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Tuesday, 27 February 2018
Page: 2180


Mr FALINSKI (Mackellar) (18:37): Capitalism in all of its various forms has been one of the most important drivers, if not the most important driver, of human welfare in modern history. More than anything, it does two things which no other system of governance so far conceived by humanity has managed to do. It turns our most basic and fundamental self-interested instincts into public good. It ensures that all of us are incentivised to do good not out of the kindness of our hearts but rather out of our own regard to our own self-preservation. The other miracle it performs is its efficient allocation of resources without referral to a committee or a centralised authority. The greatest miracle of this is that it is driven by people themselves. As Milton Friedman once reflected: in a democracy you get breakfast cereal that 51 per cent of people want; in a free market you get the cereal you want. Karl Marx once pointed out that the thing about capitalism is that it is constantly reinventing itself. These reinventions have continuously improved the lives of billions and ensured the ever-upward welfare of humanity.

One example that has not been pointed to enough is free trade. In the 19th century, David Ricardo pointed out that, when two countries trade, both are better off in a material sense. What he did not point out, but liberals did, was that we are all civilised. From 1945 to 1990, the international community spent billions on international aid. This included forgiving the debts of many developing countries. The horrible truth is that all of these activities did little to shift the dial on global poverty. In fact, in too many cases, these international efforts were perverting, and they encouraged, among other things, corruption.

As an aside, in the mania of billionaires getting involved in global philanthropy, it is important to note what the member for Tangney recently discovered: even though the Bill and Melinda Gates Foundation does not allow its funds to be used for political activities, that is exactly what happened in 2016, when the foundation gave over a million dollars for campaigns with specifically political purposes. Yet Labor and the Greens continue to oppose transparency in funding, especially from foreign sources. One has to ask what they are trying to hide and why the media is so uninterested in holding them to account.

It goes without saying that free trade never made an undisclosed political donation to a charitable front, yet it attracts more critical press than Labor and the Greens ever have. It also goes without saying that, with none of the downside, free trade over the last 30 years has lifted billions of people out of poverty. But, in developed countries, many people with transferrable skills have seen their wages increase at only just above the cost of living. For much of the 20th century, Labor was pitted against capital. One was looking for greater profits and the other, higher wages, with increases in productivity relieving the underlying tension. It would be preferable if this tension were resolved and incentives were aligned. If Labor could share in the benefits of improving productivity and if businesses—especially those starting up—could share the excitement and financial benefits of a successful venture, surely our community, our economy, would be in a better place. In this comes your conception of what government is and what it should do, if you believe in the progressive dream of large government that regulates all parts of human interactions and that employee share schemes and employee share ownership is not for you. If, on the other hand, you believe in a liberal conception where the authority of a government should depend on the consent of the people, where power resides in the hands of individuals and government is small, then employee share ownership is probably for you. All that is required of those of us in this building is to get out of the way.

In this century, where labour is increasingly borderless and economic prosperity depends more on imagination than industrial might, Australia must continue to design taxation and corporate regulations that enable innovation, which improves the lives of so many. Last week, as co-chair of the Parliamentary Friends of Innovation and Enterprise I hosted a conversation with key thought-leaders on the emerging challenges in business innovation and employee ownership. I'd like to thank Andrew Clements, deputy chair of Employee Ownership Australia and partner at King & Wood Mallesons, for his introduction on contemporary challenges with employee shareholding. For many years, Andrew has been a strong advocate for employee share ownership and the leading expert on employee share ownership within our corporate and taxation legislation. I'd also like to thank Bill Withers, entrepreneurial leader at ADAPT By Design; James Miller, director of R&B Solutions; and Bradley Delamare, CEO and general manager at Tank Stream Labs for their contributions to a panel discussion on succession planning and the role employee ownership can play for retiring SME owners and their employees. As many of the panellists noted, employee share ownership is not a new concept and its value is well known. The benefits usually flow into a number of broad categories.

Silicon Valley has demonstrated, more than any other place on the planet—except for, potentially, Israel—that issuing stock options not only invigorates a workforce but also helps that enterprise to begin in the first place. It enables enterprises to take on some of the largest challenges facing our planet, from interplanetary travel to renewable energy and even boring machines. These ventures and companies exist because of stock options.

There are also workplace relations benefits by allowing all employees to invest in an organisation's success, with a common goal or objective, breaking down the barriers between employees and owners, or the us-and-them mentality. Within the gig economy, where there is great labour mobility, employee schemes can allow all workers to make investments in the profits of a firm which are growing faster than wages. For employees, this means providing greater flexibility and a recognition of the needs of the new workforce, especially where there is great work mobility. In the 21st century innovation economy, employee share ownership provides a tool for SMEs and start-ups to break down the traditional barriers between capital and labour, unlocking both vital capital and labour through an alignment of mutual risk and reward.

As Andrew Clements noted, there are three small steps that we can take here that will probably have an outsized impact on increasing employee involvement in the capital structure of a firm. We could ensure not a wholesale revision of the rules but rather an alignment of the current corporate and taxation regimes—for example, making the discount rates in the tax act and the Corporations Act more in line with each other or increasing the $5,000 limit for ASIC relief so that it is much more meaningful. Even simple clarification of buyback rules so that it can be better used by firms would have major benefits.

Andrew has proposed a regulatory consultation forum with the ATO and ASIC, as well as representatives from an EOA peer group, to get this moving. The government has also made significant changes, passing legislation last year that effectively made it easier for start-ups to provide shares to employees. This change was incorporated in the Treasury Laws Amendment (2016 Measures No. 1) Bill. The ESS related amendment in this bill removed the requirement for disclosure documents given to employees under an eligible employee share scheme and lodged with the Australian Securities and Investments Commission to be made available to the public. These disclosure requirements can discourage small companies and start-ups from implementing an ESS because it may result in the release of commercially sensitive information, and it is costly to produce the documents. By removing them, we remove this barrier.

Increasingly, the future belongs to the fast, the nimble, the innovators—but, most importantly, to those who are willing to dream, to believe in the foolish and never lose hope. Today, the scope of those dreams has never been bigger, and the vehicle they use to make their dreams a reality is a corporate entity where everyone gets to share in the dreams. We here should make those dreams a reality by getting out of the way.