attractive to those high-capacity individuals that we do want to see coming here and helping Australians start up in business. This is of course very sensible in that space.

We are increasing the percentage to 10 per cent, in taking into account the reality of the modern economy. I note even one of the members opposite noted the 10 per cent stake in Apple. So 10 per cent is a reasonable threshold.

Finally, I also note, just as a footnote, because it is not very significant, the ridiculous and pious amendment of the member for Fraser, attempting to hide the Labor Party's singular embarrassment about these dreadful measures that have set Australia back by six to seven years, by condemning the government for science and innovation cuts. I have to say to the member for Fraser: no amount of smokescreen can hide the fact that the Labor Party brought in these unnecessary and ridiculous measures that were always going to completely shut down the capacity for employee share schemes to be viable. We are six years behind. I would say to the member for Perth, who is very fond of this phrase, that there is something that the Australian Labor Party can do to help small business, help the economy and that is to absolutely get out of the way.

Terri Butler (Griffith, Australian Labor Party) Share this | Link to this | Hansard source

I am very pleased to rise in respect of the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 because I want to talk not only about the measures in the bill but also about why employee share ownership matters, what the bill itself does and some other reforms that I think might need to be considered in the future. Firstly, I will go to why employee share ownership matters. I am very pleased to say that I have Andrew Pendleton from the United Kingdom coming in this week; Tony Smith and I are the co-chairs of the Parliamentary Friends of Innovation, and we will be hosting Andrew. Could any members of this House who are interested in talking about the United Kingdom's arrangements for employee share ownership please get in touch with one of us, and we will be happy to arrange a time for you to see Andrew.

I wanted to talk very broadly about some of the big economic issues and where I think employee share ownership fits in with those issues. Standards of living and inequality are affected by a whole range of things, including incomes from wages and salaries, assets and returns from assets, taxes and transfers, prices and economic growth. The middle-class and working-class households generally have assets in the form of superannuation and real property. Some invest in managed funds or have shares themselves and other forms of assets, but I think that this class of asset, employee share ownership—owning shares in the business in which you are employed—opens up another class of assets for employees to own and to benefit from. The reason I think this is important is described quite well by David Hetherington of the Per Capita institute, which is a think tank, in his paper Employee share ownership and the progressive economic agenda, written in 2009, in which he said:

The most important feature of ESO—

that is, employee share ownership—

for employees is that it offers them access to returns on capital, in addition to their returns on labour. The benefits of Australia's 15-year economic boom have flowed disproportionately to investors (owners of capital) rather than workers (owners of labour).

He went on to say:

The economics journalist Ross Gittins has observed (2007) that the share of national income going to workers is the smallest it's ever been, having shrunk from 70.2% in 2001 to 66% in 2007.

And I might add that you continue to see the profit share of the national income rising and the wages share dropping to the present day. David Hetherington went on to say:

This lost share flows instead to investors through corporate profits.

And he said that employee share ownership:

… addresses this imbalance by giving workers access to the flow of corporate profits. It ensures that workers are not unreasonably excluded from this flow by institutional or information barriers.

Employee share ownership schemes could be a way for middle-class and working-class people to get access to more and different assets in the form of shares or as beneficiaries of a trust that owns shares in the business in which they work. As returns on capital can be higher than economic growth and incomes growth, I would argue that middle-class and working-class people should have greater access to assets of this type to assist our nation in combating inequality.

It is worth remembering why it is important to combat and arrest inequality, and I will say something about that when I talk about economic growth shortly. But firstly I do acknowledge that, with greater returns, you often have to bear greater risk. For that reason there should always be appropriate safeguards in place in relation to employee share ownership schemes. For employees, for example, employee share ownership schemes must only be a secondary form of remuneration—it can never replace wages and salaries as the primary form of remuneration in the employment relationship.

There are also other risks. There is a risk to the revenue—a risk that employee share ownership schemes might be misused to avoid tax. Again, safeguards are needed. That is why Labor's 2009 changes were made—to avoid these schemes, which have a rightful place in our economy, from being misused and exploited by people who would avoid their taxation obligations and therefore not pay their fair share.

So of course there are risks, but we cannot let risk aversion stand in the way of opportunity and growth. There is opportunity in share ownership—the opportunity, as I have said, to build wealth through asset ownership and returns. There is also an argument that employee share ownership helps with growth from a couple of perspectives: firstly, if it does in fact help to combat inequality, then that will help with growth, and I want to say something about that, but also, secondly, because of the economic benefits that employee share ownership can bring in terms of private sector economic activity, through providing a capital source for start-ups and also through the productivity and buy-in benefits that you get from employee share ownership schemes. I wanted to mention both of those things.

