Mr HOCKEY (North Sydney—The Treasurer) (09:01): I move:

That this bill be now read a second time.

The Abbott government is focused on ensuring our best and brightest Australian medical researchers remain at the forefront of developing treatments and creating cures that will improve the lives of Australians and millions of people around the world.

That is why, last year in the budget, we committed to creating the $20 billion Medical Research Future Fund—the biggest endowment fund of its kind in the world.

This is a game changer for Australia and for Australians.

The Medical Research Future Fund is a landmark coalition government initiative.

It will deliver enormous benefits for the health of all Australians.

It will be transformational, not only for Australia's 23,000 research professionals, but also for the medicines industry that stands behind that and employs nearly twice as many Australians.

It will provide funding for Australian scientists and medical researchers to become the best in the world.

The bill establishes the Medical Research Future Fund from 1 August this year—2015. The first $10 million in additional medical research funding is to be distributed in 2015-16 and over $400 million is estimated for distribution over the next four years.

Importantly, this funding is in addition to the government's existing budget for direct medical research of around $3.4 billion over the next four years.

But we know this is not enough, as only around 15 per cent of last year's grant applications to the National Health and Medical Research Council actually received financial support.

The establishment of the Medical Research Future Fund will encourage innovation, at all levels of health and medical research.

It will fund vital research to better enable the discovery and development of new medicines and technologies.

It will support investment across the research spectrum, from laboratory research, through clinical trials, the commercialisation of new drugs or devices, and the translation of new techniques or protocols into clinical practice and public health.

All Australians stand to benefit from this initiative, through a better health system and improved health outcomes. Medical research that can be exported to the world provides benefits to all.

But the true value of medical research is hope, the hope a mother needs when she has been diagnosed with breast cancer, the hope parents need when they are told their child has leukaemia—a cure for which is maybe five, 10 or 15 years away.

It is hope that vanishes with the passing of days. That is why we need to act now—today.

To give you one example: unlike other forms of cancer, survival rates for brain cancer have hardly changed over the past 30 years. It is a cancer that attacks the youth of this country. Brain cancer kills more children than any other disease.

This is a tragedy that needs not only national attention but national action.

I digress by reminding the House how many here were upset when Matt Price passed away from brain cancer during the 2007 election. He was a fine guy. Everyone at the time said, 'We have to do something about this', but nothing has happened that has made a difference. That is one of the things that can come out of today's legislation: we could find that cure for brain cancer that has been so elusive for so long—a cure for a disease with such a horrible impact on so many.

Finding the answers and cures for tragic diseases starts with this fund, and Australia is the place to get on with groundbreaking medical research.

We have a proud history of medical research, with 8 Nobel Prize winners in physiology or medicine, ranging from discovering the cure for peptic ulcers to helping to develop penicillin.

But you do not have to be a Nobel Prize winner to change the world. Australia has led the way with other life changing medical advances—cochlear implants, for example, which have given over 300,000 people around the world the ability to hear again, or the development of spray-on-skin, which is a vital treatment for burn victims.

The legislation I introduce today will establish the fund from 1 August this year.

The fund will then receive an initial contribution of $1 billion from the uncommitted balance of the Health and Hospitals Fund. In addition, the estimated value of savings from the Health portfolio will be contributed until the fund breaches a target capital level of $20 billion.

Based on these contributions, and as outlined in the budget papers, the Medical Research Future Fund is projected to reach $20 billion by the middle of 2020.

The Medical Research Future Fund will be managed by the Future Fund Board of Guardians, which has a proven track record of managing investment portfolios on behalf of the government, and maximising returns over the long term.

The bill requires the Treasurer and the Minister for Finance to issue directions setting out the government's expectations as to how the fund will be managed by the Future Fund and invested by their board, including setting a benchmark return for earnings.

The Future Fund Board of Guardians will have responsibility for preserving the capital of the fund in perpetuity. The Board of Guardians will also be responsible for advising the government on the amount of earnings that have been raised in a given year. Those funds will then be available for disbursement to medical research in the following year.

The government will establish an advisory board to provide strategic advice to the government on medical research priorities and expenditure of the disbursements from the fund. This advice will inform how the new medical research funding is allocated in each budget cycle.

The establishment of the Medical Research Future Fund will provide a new, secure, predictable revenue stream for medical research, supporting a sustainable health system into the future.

Innovations in health and medical research play an important role in increasing the efficiency of health services and improving health outcomes.

As I said during last year's budget, as a result of the Medical Research Future Fund, it may be an Australian who discovers better treatments and even cures for dementia, Alzheimer's, heart disease or cancer.

By investing now, this new and historic commitment in medical research may achieve even greater breakthroughs in years to come and save the lives of those people that are closest to us.

I commend the bill to the House.

Debate adjourned.

Mr HOCKEY (North Sydney—The Treasurer) (09:10): I move:

That this bill be now read a second time.

The Medical Research Future Fund (Consequential Amendments) Bill 2015 facilitates the establishment of the Medical Research Future Fund through amendments to related legislation.

The consequential amendments to these acts enable the effective operation of the Medical Research Future Fund at commencement.

Commencement and further details can be found in the explanatory memorandum.

Debate adjourned.

Mr HUNT (Flinders—Minister for the Environment) (09:12): I move:

That this bill be now read a second time.

The Renewable Energy (Electricity) Amendment Bill 2015 will implement changes to the Renewable Energy Target to better reflect market conditions and allow sustainable growth in both small- and large-scale renewable energy.

The bill will lead to more than 23½ per cent of Australia's electricity being sourced from renewable energy by 2020—not 20 per cent but 23½ per cent.

It also addresses problems which emerged more than three years ago with the Renewable Energy Target. Despite the presence of the 41,000 gigawatt-hour target, it was unlikely that it would be met.

First, there was a significant drop in electricity demand which occurred following the global financial crisis and it coincided with the closure of energy-intensive manufacturing plants. Together, they played havoc with wholesale electricity prices.

This was compounded by rising retail electricity costs associated with the carbon tax, network charges and feed-in tariffs resulting in households and industry changing their consumption patterns.

