Employee Ownership Australia and New Zealand Association (EOA) today launched a new report Employee Share Schemes – Their Importance to the Economy report, which shows a reversal of the 2009 Employee Share Scheme laws would potentially boost the Australian economy by $1.4 billion in the long term.
EOA and its expert panel partners Link Market Services and Computershare have collated information from their client databases to project the potential impact that any reform could have on the Australian economy in the report.
The key findings in the report are:
- Employee ownership reform has the potential to positively impact the Australian economy over a ten 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 per cent and increase annual income taxable revenue by over $131 million;
- Salary sacrifice plans are likely to immediately increase by 10 per cent, impacting 40,000 employees and increasing the average amount of savings per employee to $5,000. Over time, this would lead to a potential increase in tax revenue of $84 million, year on year.
The research also shows that there are a growing number of employees made redundant who face a tax liability on their equity due to the rules relating to tax at cessation of employment. These rules mean employees face large tax liabilities when they are made redundant, when they can least afford to pay. In addition, individuals who face these tax liabilities rarely receive the full equity grants when they are tested up to three years later, with approximately 90 per cent of plans do not vest.
Chair of EOA 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.”
EOA presents a strong 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.
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 to 23% in the United States.
Research by the former Department of Employment and Workplace Relations found the major reason employee share ownership had not grown in Australian SMEs was due to complexity and compliance issues, particularly surrounding the costs of implementing employee share ownership.
The full report is available online.