First, on inequality and economic growth: growth is low and it is slowing around the world. We have seen OECD figures very recently that show that that is continuing—that growth is slowing around the world. Some writers have even suggested that we are in a new low-growth paradigm—that our economies will never grow as quickly as they have done previously. Some are less pessimistic about the future of growth. But, whatever your view about the future, it is a fact, if you look at the numbers, that we do have low growth around the world, and the recent OECD figures show that their member states are suffering slower growth.

Any discussion about worldwide low growth requires that we give some thought to inequality—the two are linked. Inequality matters not just for fairness reasons but also because it can impede economic growth. Last week The Wall Street Journal reported that the secretary-general of the OECD had said:

We have reached a tipping point. Inequality in OECD countries is at its highest since records began. The evidence shows that high inequality is bad for growth. The case for policy action is as much economic as social. By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth.

In very widely reported remarks last year, the IMF's managing director, Christine Lagarde,said the following:

Let me be frank: in the past, economists have underestimated the importance of inequality. They have focused on economic growth, on the size of the pie rather than its distribution. Today we are more keenly aware of the damage done by inequality. Put simply, a severely skewed income distribution harms the pace and sustainability of growth over the longer term. It leads to an economy of exclusion and a wasteland of discarded potential.

Those are very evocative words from Christine Lagarde. These high-level people in major economic organisations talking about income inequality in this way should remind all of us in this place that we need to deal with the growing inequality in developed nations, including our own.

So, if employee ownership schemes could conceivably be used as a tool for combating inequality by opening up access to additional assets and returns on assets for working and middle-class people, then that is an issue that we should be treating very seriously. If we can combat inequality, then that will help us with growth. As I said, for growth to occur our country needs new businesses, new economic activity, new jobs, and innovation that improves products, improves services, and improves work practices—leading to better productivity. We also need to improve, as I said, buy-in—ownership in the real sense of the word, not just in the legal sense but in the sense where employees actually feel like the business is their business, that they have a stake in it.

Start-up companies are important forms of new economic activity that can create jobs and opportunity. A recent study commissioned from PwC by Google, The startup economy: how to support tech startups and accelerate Australian innovation, showed that in the right conditions high-growth technology companies could contribute four per cent of GDP, or $109 billion, by 2033 from a base of approximately 0.2 per cent of GDP today—and add 540,000 jobs to the Australian economy.

But start-ups need access to capital. They need access to finance. The people behind start-ups are often using their family homes as security to get capital. Employee ownership schemes can be a piece of the capital puzzle for new businesses—and so too can the measures that Bill Shorten recently announced in his budget reply. I think his start-up finance measure is an example of excellent policy. In my work as an MP, and as a co-convener of the Parliamentary Friends of Innovation and Enterprise group, I have heard businesses talk about their concerns that there is a culture in Australia where people are scared of failure. Businesspeople are worried about risk aversion, about people being too cautious. They say we do not have a culture where it is seen as okay to fail. They draw a distinction with Silicon Valley, where people are actually expected to fail a few times in business. They are concerned that our home-grown entrepreneurs are being too cautious and risk averse.

One important difference between the US and our country is that here, as I have said, the family home is often used as security. I am told that is not the case in the United States. So Bill's announcement on start-up finance is, I think, a great initiative. It is a way of giving those new businesses access to finance without their having to use their family home as security. Bill said:

Currently Australian micro-businesses either struggle to get a loan or may borrow via other means, such as residential mortgages, in the absence of cheaper, more appropriate financing alternatives.

We want to help more Australians convert their great ideas into good businesses. We will enable entrepreneurs to access the capital they need to start and grow their enterprises without them having to take risks on the family home.

I think, as I have said, that that is an excellent policy and I congratulate the Leader of the Opposition for that announcement in his budget reply.

To return to employee share ownership schemes: they can be a piece of the capital puzzle. But, as I have said, they can also be useful in creating that sense of ownership, that buy-in, and for so many other things. They can build employees' preparedness to give discretionary effort. We all know that in business it is discretionary effort that really makes for a great-performing team or individual. Employee share schemes can be a means of providing additional remuneration. If you pay people better, you tend to get better performance out of them. I know that comes as a shock to some people in the coalition, but that is the case. Employee share schemes can also create incentives for innovation—not only in products and services but in work practices and collaboration.