Second, the changes to the Renewable Energy Target introduced by the Rudd government and the subsequent creation of the phantom credit bank of what is currently 23 million certificates is still being felt today. This overhang continues to suppress demand for renewable energy certificates and stymie the signing of power purchase agreements.

These combined to make it increasingly difficult for renewable energy projects to attract finance.

Added to this, the increasing realisation that new subsidised capacity was being forced into an oversupplied electricity market made it likely that financial institutions would be approaching the new investments in the renewable energy space with significant caution and reluctance.

It is in this context that we have sought to place the Renewable Energy Target on a sustainable footing and to overcome the legacy of the problems created by the phantom credit scandal.

So this then brings me to the fact that the Renewable Energy (Electricity) Amendment Bill 2015 amends the Renewable Energy (Electricity) Act 2000 to:

adjust the large-scale renewable energy target (LRET) to 33,000 gigawatt hours in 2020. This will reflect a commitment to achieve approximately 23½ per cent of electricity from all renewable sources by 2020;

increase the partial exemptions for all emissions-intensive trade-exposed activities to full exemptions. This will be of particular importance to trade-exposed industries throughout the country, as recognised by the opposition and as in particular has been championed by many members such as the members for Bass, Braddon, Lyons, Wannon and Corangamite;

reinstate biomass from native forest wood waste as an eligible source of renewable energy; and

remove the requirement for Labor's legislated biennial reviews of the RET.

These changes will ensure that there is continued support for sustainable growth in the large scale renewable sector. And, the 33,000 target, I repeat, is higher in its ultimate effect than the originally conceived objective of 20 per cent, which was the purpose, the intended outcome and the stated objective of the original legislation.

There will be no changes to the Small-scale Renewable Energy Scheme. The scheme will continue in line with household and small business demand.

The removal of Labor's phantom credit scheme federally and the rationalization of feed-in-tariffs at the state level have reduced many of the distortions outlined in this week's Grattan Institute report. I am delighted that this bill is proceeding in a bipartisan fashion.

Key features of the revised Renewable Energy Target

The Large Scale Renewable Energy Target

This then leads me to the fact that the bill will adjust the large-scale renewable energy target, or LRET, to reflect the 23½ per cent target. We will therefore adjust the LRET from 41,000 gigawatt hours in 2020 to 33,000 gigawatt hours in 2020. It will adjust the profile of annual renewable generation targets from 2016 to 2030 so that the target reaches 33,000 gigawatts in 2020 and is maintained at 33,000 gigawatt hours per annum from 2021 to 2030. This target is separate to the 850 gigawatt hours that is to come from waste coalmine gas generation each year until 2020 under pre-existing transitional arrangements previously agreed between the parties.

As highlighted in our energy white paper released by the Minister for Industry, Australia has an over-supply of generation capacity and some of that is aged. From 2009-10 to 2013-14, electricity demand has fallen by approximately 1.7 per cent per year on average.

This is due to many factors: sadly, declining activity in the industrial sector; increasing energy efficiency, which is a positive for Australia; and strong growth in rooftop solar PV systems, which is also a benefit for Australia, which does, however, reduce demand for electricity sourced from the grid.

While the Government welcomes a diverse energy mix in Australia, it also recognises that circumstances have changed since the original target of 41,000 gigawatt hours was set in order to achieve what had been hoped would be a 20 per cent outcome.

This new target of 33,000 gigawatt hours directly addresses these issues and gives the industry an opportunity to grow. It represents a sound balance between the need to continue to diversify Australia's portfolio of electricity generation assets, the need to encourage investment in renewables while also responding to market conditions, the need to reduce emissions in the electricity sector in a cost-effective way, and the need to keep electricity prices down for consumers.

Most importantly, this new target of 33,000 gigawatt hours by 2020 is achievable. It will require in the order of six gigawatts of new renewable electricity generation capacity to be installed between now and 2020.

Even at the adjusted level of 33,000 gigawatt hours, the renewable sector will have to build as much new capacity, on the advice that I have, in the next five years as it has built in the previous fifteen. This will not be an easy task, but, on all the advice we have, it is achievable and therefore real construction will occur.

This new target will therefore be good for jobs in the renewable energy sector and, as I have said, lift the proportion of Australia's electricity generation to approximately 23½ per cent by 2020.

Assistance to emissions-intensive trade-exposed industries

When the RET scheme was expanded in 2010, partial exemptions were introduced for electricity used in emissions-intensive trade-exposed activities. These were hard-fought and negotiated by the coalition. The exemptions only apply to the additional RET costs that were incurred as a result of the expansion of the scheme.

The RET scheme regulations currently prescribe that electricity used in activities defined as highly emissions intensive and trade exposed is exempted at a 90 per cent rate, and electricity used in activities defined as moderately emissions intensive and trade exposed is exempted at a 60 per cent rate.

This bill will increase support for all emissions-intensive trade-exposed activities to full exemptions from all RET costs—that is, from the costs of the original target as well as the costs of the expanded target. A full exemption will protect jobs in these industries and ensure they remain competitive. This has been of particular concern, as I mentioned earlier, to the members for Bass, Braddon, Lyons, Wannon and Corangamite—each of whom has played an extremely important role in securing this agreement between the parties.

The reduction in the direct costs of the RET resulting from the lower large-scale renewable energy target will more than offset the impact on other electricity users of the increase in assistance for emissions-intensive trade-exposed activities.

Reinstating biomass from native forest wood waste as an eligible source of renewable energy

Native forest wood waste was in place as an eligible source of renewable energy under Labor's own legislation until November 2011.

The use of such native forest wood waste for the sole or primary purpose of generating renewable electricity has never been eligible to create certificates under the scheme. Eligibility was subject to several conditions, including that it must be harvested primarily for a purpose other than energy production. This is about the use of wood waste; it is not about cutting down biomass to burn.

Consistent with our election commitment, as was set out in our forestry policy on the first page and further within the policy, this bill reinstates native forest wood waste as an eligible source of renewable energy under the RET, basing eligibility on exactly the same conditions—precisely the same conditions—as were previously in place under the ALP when they were in government.

