By changing the rules around employee share schemes, it will be harder for bosses to attract, reward and motivate staff.
One of the great things about running your own business is rewarding the people who contribute to your success. The best way to do that is to give them a part of that success in the form of shares.
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It is certainly not something you do lightly. In fact, employers are often warned by advisers against it. But entrepreneurs who do find it is a way to motivate staff and give employees a share of the action. It also helps the entrepreneurs compete with higher salaries offered by larger companies.
So it is understandable that entrepreneurs are up in arms about the proposed changes to the scheme. It directly affects how and whom they can recruit and how they can reward – crucial elements to their business success.
The fact that Kevin Rudd has come out and backed the changes despite the backlash has added fuel to the fire, as has comments from Finance Minister Lindsay Tanner that the share schemes have been used primarily as a tax avoidance mechanism for high income earners.
What rubbish! One would think Tanner with his union background would support the workers seeing a bit of the action and sharing in the company’s success.
The main problem with this move by the Government is that it’s counter productive. A company will not ask its employees to pay tax upfront for shares. The employee won’t be able to afford it. Besides, what sort of motivation is it to invite an employee to buy shares AND pay tax upfront?
The $200 million that the Government proposes to grab from this move will never eventuate.
As more companies drop their plans for the scheme – including SmartCompany, which had just started to explore its introduction – the backlash will grow. Independent senators Nick Xenophon and Steve Fielding warned they may press for a Senate inquiry. And the Coalition has called on the Government to explain further its rationale for the move.
Meanwhile, the Government is heading into very unpopular territory with the news yesterday that there may be a crackdown on discretionary trusts. The message seems to be that people who use these mechanisms, which are standard in business, are tax-avoiding high income earners.
No, they are not. They are ordinary business owners taking risks, creating jobs and adding new innovations to make Australia more productive.