In the paper I mentioned before, David Hetherington said:

Employee shareholders enjoy the returns of improved company performance and can affect this performance through their own productivity.

A host of studies demonstrate that employee shareholders do in fact demonstrate greater productivity.

He went on to list a number of studies from the United States, from Australia and from Japanese firms. He noted, for example, the study by Douglas Kruse and Joseph Blasi of 250 companies that had adopted ESO plans. That study found that these firms increased sales per employee by 2.3 per cent per annum over what would otherwise have been expected. David Hetherington went on to say:

In addition to the specific productivity benefits, a second set of research indicates that companies with ESO plans demonstrate higher performance across a number of parameters. An analysis of seventy separate studies by Blasi et al. (2003) considered the effects on company performance of "partnership capitalism" (defined to include employee stock ownership, broad-based stock options, profit sharing and employee participation). This found that companies that embraced any one of these four approaches experienced a 4% gain in productivity, a 14% gain in return on equity, a 12% gain in return on assets, and a 11% gain in profit margins (controlling for other factors).

This research shows that you can link a greater employee stake in businesses with greater returns for everyone—in other words, growing the pie. For those businesses that think, 'I am happy to share my profits but I do not want to really share ownership', I would say that, if sharing ownership can improve returns for you and for your employees, it seems to me to be something that really ought to be considered—and those additional benefits I have spoken about are really important benefits for our wider economy.

So, as I have said, there is a really progressive case for employee share ownership. I think it is an issue that requires a lot more discussion, debate and investigation. There are a lot of things we can talk about in this space. Last week Employee Ownership Australia and New Zealand held their annual conference in Melbourne. I was fortunate enough, with my colleague Tony Smith, to attend a breakfast hosted by a number of the larger companies with employee ownership plans. We talked there about some of the issues they faced. There are so many different large businesses that use these plans—not just as a form of remuneration and a way of engaging their most senior executives but as a way of engaging people throughout the business.

The businesses at that breakfast mentioned one possible future reform that I do want to cover, but before I do I wanted to make it clear that Labor are supporting these changes because we believe that they build on our approach to employee ownership. We do want to see protections against tax evasion. We have made that really clear. We do want to see integrity measures, but we think the amendments being made today represent a sensible refinement aimed at boosting innovation while still ensuring that that tax evasion, that misuse of schemes, does not occur. We have been consulting with start-ups—and I pay particular tribute to Ed Husic in that regard. The next step, as raised by a number of businesses, is to address taxation upon cessation of employment. It is an issue I will be continuing to raise.

Wyatt Roy (Longman, Liberal Party) Share this | Link to this | Hansard source

It is a great honour to speak on these bills because it has been a very long journey to get to where we are today. Members of parliament come from very diverse backgrounds. I am very proud to say that I come from a farming family, and my brothers work in the mines in Queensland. Those are great industries but our nation's future prosperity extends beyond the farm gate or the mine head. Despite how great Australian agriculture is, despite how great our mining sector is, our future prosperity as a nation must extend beyond just the farm gate or the mine head. Our nation is at its best when we embrace the cultural heritage of having a go, when innovation is active in our collective psyche.

There is no doubt that our country faces significant challenges in the future. We have the challenge of an ageing population: today 7½ people are working for every person who is not, but by 2050 that will only be 2½ people. We have an intergenerational debt burden left behind by the former Labor government. We have the resources boom coming off. Despite all these challenges that we face, we should be infinitely optimistic about our potential future prosperity—not because of the resources we have in the ground but in light of the abundant innovative capacity of our people. Critical to harnessing this innovation that we have in our country is creating and fostering a proper start-up ecosystem of innovation that supports the next generation of entrepreneurs.

To develop this start-up ecosystem in Australia we need to do a number of things. We need to have a coordinated approach across government, across higher education and across capital investment, and we need to have a cultural shift as a nation to realise that people going out and taking on a risk by starting a business and trying to create their own future success is something that we need to embrace and champion as a nation. We have the fundamental components to create this new culture, this new start-up ecosystem, in Australia. We have deep reserves of young, bright, talented Australians. Countless numbers of young and intelligent entrepreneurs from across the globe want to come to Australia because of our lifestyle. Sure, Silicon Valley, Israel, Singapore, Hong Kong and South Korea are achieving much in this space, but if you ask somebody of my generation whether they want to live there or in Sydney, Brisbane or Melbourne our Australian lifestyle is a major magnet for some of the brightest entrepreneurs across the globe. I think we as a nation underestimate the importance of being placed at the heart of a new global economic powerhouse, a growing Asia. Australia has the potential to harness that and become the epicentre of Southern Hemisphere entrepreneurship.