One of the objectives of the RET is to support additional renewable generation that is ecologically sustainable. We are reinstating, therefore, the provision allowing native forest wood waste as an eligible renewable energy source, because there is no evidence that its eligibility leads to unsustainable practices or has a negative impact on Australia's biodiversity. This was the experience of the 10 years during which this provision was in place.

We believe that the safeguards that were in place previously were, and are still, sufficient assurance that native forest wood waste is harvested and used in a sustainable way. The regulations were underpinned by ecologically sustainable forest management principles which provide a means for balancing the economic, social and environmental outcomes from publicly owned forests.

In all cases, the supply of such wood waste is subject to the Commonwealth and state or territory planning and environmental approval processes, either within, or separate to, the regional forest agreement frameworks.

Using wood waste for generation is more beneficial to the environment than burning the waste alone on the forest floor or simply allowing it to decompose and to produce methane—a greenhouse gas with very high global warming potential. Its inclusion as an eligible energy source is another contribution to the target.

We understand that regular reviews of policy settings create uncertainty for investors, business and consumers. That is why this bill removes the requirement for two-yearly reviews of the RET. Providing policy certainty is crucial to attracting investment, protecting jobs, and encouraging economic growth.

Protecting electricity consumers, particularly households, from any extra costs related to the RET, has been a priority from the start and the government understands that the 33,000 gigawatt-hour target remains a challenge for industry.

For these reasons, instead of the reviews, the Clean Energy Regulator will prepare an annual statement on the progress of the RET scheme towards meeting the new targets and the impact it is having on household electricity bills.

Again, this bill is about appropriately balancing different priorities; replacing the biennial reviews with regular status updates better meets the needs of industry and the needs of consumers, and any concerns within the parliament. It is about increased transparency at the same time as increased certainty.

Importantly, both the government and the opposition have agreed to work cooperatively on a bipartisan basis to resolve any issues which may arise with the operation of the Renewable Energy Target through to 2020. Against that background I do wish to thank many people, beginning with the opposition. We have negotiated in good faith with Mark Butler, Gary Gray and Chris Bowen. I particularly thank my opposite, the shadow minister for the environment, Mark Butler, and his staff for their work. These negotiations can be difficult but I believe both sides conducted an honourable process, and this was an example of the parliament operating as a parliament for an outcome which will be, ultimately, beneficial to Australia. So I acknowledge and appreciate the work of my colleagues on the opposite side of the chamber.

I want to thank my colleagues, in particular: Ian Macfarlane, whose knowledge of the electricity is peerless, not just within the parliament but arguably almost anywhere within Australia; the Prime Minister who, himself, proposed the compromise and suggested the notion of the Clear Energy Regulator providing the annual outdates—it was an important breakthrough and step forward and he engaged deeply in this process and was always seeking a balanced outcome; as I have mentioned, my colleagues Dan Tehan, Sarah Henderson, Eric Hutchinson, Andrew Nikolic and Brett Whiteley; and Angus Taylor, whose knowledge of the electricity sector and whose concerns for his electors were absolutely vital in helping us to achieve this outcome. He is a very informed individual and the parliament benefits from having another Rhodes Scholar enter this chamber.

From within the Department of the Environment, David Parker and Brad Archer played a critical role throughout the review process. I thank Lyndall Hoitink and John Jende—whose knowledge of the Renewable Energy Act and the implications are extraordinary. Mark Scott, Candice El-Asmar, Kieran McCormack and Peter Nicholas all played critical roles.

From the Clean Energy Regulator I thank Chloe Monroe, who performed an extraordinary role in executing the first Emissions Reduction Fund auction and also provided invaluable advice. She and her team are outstanding policy professionals. Although appointed by a previous government, we have proudly and happily continued her role. As far as I am concerned, she is invited to stay in the job for as long as she wishes to do it. She is really one of the great public servants in Australia. Similarly, she is supported by people such as Mark Williamson and Amar Rathore, both of whom have done a great job.

At the Office of Parliamentary Counsel I thank Iain McMillan and his staff. From others who have contributed significantly there is Jessi Foran from Ian Macfarlane's office. From within industry Miles George, as chair of the Clean Energy Council, and Kane Thornton, CEO of the Clean Energy Council, were indefatigable and fundamental in pressing the concerns and needs of their sector. This deal would not have been achieved without their work, and I honour and acknowledge it.

Similarly, Miles Prosser, from the Aluminium Council; Innes Willox, from the Australian Industry Group; and Kate Carnell and John Osborn, from the Australian Chamber of Commerce and Industry, all played critical roles in helping to bring us to this point.

Finally, I want to acknowledge two people from my office: my chief of staff, Wendy Black, whose counsel and guidance on every topic is really outstanding; and Patrick Gibbons, who is my senior adviser and whose knowledge of the electricity sector is surpassed only by that of Ian Macfarlane, who has spent hundreds and hundreds of hours helping to bridge the gaps between different parties. Again, this would not have been possible without him.

To all of those parties I say thank you. Let me conclude by saying this: this bill is consistent with the government's conviction that policy decisions must be based on sound economic principles and real-world experience. It also represents the government's commitment to maintain stable and predictable settings that encourage growth, encourage competitiveness, encourage efficiency and that produce better outcomes for electricity consumers.

The RET had to be reformed in response to changing circumstances. This bill achieves balanced reform. It will provide certainty to industry, encourage further investment in renewable energy and better reflect market conditions. It will also help Australia reach its emissions targets, and it will protect jobs and consumer interests.

As the energy white paper points out, Australia has world-class solar, wind and geothermal resources, and very good potential across a range of other renewable energy sources. In addition to the support for small- and large-scale renewables, which this bill provides, the government is providing over $1 billion towards the research, development and demonstration of renewable energy projects.

This bill recognises that renewable energy is an important part of Australia's future, while also recognising that its deployment must be supported in a responsible way with minimal disruption to our energy markets. I thank all of those involved in reaching this point. I am delighted that we have achieved a sensible balance which will allow the industry to grow to 23½ per cent of Australia's total energy production by 2020.

