May 11, 2020
It is time for government to make it easier to start employee share schemes so that the people who help build companies get a share in the wealth they create.
For the last decade the Australian economy has faced difficulties shifting the dial on productivity. Too often people yawn and say that this is an arcane economic concept bandied around on the Op Ed pages of the AFR or at poorly attended economic seminars. But, increasing productivity is the only way to sustainably increase wages, standards of living and opportunities for hard working Australians and their families.
As detailed in report after report, the benefits of employee share schemes have been widely researched and its correlation with higher wages and productivity has been noted. This is not just about higher wages, this is a fundamental issue of fairness and equity. By limiting workers access to a slice of the company they are working for, we are limiting their chances to get ahead. We are limiting our capacity to spread the wealth around, and we are limiting our capacity to bring the best and the brightest Australians, currently working overseas, home.
Given the overwhelming benefits of employee share schemes to workers, companies and communities why is there so little use of them? The answer is very clear: over regulation, complexity and a punishing tax system.
It is, simply put, absurd that ASIC require startups to spend hundreds of thousands of dollars to value a company that is yet to effectively start operations. The legal fees associated with these schemes can also run into the hundreds and thousands of dollars. All of this expensive paper provides zero benefits for workers or the companies seeking to establish employee share schemes. In short, it is dumb regulation.
Providing relief from the Corporations Law so that organisations can make simple, short form offers that would involve the expenditure of small amounts of monies, rather than the current situation, is essential if employee share schemes are to get used.
Secondly, shares from employee share schemes should be treated as what they are – capital – and be taxed under the capital gains tax system on the disposal of the asset, rather than as some form of hybrid of income and capital. This simple change will make such shares more desirable for working Australians and also allow them to move more easily from firm to firm further enhancing innovation and productivity.
There are a number of overseas frameworks that can be used in Australia that will bring about the above result, and the legislative framing of these recommendations is not terribly difficult or time consuming.
Last year, the House of Representative Standing Committee on Tax and Revenue heard over and over again, the punitive tax and regulatory regime around employee share schemes in Australia has been the barrier to many companies, especially in technology, relocating operations to Australia, and has acted as an inhibitor to start-ups being able to grow, develop and innovate their business.
Reforming the treatment of employee share schemes in this nation, at this time, is likely to lead to a slew of new businesses, new opportunities, stronger growth from existing start-ups and relocation of some overseas ventures.
It will reward workers, fairly and equitably, increase productivity and encourage new ventures and it will bring home our best and brightest.
Jason Falinski is the federal Liberal member for Mackellar in NSW.