I would like to point out what we can achieve if we take hold of these opportunities. The Startup Economy, the PricewaterhouseCoopers study commissioned by Google Australia, showed that high-growth technology companies could contribute four per cent of GDP, or $109 billion, and add 540,000 jobs to the Australian economy by 2033—and that is coming off a base of only 0.2 per cent. Ultimately if we get these policy settings right, there next generation of Australians, as they graduate from high school, will be able to find future jobs in new industries where we have a massive export potential to the globe. Today, services make up about 80 per cent of our economy but only 17 per cent of our exports. If we get this right, we can do so much better as a nation.

There are three areas that I said we need to look at as a nation to get that start-up ecosystem at its best in Australia. The first is capital. Last year, Australians bet $200 million on the Melbourne cup—we love to have a gamble—but venture capital in Australia only invested $100 million in start-up companies. So when we have entrepreneurs looking to grow their businesses through the valley of death, there is obviously a clear need to attract venture capital in particular. I would also say—and the opposition has made some policy statements on this that I welcome and support—that there needs to be an understanding that, as we do that, we need to attract not only the capital but also the talent to put that into businesses in the most effective way. Other countries across the world have not done this on their own. They have attracted the largest and most successful venture capital firms to partner with venture capital firms in their own country to help grow not only the capital pool but also the talent pool.

The second area that we need to address is a shift in culture. Australians are good at being entrepreneurs. But something unique about us is that we like to hold ourselves back and invest in things that have a secure and safe return in the long term. We like to invest in resources, infrastructure and real estate—things where we can ensure we will get a little bit of a return. But if we are to reach our full potential, we need to have a culture shift that says if you go out and start a business you might fail one, two, three, four, five, six or seven times but if the eight businesses is successful you have developed the skill set you need to grow that business and create prosperity. Ultimately what we would hope is that the next generation of Australians would feel as excited about starting a business as they would about going to the mines and driving a truck for $100,000 a year. And while small business start-up rates are now at the highest level they have been at in over 10 years, the rate for people aged under 35 starting in business is actually falling. So we do need to have a cultural shift where we champion success in this country—not attack it, not vilify people who have had success. We need to say it is a great thing that they have taken on some risk; they might have had some failure but they are ultimately helping to create future prosperity not only for themselves but for the country.

The other thing we need to look at is attracting talent from across the globe. We should not say that smart entrepreneurial people coming to Australia from around the world are taking Australian jobs. Too often the debate evolves into a cheap political thing at that point. In my mind, if a smart young entrepreneur or smart scientist or a smart person in the IT sector comes to Australia to help create a business and help develop the Australian start-up ecosystem, that is a great thing for us as a country. We should champion that and, ultimately, if those businesses grow and invest in Australia they employ more Australians and we create more jobs for future generations of Australians.

There are many things that we can do as a country to help attract that talent. That could be entrepreneurship visas when we are looking at the skilled migration system that we have—ensuring that we are getting people with these critical skills to come to our country. The final measure in that, of course, are employee share ownership schemes, which I will come back to and go through in greater detail because that is what this legislation seeks to change here today. They are an important key point in developing Australia's start-up ecosystem.

But, as I said, we need cooperation as well. We need cooperation from government, from higher education and from capital investment to develop the Australian ecosystem. In Australia, we seem to do something very odd: we have some of the best research and science in the world, but we seem to fall a little short when it comes to the commercialisation of those great ideas. We have some of the most amazing research happening of anywhere in the world, particularly in the medical field, but those ideas and the research that has been developed often goes off to places such as the United States or Israel to be commercialised. When you look at the success across the globe of the commercialisation of those great ideas, there is very clear cooperation between higher education, the government and the private sector. If you are in Technion university in Israel or if you are in Stanford University in the United States, there is very clear cooperation. A business is effectively set up at those universities and its sole purpose is to commercialise those great ideas. The KPI on those universities is not research for the sake of research but it is research for the sake of changing the world—making the world a better place and actually commercialising those ideas. I think we have an enormous amount that we can learn from our partners around the world when it comes to cooperation between those different sectors.