I commend the bill to the House.

Debate adjourned.

Ms LEY (Farrer—Minister for Health and Minister for Sport) (09:33): I move:

That this bill be now read a second time.

The National Health Amendment (Pharmaceutical Benefits) Bill 2015 will amend the National Health Act 1953 to implement measures in the PBS Access and Sustainability Package.

The bill contains changes to medicines supply and services designed to deliver a more sustainable Pharmaceutical Benefits Scheme (PBS), cheaper medicines for consumers, better value for money for Australian taxpayers, and continued and improved access to innovative medicines. It also includes measures from the successful negotiation of the Sixth Community Pharmacy Agreement (6CPA)—the new five-year agreement with the Pharmacy Guild of Australia, as well as the strategic agreement reached with the Generic Medicines Industry of Australia.

Cooperation and consultation

This package is the result of extensive consultation and negotiation across the whole PBS supply chain. The government has worked constructively over the past four months with the Pharmacy Guild of Australia, the Generic Medicines Industry Association, the Consumers Health Forum of Australia, Medicines Australia and other key stakeholders to develop a strongly supported package of measures that will ensure ongoing access to innovative medicines through a sustainable PBS. Not all stakeholders agree with all components of the package. However, all components have a solid body of support from across the stakeholder groups recognising that everyone must contribute in order to share the benefits.

For the first time, the negotiations regarding access to, and sustainability of, the PBS were not confined to the Pharmacy Guild of Australia and Medicines Australia. Instead, there was cross-sector consultation with over 20 stakeholder groups. Inputs and ideas were canvassed from all sectors, about all sectors. Meetings ranged from a roundtable, to group discussions, to one-on-one meetings. Ideas canvassed in these meetings have resulted in a broad package of over 20 measures which will achieve net savings of $3.7 billion over five years.

Key components of the package

The key components of the Access and Sustainability Package will modify the operation of the PBS to reduce costs for innovative and generic medicines via new PBS-pricing policies; increase pharmacy competition by allowing pharmacies to discount the copayment for subsidised medicines; create capacity to list new medicines by removing certain over-the-counter medicines from the PBS; change the structure of pharmacy remuneration to remove the link to PBS prices; and provide for pharmacy to expand its role in the community.

Together, the measures provide a fair and balanced approach, where all participants in the PBS contribute to the required savings, risks are managed, efficiencies are gained, and access to medicines and pharmacy services for consumers is improved. The changes will allow the PBS to respond to the increasing demand for very expensive medicines and allow pharmacy to continue to evolve.

Savings—pricing policy changes

F1 medicines—one-off five per cent reduction

The majority of savings achieved by the measures will come from PBS-pricing changes. The changes affect single-brand innovator medicines in the F1 formulary and multiple-brand medicines in the F2 formulary.

For medicines on F1, there will be a one-off statutory price reduction of five per cent on 1 April 2016 for all medicines which have been PBS-listed for at least five years. A similar one-off five per cent reduction will apply every April from 2017 to 2020 for other medicines when they reach their five-year anniversary on the PBS.

This is the first time the government has proposed statutory price reductions for F1 medicines. However, this is the fastest growing part of the PBS by price for individual medicines and by cost to the PBS. Every new drug is an additional investment by government in companies in the innovative medicines sector and contributes directly to that sector's growth.

Every four months, government invests new money in this sector by actioning the recommendations of the Pharmaceutical Benefits Advisory Committee (PBAC). In May 2015, this government announced that $1.3 billion of new high-cost listings had been approved to fund high-cost cancer treatments and medicines for the treatment of blindness associated with diabetes. The positive outcomes from the March 2015 PBAC meeting mean the Department of Health is currently negotiating another $2.5 billion of listing recommendations from that meeting.

This is a significant and continual pipeline of reinvestment and revenue for the innovator sector. It is reasonable that, after a period of time, a small percentage is recouped to help support further new listings. Delaying the reduction until five years after PBS listing recognises that manufacturers need time to recoup the investment in developing and bringing new medicines to market.

Price disclosure—remove originator

Price disclosure is important to the PBS as it allows market forces to play a part in the PBS, in a way that would not otherwise occur for subsidised prices. It makes medicines cheaper not only for government, but also for consumers.

Price disclosure will be accelerated for medicines that have been listed on the F2 formulary for three years or more. This will be achieved through the removal of the originator brand as part of the calculation of the weighted average disclosed price. Calculations will then be based on sales data for generic medicines only.

Removing the originator from the price disclosure calculation will result in increased price reductions for government and consumers because the weighted average prices will be lower. This is because originators tend to maintain higher prices than other brands and therefore draw the weighted average up.

The first price reduction day under this policy will be 1 October 2016.

It takes time for generic brands to acquire market share. In Australia generic medicines tend to achieve 50 per cent market penetration by year 3.

To ensure free-market competition principles have a chance to be established and multiple supply sources secured in the Australian generics market, all brands of a drug will be retained in price disclosure calculations in the early years of brand competition. This is why the originator will be removed from the calculation after three years. With less than 50 per cent of F2 medicines undertaking discounting after three years due to market dynamics reaching a floor price, this measure will only affect those medicines that are still engaged in significant market competition. In this way, medicines not undertaking significant discounting are still protected by the existing safeguards in the system.

My department will consult with pharmaceutical companies regarding implementation well in advance, to ensure they understand the effect of the new calculation method for their brands.

P rice disclosure—protection for low volume medicines

The bill will also provide a mechanism to protect low-volume, high-need medicines where there is little room for price reductions. This will reduce the risk of essential medicines becoming unviable and being withdrawn from the Australian market.

Price disclosure—flow-on reductions to drugs in F2 combination items

For combination medicines on the F2 formulary, flow-on pricing rules will be changed to enable price disclosure reductions to be proportionately flowed on from single-molecule medicines to combination items.

