Put employee shares back on the tax agenda – Australian Financial Review 20th June 2011
As a kid, I remember my father’s efforts to dodge Mum’s attempt to lock our family into a weekend visit with friends Dad regarded as “difficult”. Intense effort was focused on ducking weekends until the start of the football season. He then used the entire season of Saturdays and my Sunday junior football comp to shield against even the possibility of a visit. But by October, even he recognised the visit could no longer be avoided. His tactics shifted from evasion to a quick afternoon tea.
In this and only this respect, Wayne Swan reminds me a lot of Dad. He agreed to a full-on tax summit, but under sufferance to satisfy a difficult friend in Rob Oakeshott. Rob thought he was getting a re-run of the 1985 Hawke-Keating tax summit, which lasted a full week and discussed structured reform options. It was all going to happen by the end of this month “at the latest” — but Swan delayed it until October, and diluted it from a “summit” to a 48-hour “forum”.
While Swan’s been imitating my Dad, many in the business community have been expending considerable energy trying to rebirth the disappearing summit into some kind of a new millennium version of a “tax Oktoberfest”. This is noble but futile. The meeting will occur, but it won’t achieve anything because Swan’s aim, like Dad’s, is to survive. As our family Valiant pulled into the dreaded destination all those years ago, the sound of the handbrake being engaged was quickly followed by Dad saying “we’re leaving here by 4pm”. It’s now time everyone recognised that Swan will arrive at the forum with the same attitude. Accepting this reality does not mean abandoning discussion about the future of our tax system. Instead it means having a dialogue about the future reform options around and outside the shrunken Swan seminar, and looking to the taxation incentives needed to drive enterprise and productivity in our economy.
There are many worthy topics. Some receive a lot of airplay -others just a trickle. Of the latter, employee share ownership deserves greater focus. Using the tax system to help spur a revolution in employee share ownership has the potential to deliver significant benefits. The story of the post-war Australian economy has been one of a steadily growing ownership and enterprise economy — in three waves. First, the home ownership wave, which accelerated markedly in the Menzies years.
Second, the small business wave, which steadily brewed during the same period, but was then turbocharged by the economic reforms of the 1980s and 1990s. Third, direct share ownership -the wave of the last 20 years. Paul Keating got the ball rolling with privatisations. The Howard government kept it rolling with the sale of the final tranche of the Commonwealth Bank and Telstra. The result quickly extended share ownership to mums and dads who had never owned shares. To keep injecting petrol into the engine, Peter Costello effectively halved capital gains tax. Between 1990 and 2000 the percentage of adult Australians directly owning shares increased fourfold. Within the context of tax reform we should be looking at the incentives and architecture needed to bring on the next wave. Encouraging more employers to offer employees “a stake” in the business they work at and in, is the next great opportunity in the ownership enterprise project. Employees with shares are more likely to be in tune with and part of, its mission and success because they have their effort and initiative rewarded, not just with pay and/or bonuses — but also with a stake in the outcome. For the enterprise, it unlocks the restrained human capital of employees — which can drive improvements and greater success, bridging the traditional divide between employer and employee.
In the longer term, there is the potential for ownership planning that includes the employees becoming owners or co-owners. As we look to the challenges in the decades ahead, we know our capacity to do better will be built on a more productive economy. A revolution in employee share ownership has the potential to add a couple of cylinders to our economic engine. There have been diverse champions of employee share plans in the past, from Brendan Nelson to Mark Latham. Now is the time for the idea to get the priority it deserves. Many other worthy reforms have had long gestation periods before acceptance and implementation. Now is the time to start talking about and planning a new tax framework to spur and build the next wave of the ownership and enterprise revolution for the decade ahead and beyond.
• Tony Smith is the shadow parliamentary secretary for tax reform.