But, finally, I want to come to the legislation—what we are seeking to change in the parliament here today. In the bill we are changing the employee share ownership plan for Australians. Employee share ownership is such an important part of developing Australian entrepreneurship and the start-up ecosystem in Australia. Employee share ownership schemes do a number of things. They drive motivation in those companies. If, as an employee, you have a direct stake in that company then you are invested in its own success, and that entrepreneurial spirit is driven not just by those at the top of the company but all the way down. ESOPs allow us to attract the best talent from around the world. As I said before, if we can attract the smartest people from around the world to invest and grow Australian companies—to have a direct stake in those companies—that will help create a much better ecosystem here in Australia.

Ultimately, there is an equity issue here as well: what ESOPs allow is the spreading of those benefits throughout the entire company. So if a company has had great success, that success does not just sit with the boss but everybody in that company who has a stake in the company gets some of the rewards. That is how we can attract someone who is very bright and very talented, and who might come and invest or be part of an Australian company. They may take somewhat of a pay cut, but they take some of the stake in that company so that when it achieves success, collectively, they all enjoy those rewards. If we look to the United States we can see what is achievable. In the United States approximately 28 million employees have an employee share ownership plan—one-fifth of the entire private sector has an employee share ownership plan.

This is correcting a wrong—and I do not want to be partisan in this debate. Perhaps it is political naivety, but I do think that when it comes to innovation and entrepreneurship in this country we do have an amazing ability to have a bipartisan approach or bipartisan policy creation. Perhaps that might not come to pass, but at least we are going to try. But I do have to make the point about what we are fixing. In 2009, unfortunately—perhaps it was an unintended consequence and perhaps it was not so deliberate—when the Labor Party changed the employee share ownership schemes they removed those incentives, simply by taxing an employee at the time of the issue rather than when they received those proceeds. They took away all of these amazing benefits that we can see in the employee share ownership schemes. They took away that motivational connection and they took away that ability to attract the best talent. Essentially, we saw start-up businesses, in many cases—and I have spoken to them myself—moving overseas simply because of this one policy initiative. So today we are correcting a big wrong in history when it comes to developing Australia's start-up ecosystem.

But there is obviously so much more work to do. As I look at the debate that we are having around innovation and entrepreneurship in Australia I am very excited. I feel that through history we have often been a country that has simply been prepared to ride on luck. But for the first time I can feel us sensing something far greater in this country. For the first time—well, not for the first time—we might take a very significant step in history and be prepared to be a nation that starts making its own luck, taking hold of the opportunities that are clearly sitting there for the next generation of Australians.

I very proudly commend the bill to the House.

Julie Owens (Parramatta, Australian Labor Party, Shadow Parliamentary Secretary for Small Business) Share this | Link to this | Hansard source

I am really pleased to stand to speak on the Tax and Super Laws Amendment (Employee Share Schemes) Bill 2015 today, because this is the one of the things that parliament should do more often.

This is very much about the parliament as a maker of space for the people who will drive our prosperity in the future. I use the phrase 'maker of space' quite deliberately. It comes from the last paragraph of a book called Invisible Cities by an Italian author, Italo Calvino—a great author, by the way, and an extraordinary book. It is essentially a conversation between Marco Polo and Kublai Khan. In the last paragraph of the book—and you can read the last paragraph first; it is not a linear narrative, so I will not wreck it!—they are talking about hell and hellfire:

And Polo said: "The inferno of the living is not something that will be; if there is one, it is what is already here, the inferno where we live every day, that we form by being together. There are two ways to escape suffering it. The first is easy for many: accept the inferno and become such a part of it that you can no longer see it. The second is risky and demands constant vigilance and apprehension: seek and learn to recognize who and what, in the midst of the inferno, are not inferno, then make them endure, give them space."

In many ways, when we talk about these start-ups, extraordinary people have come up with something new. These are not businesses based on things that people have thought of before. These are not people who copy other ideas. These are people who start with nothing and find a way of looking at the world that causes them to come up with a new idea and then set about making that happen. These are extraordinary, rare people in every society. It is not a normal feature of a human being that we can throw aside the assumptions that we have built up over a lifetime. But there is this relatively small number of people who can. They just see the world differently. They recognise within themselves what is an assumption and what is reality and find another way to look at it. They come up with ideas that, once they have come up with them, we all say, 'Well, that was obvious.' But in all the world they were the only one who actually came up with that idea. These are extraordinary people and people we should value, because they are the people who will drive this country into the next century. How we make that space for them to do what they do will be one of the major determinants on how well this country prospers in 2050.