At present, there is a loophole in the price disclosure framework. It has allowed some companies to avoid flow-on price reductions of component medicines by listing a second brand of their own combination drug. Under the current policy, combination items in F2 have price adjustments only if there is a price disclosure reduction due to direct competition between brands of that item. It has resulted in an inconsistency between the pricing of component medicines and the combination item, providing companies with a revenue windfall at the expense of government. This practice has already cost the government, that is, taxpayers, some $250 million.

This change will address the anomaly by ensuring appropriate price reductions are applied to combination items on the PBS and ensuring that the PBS pays the right amount for the same drug treatment.

Sixth Community Pharmacy Agreement (6CPA)

For the pharmacy sector, the Sixth Community Pharmacy Agreement provides revised remuneration arrangements that will enable pharmacy to innovate and transition from a focus on medicines supply to medicines management and pharmacy services. The terms of the agreement increase the transparency and accountability of community pharmacy remuneration and remove linkages to drug prices; introduce mechanisms to ensure that expanded health services are cost-effective and clinically appropriate; and provide for a review of pharmacy remuneration and regulation arrangements.

Extension of expiry for Pharmacy Location Rules

The current Fifth Community Pharmacy Agreement expires on 30 June 2015, as does the legislation which underpins the use of Pharmacy Location Rules. Amendments in the bill will enable location rules, and the Australian Community Pharmacy Authority which administers them, to continue until 30 June 2020.

Pharmacy L ocation R ules

Pharmacy Location Rules have been in place since 1990. Their purpose is to ensure a suitable geographic spread of pharmacies approved to supply PBS medicines, including in rural and remote regions of Australia.

There has always been considerable interest in the regulation of community pharmacy. There has also been frequent criticism of the existence of Pharmacy Location Rules. Most recently, the National Commission of Audit, the Competition Policy Review by Professor Ian Harper, and the Productivity Commission Research Paper: Efficiency in Health have all suggested that the location rules affect competition and that they should be revised or removed.

The Australian National Audit Office's review of the administration and negotiation of the Fifth Community Pharmacy Agreement also questioned whether the government receives value for money for expenditure on remuneration for community pharmacy.

Review of pharmacy remuneration and location rules

Because the details of the Pharmacy Location Rules are determined separately, the effect of extending the expiry is that current arrangements can continue without interruption past the end of June.

Pharmacy Location Rules have been reviewed in the past and have been updated several times as a result. Whether they should remain in their current form or be updated in the future will be considered as part of the independent review of Pharmacy Location Rules and remuneration.

This comprehensive and publicly accountable review will be conducted over the next 18 months, and its findings published within two years of the 6CPA commencing. It will cover pharmacy remuneration, Pharmacy Location Rules and wholesaler arrangements. The review will allow the government to be better informed about components of the PBS supply chain and to ensure distribution and supply of medicines is cost-effective, and regulations are appropriate to their purpose. Sixth Community Pharmacy Agreement—investment and changes

Through a robust negotiation process the government and the guild have come to an agreement on a package of additional funding and structural reforms that will benefit the sector and most importantly consumers, and in the long term will demonstrate value for money for taxpayer dollars.

The 6CPA is a strong package which will deliver up to $18.9 billion to community pharmacy and wholesalers over the next five years. This is an increase of over $3 billion on the 5CPA. And this does not include an estimated $4.8 billion in under co-payment scripts that provide additional revenue to community pharmacy. In total, the potential revenue for this sector from the PBS is $23.7 billion over the next five years.

This investment will be vital to manage changes that may arise from the review of pharmacy remuneration and to transition to new models for dispensing medicines and pharmacy services.

Increasing pharmacy competition by allowing discounting of co-payments

This bill will also allow pharmacies to discount the patient co-payment for PBS medicines by up to $1 per prescription. This discount is not mandated. Pharmacies can choose whether to offer a reduction and they can also decide the level of the discount, up to the $1 maximum.

This will be the first time that PBS legislation will allow pharmacists to offer reduced PBS patient co-payments. The change will increase competition between pharmacies and benefit patients by reducing out-of-pocket costs at the point of sale.

At present there is inequity in the system. General patients—that is, non-concessional patients—already access over 70 million scripts per year for less than the patient co-payment amount of $37.70 and those prices are discounted by pharmacists based on market competition. The final price paid by the general patient can be counted towards their safety net.

But concessional patients cannot benefit from these practices, as all PBS prescriptions are priced above the concessional co-payment amount of $6.10 because we, the government, pay pharmacy a dispensing fee of $6.76 plus mark-ups. To offer a concessional patient a medicine such as amoxicillin at the discounted price of $5.90 that could be offered to a general patient, the payment would not count towards their safety net. Alternatively, they must pay the higher price of the concessional co-payment in order to register the payment towards their safety net. This is not a fair outcome.

Consumers, particularly concessional patients, will benefit from paying less for their medicines under this measure. More affordable medicines is an important outcome for patients. It is important to remember that more than 80 per cent of concessional patients do not reach the safety net threshold so they will benefit from cheaper medicines under this measure.

The average concession card holder uses 17 scripts per year. They could save $17 per year, while average concessional patients over 65 could save $43. High medicine users will still have the full protection of their safety net, but could benefit from reduced monthly costs for their medicines in the lead-up to reaching the safety net and thereafter receiving their medicines free of charge.

Extending safety net early supply rule

In conjunction with the changes for patient co-payments, the safety net early supply provisions will be amended to include a wider range of medicines and a wider range of resupply intervals. This will allow the use of a medicine, the listed quantity and the resupply interval for a medicine to be better aligned.

Safety net early supply arrangements have been in place since 2006, when the current policy, known as the Safety Net 20 day rule, was introduced. Under the policy, the financial incentive for patients to obtain excess supplies of PBS medicines in advance of treatment need is removed. If a repeat dispensing of a prescription is obtained earlier than the specified resupply date, the person's usual co-payment applies—not the reduced safety net amount—and the payment does not count towards the safety net threshold.

These rules currently apply to certain medicines used for chronic conditions and for which the resupply interval is 20 days. The changes in the bill will enable early supply rules to apply to PBS medicines as recommended by the PBAC and for any resupply interval appropriate for that medicine.

