There are around 3.4 million small and medium sized businesses in Australia employing around 7.7 million people. These businesses are an integral part of the Australian economy, with their success and growth a key driver of the productivity gains that will benefit all Australians.
Australia has a long history of being home to some of the most innovative ideas in the world. However, our record when it comes to commercialising these ideas is poor – with these ideas often lost to another country along with the associated revenue, job opportunities and broader economic spillovers.
There are a range of factors that make up an effective business environment, one in which innovative ideas and entrepreneurial ambitions are nurtured and are translated into a commercial success. One clear factor is the ability of a business to help attract, retain and motivate skilled employees to help a business grow.
Employee share schemes are one means of achieving this. They allow employees to take part in the success of the companies that they helped bring about. Schemes like this align the incentives of workers and owners and encourage everyone to share in the risk and success of a new venture. There is also substantive evidence that such schemes create workplace environments that people find more engaging.
Such schemes have been keystone of some of the most successful and innovative companies in the world – Google, Apple, Microsoft and Amazon. This may be why of America’s top 20 companies by capitalisation 19 of them were founded since 1975. Compare this to Australia where, of the top 20 companies, the most recently founded was Woolworths – in 1924.
It is no coincidence that the few commercially successful technology companies Australia has produced like Palantir and Atlassian have ended up moving a lot of their operations to the US and listing there because the United States is the home of employee share schemes.
Australia’s experience with such schemes has been chequered. In the past, the tax and regulatory response by policy makers to integrity concerns has been to effectively remove any incentive to enter into these schemes. This appears to have been another example of where we have actively decided to have 100 percent of nothing instead of ten percent of something.
In 2015 the Government did respond with a suite of changes to the tax arrangements applying to employee share schemes. In particular these changes sought to make it more attractive for start-ups to enter into such arrangements.
Five years on it is timely to review the effectiveness of these arrangements to ensure that Australia has the right settings in place. Consistent with the Terms of Reference provided by the Treasurer, the House of Representative Committee on Tax and Revenue will consider not only the impact of the 2015 changes but also what other jurisdictions are doing differently to Australia in order to produce such radically better results.
Lifting Australia’s productivity is critical to higher real wages, sustained economic growth, better workplaces and a raft of other positive externalities. Getting out of the way of new ventures and allowing entrepreneurs to grow their companies by energising their teams is critical to that outcome.
Jason Falinski MP is the Chair of the House of Representatives Standing Committee on Tax and Revenue.