I first encountered one of these people many, many years ago. I am going to tell this story because it demonstrates this quirk of perspective which is so special. There was a consulting company back in the late 1980s that I knew quite well. They were problem solvers. They were the kind of company that you engaged when you had a big problem that no-one else could solve. That was it. The problem that a particular company had was that they had built a new building that had one lift and it was slow. Retrofitting a lift is really expensive. The staff who were on the top floors of this building were getting really annoyed. That the lift was slow was destroying morale. Who would have thought? But, apparently, it was really slow. It took something like two minutes to get to the top of the building. So they employed this consulting company and asked, 'What can you do? We cannot afford to retrofit.' A month later, the consulting company came back with a piece of paper with one sentence on it. It said, 'Put in mirrors.' The conclusion was that the problem was not that the lift was slow; the problem was that no-one had anything to do in the lift while it was slow. Speed was not the problem; it was boredom. So they put mirrors in and the problem went away. They put mirrors in so that people could fix their make-up, do their hair or whatever else they wanted to do. So the two minutes became the time when you fixed your make-up or checked out your pimples—whatever you do in a mirror!—and the problem went away.

It is an amazing ability for a person to see a problem that everyone sees as the same and to flip it over and turn it into something else. I remember that at the time I thought, 'That is a very valuable trait in any country.' We have people like that. These are not people who respond to change. We often hear in this parliament, in the media and even from some of our great academics and policy thinkers about the need to respond to change. These people do not respond to change; they are the change. They pick the world up and they turn it into something else. They are some of our most valuable contributors. There are few of them. For those of us in this parliament looking for votes, there are not many of them. The return that we get as a country will not come until the next generation. Ten years down the track we will be seeing the benefits of the space we create for those people today.

We are doing something quite special today. We are recognising in many ways that, just as these special thinkers turn the world upside down through their perspective of what can be done and how to fill a need, they also quite often turn the world upside down on how to fund it. They really do. Those old assumptions we have on how you raise capital, build it and appreciate it, how the world works, when you invest and what the return period is essentially came from the agrarian age and the industrial age. All of that, for these people, is not it. They look at the world of finance and they turn that upside down as well. They come up with ways of moving from where they are with nothing to profit through a different path than we have considered. They are making up new ones all the time. They are finding new ways to do it all the time.

We as a parliament needs to be as flexible as possible in recognising that those changes will come and that they will keep coming. It is our job to keep that space as flexible as possible as long as the behaviour is about the business model, not the tax break. As long as it is about the business model and what the business needs to finance its growth, governments should be there supporting these rule breakers and these people who generate the next wave of change.

This amendment does that. This amendment is to the work done by the previous Labor government in 2009 designed to take out the behaviour of many people, particularly at the upper end of business, who were using employee share schemes as a way—let's be honest—to avoid tax.. It did that, and it did it quite effectively. Then it was discovered that those laws were also impacting on people who were using employee share schemes in a perfectly legitimate way to build their business, particularly in the early stages of start-ups. It is not like the old way. I often say that accounting was invented in the agrarian age when there really was an annual cycle. There is not an annual cycle for many, many businesses now. This employee share scheme recognises that quite often a person contributes to your business in the early stages of it well above an employee. In fact, what they contribute profoundly affects the ability of the idea to be finalised and exploited. These share schemes provide in that business model a genuine way to reflect the contribution that a person makes to a start-up. It also allows a group of people to share in the future of that start-up and to have a greater degree of buy-in. So it serves a very real purpose. One of the unintended consequences of that action in 2009 was that it shut down that option for a range of very, very important people who we need to do well.

As the previous speaker said, we as a country also need to be more forgiving of the level of failure of new ideas. They are not always successful. I am well aware that, if you go into business with a person on a start-up, experience in past ones, successful or not, is incredibly valuable. Getting it right is incredibly difficult when you are making the path as you go, when you are not treading a path already trodden.