Early supply rule medicines and implementation

The change to the early supply rules is being made on the basis of recommendations from the PBAC. The committee has recommended additional medicines it considers suitable for inclusion under early supply rules. It has also advised on medicines it considers are not suitable for inclusion under the extended rule. These include treatments for cancer, palliative care items and medicines with high dosage variability.

Existing arrangements that allow pharmacists to dispense an early repeat supply with the usual PBS subsidy but with no safety net benefits will continue.

This measure was strongly supported in the stakeholder consultations as experience with the measure for over eight years shows that it is a good quality use of medicine measure, and has not disadvantaged patients. Early supply rules promote responsible use of PBS entitlements, discourage waste, and reduce the quantity of unused medicines in the community.

Removing over-the-counter medicines from the PBS

While it is not part of this bill, there is an important opportunity to mention another measure which will be implemented as part of the PBS Access and Sustainability Package. This is the removal of low-cost over-the-counter medicines from the PBS.

Over-the-counter items are a class of medicines that can be sold directly to a consumer without a prescription from a healthcare professional. Some relieve aches, pains, and itches. Others treat conditions such as athlete's foot.

The majority of subsidised medicines dispensed on the PBS are prescription only medicines. However, around 20 million prescriptions, about 10 per cent of the total, are for over-the-counter medicines.

Most of the PBS prescriptions for these items are dispensed for concessional patients who have reached the safety net threshold. While they are free of charge to the patient, the effect for the PBS is very different.

In 2013-14, there were 6.7 million prescriptions for paracetamol supplied at cost to government of $73 million; 1.1 million prescriptions for aspirin at a cost of $4 million; and for antacids 219,000 prescriptions for $2.6 million.

The savings on subsidising paracetamol alone would fund the potentially lifesaving drug ipilimumab for late stage melanoma.

In recommending these changes the PBAC was also clear in recommending those over-the-counter medicines that should remain listed on the PBS. These include medicines listed for use by Aboriginal and Torres Strait Islander people and palliative care listings.

It is no longer possible, and it is not in the interests of patients or taxpayers, to continue to subsidise relatively low-cost, non-essential items that are available directly from pharmacies.

Remove over-the-counter medicines from the PBS—implementation—risks support

There have been claims that this change will increase the risk of adverse drug events and that it will compromise consumer safety because patient demand and PBS prescribing might shift to other more expensive prescription products.

Prescribers are highly aware of those risks and are also aware of their professional responsibility and need for clinical judgement to manage the risks.

The department will be monitoring usage patterns of prescription therapies to assess whether there are signs of transfer prescribing or inappropriate use.

PBAC changes

This government came to office promising to respect the independence of the PBAC and to improve listing times on the PBS. We have demonstrated that commitment by actioning all PBAC recommendations and improving the monthly listings from eight per month under Labor to 30 per month since October 2013.

As part of continuing initiatives to improve the operation of the Pharmaceutical Benefits Advisory Committee, a number of changes are proposed to build capacity for the committee and streamline processes for listing drugs on the PBS.

PBAC membership changes

The first step to streamlining the process and improving the listing time frames for medicines on the PBS is to increase the number of PBAC members.

Over recent years, there has been a marked increase in the number and complexity of submissions made to the PBAC. Five years ago, the average number of major submissions considered at each meeting was 19. The average number of major submissions today is more than 30. The agenda for the March 2015 meeting included the largest number of submissions ever with 40 major submissions and 21 minor submissions.

Over the last year, the PBAC has considered an average of nearly $4 billion worth of submissions at each meeting. The estimated cost of new listings from the November 2014 and March 2015 meetings alone is more than $4 billion over five years.

Submissions for new medicines are involving increasingly complex new technologies, biological products, drug-test combinations, and very high treatment costs. Assessing the comparative cost-effectiveness of these therapies requires detailed consideration by committee members skilled in assessing matters relating to health economics, epidemiology, therapeutic options and patient outcomes.

In spite of this dramatic increase in workload and complexity, there has been no increase in the size of the PBAC since 2006. It has been operating with a chairperson and 17 members since that time.

To respond to this, amendments in the bill will increase the number of members by three to a total of 21, and establish a new position of deputy chairperson.

The amendments also provide for industry to be one of the professional groups from which members can be nominated. They also provide for engagement with a broader range of consumer groups through expanding the range of nominating bodies and facilitate the option of a second consumer position on the PBAC.

Changes to r egulations

For some measures, amendments to regulations and legislative instruments will be required. Consultation with interested stakeholders will be conducted regarding those changes. This will ensure companies, health providers and consumers have an opportunity to provide comments regarding implementation and understand how changes affect their businesses, their prescribing practices and their access to medicines.

Summary

The government has worked constructively with pharmacy, the pharmaceutical industry, and medical and consumer groups to develop a strongly supported package of measures.

The package contains savings contributions from all sectors of the pharmaceutical supply chain, with benefits to consumers through cheaper medicines, enhanced pharmacy services, and funding for access to innovative medicines.

The changes in this bill are sensible and necessary. The savings contributed from price reduction for medicines on F1 formulary are reasonable and the policy is not something we should step away from. All new listings represent new funding, which is a direct reinvestment in the innovator medicines sector.

The changes to price disclosure for originator brands on F2 acknowledge that Australians should be benefiting further from the competition that occurs at the generic end of the market.

Together these will create capacity for the listing of new, expensive medicines which would otherwise be unaffordable for most people—for example, medicines such as trametinib for the treatment of BRAF-positive metastatic melanoma, costing $437 million over four years.

The revised PBAC membership structure will provide more flexibility for handling a complex workload and help to streamline consideration of applications for PBS listings.

Closing and acknowledgements

Many people have worked hard to put these measures together and many more contributed their experience and ideas.

I would like to thank all stakeholders who have worked with the government in recent months to develop the proposals and costings.

This is a balanced package of measures which, taken overall, provide fair outcomes for pharmacy, the medicines industry and consumers. It is also a reasonable deal for the Australian community who, as taxpayers, are the real funders of the PBS.

I thank the House.

Debate adjourned.

