Employee share schemes need repair in Budget

As the Federal Budget looms, AusBiotech and Employee Ownership Australia and New Zealand are urging the government to remove impediments to Australian innovation by returning Employee Share Scheme (ESS) provisions to the pre-2009 position.

The 2009 changes to ESSs, as predicted, have reduced employee participation and reduced employer offerings. The key change was the move to compulsory taxation prior to the realisation of any value. Industry’s concerns proved to have substance with:

• Over 90% of all plans suspended during the first year, and 30% suspended for up to two years (the majority have not been reinstated); and
• The number of employees participating in, and the amounts they’ve invested in, employee share ownership plans substantially diminishing since 2009.

Dr Anna Lavelle, CEO of AusBiotech, said: “Hardest hit were start-up companies that typically have limited ability to reward employees in cash, and so rely on shares and options to provide employees a share in future rewards. The changes forced these companies to pay more cash salaries, restricting their capacity to attract staff and innovate and develop.”

Angela Perry, chair of Employee Ownership Australia and New Zealand, said: “Returning to the pre-2009 position is therefore a necessary first step for start-up companies. It is also the only logical starting point for taxation of ESSs more generally. In no other case do we tax people before they realise value; and rightly so, individuals should be taxed on their success.”

PricewaterhouseCoopers reported recently that start-up companies alone are likely to contribute $109 billion and 540,000 jobs to the Australian economy by 2033. If Australia is serious about the next wave of knowledge and technology supporting economic growth, the taxation and regulation of ESSs must first be repaired.

More than ever we need to remove impediments to business and innovation and give start-ups a much-needed competitive boost