This is a good amendment. In the interests of being extremely flexible, I suspect that changes will still need to be made in the not-too-distant future because the world is changing even in this space as we speak. We as a parliament need to be incredibly flexible and willing to consider the changing needs of this sector. That is where I want to say one thing about the government's speed on this legislation. I will try to be very mild about it, because I genuinely believe that if we, as a nation, want to provide the space for start-ups, for the people who will create the change that will drive growth in the future, we need to have a very bipartisan and cooperative approach to flexibility. I know that the Assistant Treasurer, who is sitting here at the table, has already said that, in terms of crowdfunding, this bill and a whole range of other—

Alan Tudge (Aston, Liberal Party, Parliamentary Secretary to the Prime Minister) Share this | Link to this | Hansard source

Shadow Treasurer.

Julie Owens (Parramatta, Australian Labor Party, Shadow Parliamentary Secretary for Small Business) Share this | Link to this | Hansard source

'Shadow'; sorry. I was jumping ahead there.

Mr Bowen interjecting—

Did I say that? My apologies, shadow Treasurer. I thought I had called you 'Treasurer' by mistake. The shadow Treasurer—I almost did it again—has already said that we will cooperate with the government in these areas—and that is very fine thing.

My criticism of the government in relation to this bill is that it has taken an extraordinary length of time. In the world that we are dealing with, speed actually does matter. This legislation is something that the start-up community has wanted for some time; it is something that the Labor opposition committed to supporting back in March last year. So we are actually a year down the track now. I hope that when the government deals with crowdfunding, which it says it is going talk about it, it is a little faster than it has been in this area. They are not the only two areas. We have also got Fintech and a whole range of other new ways of funding activity that are emerging and which this parliament needs to deal with and deal with them as quickly as it can in a bipartisan way and accept that flexibility will be required as the world changes.

I was reading up on crowdfunding again the other day. I have been following it for quite a while. Not only have I been following it for quite a while; but I have probably been doing it for about 30 years. It is amazing how sometimes new ideas are not that new. Back in the music world we used to regularly crowdfund CDs. If you were into really niche music, where a band would release maybe 500 copies of a CD at the most—and 300 of them would stay under their bed—which I was, the only way that you could get those CDs was to buy one a year before they made them. I remember I once bought a CD from a group called Mind Body Split—Rik Rue, Sherre De Lys and Jim Denley—which were a really interesting group of musicians back in the late eighties and early nineties. I bought it at least a year before it was released. All their fans basically crowdfunded their recordings, and that was quite common. So it is amazing sometimes how a good idea comes into its time.

There is an incredible amount of work to do by this parliament in those areas, and I would urge the government to take advantage of the bipartisan approach to the need to do that and to take action as quickly as possible. It is a welcome amendment, as I said, if not a little bit later than it could have been. It is not finished yet. I think various sectors still have issues, so there is more work to be done. But I am very pleased to stand up and speak to this bill, because it is a bill that is a maker of space.

Matt Williams (Hindmarsh, Liberal Party) Share this | Link to 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.

Jenny Macklin (Jagajaga, Australian Labor Party, Shadow Minister for Families and Payments) Share this | Link to this | Hansard source

Keep going! They won't let us start until 1.30.

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

You're not ready? Come on, guys!

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

Order! The member for Hindmarsh has the call.

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

I am glad that the member to Rankin is here, because I am sure he is most interested in the PwC report and how they criticised the Labor government in 2009. I am glad he is listening attentively. This bill provides support from the government for start-ups to innovate and prosper. Combined with a tax cut and the instant asset write-off recently announced in the budget, it is further reason for entrepreneurs to have a go.

I commend the Minister for Small Business for his work and commitment in this area. In his speech to the National Press Club earlier today, the minister said: 'We will continue to encourage enterprising men and women.' Interestingly, there are more women than men starting business in Australia. I repeat: more women than men are starting business in Australia. This is a great result. Some of the great success stories have included Janine Allis of Boost, Naomi Simson of RedBalloon and Tammy May of MyBudget in Adelaide. I also commend my colleagues on their commitment to the change, in particular the member for Casey and the member for Forde. I note that the member for Fisher, who is here today, gave a great speech earlier on this bill. Together, the small business community has rallied behind changes such as this, knowing how important it is for Australia to have a better entrepreneurial culture and to provide incentives for entrepreneurs and small businesses to do their best and have a go. I commend this bill to the House.

Bruce Scott (Maranoa, Deputy-Speaker) Share this | Link to this | Hansard source

It being approximately 1.30 pm, the debate is interrupted in accordance with standing order 43. The debate may be resumed at a later hour.