Ms LEY (Farrer—Minister for Health and Minister for Sport) (09:57): I move:

That this bill be now read a second time.

The Private Health Insurance (National Joint Replacement Register Levy) Amendment Bill implements the government's budget measure to amend the cost recovery arrangements for the National Joint Replacement Registry, the NJRR, to a utilisation based calculation.

The Commonwealth has funded the NJRR since its initial development in 1998. The NJRR collects demographic data related to joint replacement surgery in Australia and monitors the performance of all joint replacement prostheses used in Australia by collecting information on all joint replacement surgeries, including revisions, complications and other outcomes from device use. This results in improved quality of care for patients receiving joint replacement surgery.

In fact, thanks to the National Joint Replacement Registry, Australia was the first country in the world to recognise, and subsequently take regulatory action to remove, ASR hip replacements from the market. This happened eight or nine months before anywhere else in the world. Members of the House may remember that the ASR hip had extremely poor outcomes. As a result of this early evidence, fewer Australians were implanted with this dire device.

Since 2009 the NJRR has been funded on a cost recovery basis by a levy payable by manufacturers and distributors of those joint replacement prostheses listed in the Private Health Insurance (Prostheses) Rules. This ensures ongoing funding for the registry.

Under current arrangements, joint replacement prostheses manufacturers and distributors currently contribute to the cost recovered funding on a proportional basis. This is based on the number of different prostheses models they have available for sale compared with the total number of models available on the market. This methodology does not take into account utilisation or the revenue derived by a manufacturer or distributor from the sale of prostheses.

For example, under the current cost recovery arrangements, a joint replacement prostheses that is included in the prostheses rules, but has never been provided to a patient and never reported to the Joint Replacement Register will attract the same amount of levy as a prosthesis that generates a much higher volume of work because the prostheses is frequently provided to patients and reported to the register.

Over time, consultations with industry have indicated a strong preference for changes to the cost recovery arrangements of the National Joint Replacement Register, to determine individual companies' contributions using a utilisation based calculation. This bill allows for the implementation of that change.

Under the changes proposed in this bill, the NJRR levy will now be collected by taking into account the number of times a joint replacement prosthesis is recorded on the NJRR in a particular period.

Importantly, the current rules set a maximum levy of $5,000 for sponsorship of any one joint replacement prosthesis in any one financial year. The amendments made by this bill will similarly restrict the maximum amount of levy that a sponsor may pay for any individual joint replacement prosthesis to $5,000.

These changes will mean that over 85 per cent of companies will now be paying smaller individual contributions, and will result in a more equitable distribution of the cost recovery across the industry.

The number of joint replacement surgeries taking place in Australia is increasing every year, and these changes to the cost recovery arrangements will ensure that this important resource will continue to be available in the future.

Debate adjourned.

Mr KEENAN (Stirling—Minister for Justice) (10:02): I move:

That this bill be now read a second time.

The Crimes Legislation Amendment (Penalty Unit) Bill 2015 will ensure that the penalties imposed under Commonwealth legislation remain effective deterrents of crime to make our communities safer.

Penalty units are used to set the maximum fines which can be imposed for Commonwealth criminal offences, as well as those in territory ordinances. Commonwealth penalties are generally expressed in terms of penalty units rather than specific values to allow penalties across the statute book to be easily updated.

The bill will increase the amount of the Commonwealth penalty unit from $170 to $180, and will provide a mechanism for the amount to be indexed every three years according to the consumer price index (CPI). These measures will apply to all offences across the Commonwealth statute book.

Maintaining the value of the penalty unit over time is necessary to ensure that financial penalties for Commonwealth offences keep pace with inflation and continue to remain an effective deterrent to unlawful behaviour.

This bill gives effect to a measure in the 2015-16 budget. The increase in the penalty unit amount will take effect from 31 July 2015. The first indexation of the amount based on inflation will occur on 1 July 2018, and then again every three years following that.

The increase to the penalty unit amount will strengthen financial penalties for all Commonwealth offences, including those related to white-collar crime and serious and organised crime.

Strong financial penalties are important for deterring unlawful behaviour and making Australia a hostile environment for serious organised crime.

This government places a high priority on tackling crime and keeping our community safe.

The Crimes Legislation Amendment (Penalty Unit) Bill 2015 will further our efforts to do this, by ensuring that our financial penalties remain an effective deterrent to criminal behaviour.

I commend the bill to the House.

Debate adjourned.

Mr FRYDENBERG (Kooyong—Assistant Treasurer) (10:05): I move:

That this bill be now read a second time.

This Bill amends the Medicare Levy Act 1986toincrease the Medicare levy low‑income thresholds for singles, families and single seniors and pensioners in line with increases in the consumer price index. These changes will ensure that low‑income households who did not pay the Medicare levy in the 2013‑14 income year will generally continue to be exempt in the 2014-15 income year if their incomes have risen in line with, or by less than, the consumer price index.

In addition to providing a concession to low-income households, the Medicare levy low-income thresholds ensure that people who pay no personal income tax due to their eligibility for structural offsets—such as the low-income tax offset or the seniors and pensioners tax offset—do not incur the Medicare levy.

The changes to the thresholds mean that, for individual taxpayers with income under $20,896 in 2014-15, no Medicare levy will be payable. Single seniors and pensioners with no dependants who are eligible for the seniors and pensioners tax offset will not incur a Medicare levy liability if their income is less than $33,044, and couples and families (who are not eligible for the seniors and pensioners tax offset) will not be liable to pay the Medicare levy if their combined income is less than $35,261.

It is not proposed that the threshold for couples seniors and pensioners will be increased at this time. Couples who are eligible for the seniors and pensioners tax offset do not incur a Medicare levy liability when their combined income is less than $46,000. This threshold will remain sufficient to ensure that those eligible will not be liable for the Medicare levy when they are not otherwise liable to pay income tax.

The increase in thresholds will apply to the 2014‑15 year and future income years.

Full details of the measure in this bill are contained in the explanatory memorandum.

Debate adjourned.

