Report shows Employee Share Schemes could boost economy

A new report shows that a reversal of the 2009 Employee Share Scheme (ESS) laws would potentially boost the Australian economy by more than $1.4 billion in the long term.

Employee Ownership Australia and New Zealand Association (EOA) and its expert panel partners Link Market Services and Computershare this week launched the report ‘Employee Share Schemes - Their Importance to the Economy’, which projects the potential impact that any reform to ESS could have on the Australian economy.

The key findings in the report are:

• Employee ownership reform has the potential to positively impact the Australian economy over a 10-year period by $1.43 billion.
• The amount of money subject to income tax under employee share plans has halved since the 2009 regulatory changes. Reversals of the 2009 changes to salary sacrifice plans and option plans could increase tax revenue by over $215 million per year.
• If option plan taxing returns to the pre-2009 position, then there is a potential to increase plan usage by over 200% and increase annual income taxable revenue by over $131 million.
• Salary sacrifice plans are likely to immediately increase by 10%, impacting 40,000 employees and increasing the average amount of savings per employee to $5000. Over time, this would lead to a potential increase in tax revenue of $84 million, year on year.

Australia lags behind the rest of the developed world in the area of employee share ownership. While broad-based employee share ownership is relatively widespread in the listed company sector in Australia offering employee share plans, it is estimated that only 3% of private and unlisted companies have ‘all-employee’ share ownership schemes, compared with 23% in the United States.

The report supports the call from AusBiotech and a range of other organisations and individuals for the 2009 changes to be repealed. Changes made to the ESS in 2009 introduced a disincentive to staff by moving to compulsory taxation of shares and options prior to the realisation of any value.

The Australian Treasury has confirmed that issues raised in submissions to its review of ‘employee share schemes (ESS) and start-ups’ would  be considered by the Prime Minister’s Taskforce established to develop a National Industry Investment and Competitiveness Agenda, which was also expected to be delivered in June 2014.

The Chair of EOA, the report’s author and Link Market Services Global Head of EPS Angela Perry said: “This reform is much needed and long overdue and this report shows it will deliver a significant boost to the Australian economy. Broad-based employee share ownership has been unequivocally shown to promote employee savings, innovation and productivity.”

The report presents a case for an easing of the regulatory burden on employee share plans based on a wealth of international research showing that employee ownership improves productivity, growth, job creation and job stability, and employee engagement.

The full report is available online.