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Business says employee share schemes under th -

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Business says employee share schemes under threat

The World Today - Monday, 18 May , 2009 12:53:00

EDMOND ROY: The fallout from tax changes in last week's Federal Budget continues.

A move to make workers pay tax upfront on shares they've been granted as part of employee share
schemes is under fire.

Finance Minister Lindsay Tanner says the schemes have been used as a tax avoidance measure by the
rich.

But others say the decision will destroy the chance for employees to own shares and many companies
have been forced to suspend their schemes because of the changes.

Finance reporter, Sue Lannin.

SUE LANNIN: The catch-cry, a nation of shareholders was behind the promotion of employee share
schemes by both the Howard government and the then Labor Opposition.

But now the Labor Government is cracking down on the schemes to the ire of many of the country's
listed companies.

Yesterday, Finance Minister Lindsay Tanner told Channel Ten's Meet the Press program the schemes
are being used by high income earners to minimise their tax.

LINDSAY TANNER: This scheme has been used for a number of years, primarily as a tax avoidance
mechanism; essentially as a way of people being able to pay a lower rate of tax on what is simply
their ordinary earnings than other people.

So it effectively was an anomaly. It was something that was creating an unfair advantage for some
people and, overwhelmingly, higher income earners.

SUE LANNIN: Under the Government's changes, workers on more than $60,000 a year will have to pay
tax upfront on shares or options they are granted.

Wesfarmers, the nation's biggest private sector employer, says their scheme gave 100,000 people the
chance to own shares. It says it's disappointed by the "unexpected" decision.

Many listed companies have now frozen their schemes because they can't operate until the new laws
are passed.

The Opposition has described the announcement as "carnage".

Gary Scarrabelotti, the head of the Employee Ownership Group, says the Government has chosen the
easiest option.

He says the changes will destroy share ownership in Australia.

GARY SCARRABELOTTI: The Treasurer and the assistant Treasurer, Wayne Swan and Chris Bowen, both
have a strong record of supporting employee share ownership, however they have been advised very
badly and the consequence of the advice that they have taken is to destroy something which they
themselves support.

The unfortunate thing is that the Labor Party will be seduced into a whole lot of rhetoric about
employee share ownership and how employee share ownership attacks scams. I mean, I think that is
mischievous language and it will be used to defend the Government's position but it's
counterproductive and it's quite contrary to the policy position which, in public particularly,
Wayne Swan has adopted.

SUE LANNIN: Michael Dirkis from the Australian Taxation Institute says there is evidence that
employee share schemes have tended to benefit higher income earners.

MICHAEL DIRKIS: The Productivity Commission, when it did a review of employee share schemes,
certainly reflected that in the main that's where it tended to go, but had urged the Government to
look at means and mechanisms of making sure that it was what opened to a much wider group of
workers.

I think that the Government's been quite up front with a lot of these arrangements. It sees the
fact that these are, in their views, a deferral of income tax essentially by people on high
incomes.

SUE LANNIN: Do you think that there is a risk that it will discourage people from taking part in
employee share schemes?

MICHAEL DIRKIS: Well, that's certainly being claimed through the media. The upfront payment where
you don't have the actual shares in your hand or the capital gain from those shares in your hand
obviously makes it less attractive than what it used to exist under the deferral arrangement.

EDMOND ROY: Michael Dirkis from the Australian Taxation Institute, ending that report by Sue
Lannin.