Mr FRYDENBERG (Kooyong—Assistant Treasurer) (10:08): I move:

That this bill be now read a second time.

Today I introduce a package of bills to transfer the prudential regulation functions of the Private Health Insurance Administration Council, which I will refer to as the council, to the Australian Prudential Regulation Authority, which I will from here on refer to as APRA, from 1 July 2015. The legislation will also abolish the council effective from 1 July 2015.

With this package of bills, the government is continuing to deliver on its commitment to a smaller, more rational, government. This will, over time, result in lower costs for industry, while ensuring that Australia's private health insurance industry remains stable and well regulated.

These bills are also designed to stop unnecessary duplication. Where previously one regulator was responsible for the prudential supervision of general and life insurers while another was responsible for the prudential supervision of health insurers, APRA will now supervise all three industries. APRA is also responsible for regulating the superannuation industry, except self-managed superannuation funds, and the banking sector.

The government has taken opportunities to harmonise, where possible, with APRA's existing legislative framework, and to eliminate unnecessary duplication within the private health insurance regulatory framework. This is consistent with the government's deregulation agenda.

The council is the prudential regulator of the private health insurance industry in Australia, and is currently responsible for monitoring the prudential performance of registered private health insurers. This role includes the registration and prudential supervision of private health insurers; developing solvency, capital adequacy and other prudential standards for the industry; publishing circulars, statistics and reports on insurer activities and performance; and administering the Risk Equalisation Trust Fund. From 1 July 2015 these functions will be undertaken by APRA.

The decision to abolish the council and move its functions to APRA was announced in the 2014-15 budget as part of the government's Smaller Government Reform Agenda.

This package of measures aims to streamline government bodies and reduce duplication of government agencies. As a result, a number of statutory bodies are being abolished and rationalised where activities are no longer needed or can be managed within existing departmental resources. The abolition and merger of statutory bodies, including the council, is expected to improve coordination and accountability and reduce the costs associated with separate governance arrangements on industry.

It is important to note that this package of bills will not fundamentally change the regulatory requirements currently faced by the private health insurance industry. The approach outlined in the legislation is intended to minimise the disruption to industry and the risks to sound supervision. APRA will continue to provide the private health insurance industry with the prudential supervision services that were provided by the council.

At the same time, the transfer of the council's prudential supervision functions to APRA is expected to deliver economies of scale, resulting in savings for the private health insurance industry over time.

The valuable knowledge held by council staff regarding the supervision of the private health insurance industry will also be retained, with nearly 80 per cent of the council's staff being expected to transfer to APRA from 1 July 2015.

Under these new arrangements, the Minister for Health will continue to have overall policy responsibility for provisions relating to private health insurance policy that will remain in the Private Health Insurance Act.

This includes the establishment and administration of the premiums reduction scheme—the Private Health Insurance Rebate—lifetime health cover and the rules for complying health insurance products, including the community rating principle. Enforcement provisions required to support these obligations will also be retained in the Private Health Insurance Act.

The Private Health Insurance (Prudential Supervision) Bill 2015 will give effect to the transfer of the council's prudential supervisory functions to APRA.

The bill replicates elements of the regime currently set out in the Private Health Insurance Act, with some modifications to harmonise certain provisions with other legislation administered by APRA, to reduce duplication and to update investigation powers to bring them into line with the Regulatory Powers (Standard Provisions) Act 2014.

Part of this streamlining process involves replacing the existing capital adequacy, solvency and prudential standards making powers in the Private Health Insurance Act with a single consolidated standards making power to be exercised by APRA.

Bringing these three standard-making powers into one will harmonise the legislation with APRA's existing prudential standard-making powers in relation to authorised deposit-taking institutions—such as banks—life insurers, general insurers and superannuation trustees.

APRA also intends to re-make all prudential standards in substantively the same form as they are now following royal assent. This will provide certainty to industry during transition.

Further, APRA has provided an assurance that there will be no substantive changes to any existing regulatory obligations for the private health insurance industry as a whole before 1 July 2016.

To address concerns raised by the private health insurance industry, strict liability offences have been removed; the severity of penalties for offences have been reduced overall and have been made more consistent throughout this bill.

The bill will also transfer responsibility for a number of rules that the Minister for Health and the council currently handle, including a range of other procedural matters under the Private Health Insurance Act, to APRA. These rules will be remade in substantively the same form to ensure that the obligations of private health insurers will remain unchanged.

The Minister for Health will retain responsibility under the Private Health Insurance Act for a number of rules, including the policy rules relating to the risk equalisation fund.

The bill also contains a number of minor and technical amendments to the current regulatory regime in order to ensure a smooth transition to APRA.

As stated before, this package of legislation ensures that the government is continuing to deliver on its commitment to a smaller, more rational government. It will enable APRA to supervise the private health insurance industry and will, over time, result in lower costs for the industry, while ensuring that Australia's private health insurance industry remains stable and well regulated.

The full details of this bill are contained in the explanatory memorandum.

Debate adjourned.

Mr FRYDENBERG (Kooyong—Assistant Treasurer) (10:16): I move:

That this bill be now read a second time.

The second bill in this package of legislation is the Private Health Insurance (Prudential Supervision) (Consequential Amendments and Transitional Provisions) Bill 2015. This bill makes consequential amendments to relevant legislation, including the repeal of the provisions relating to the formation of the council in the Private Health Insurance Act 2007. The bill also contains transitional provisions to ensure the smooth transfer of functions from the council to APRA by 1 July 2015.

The bill will establish special accounts to administer two of the levies that will now be collected by APRA, the Collapsed Insurer Levy—should there be a requirement for it to be levied—and the Risk Equalisation Levy. The Risk Equalisation Levy Special Account replaces the Private Health Insurance Risk Equalisation Trust Fund previously administered by the council.

While the health minister will retain overall policy responsibility for the Risk Equalisation Trust Fund Special Account, APRA will maintain a similar role administering the Risk Equalisation Special Account as the council had administrating the Risk Equalisation Trust Fund.

The bill makes a number of consequential amendments to relevant legislation, both in my portfolio and others, to facilitate the transfer of functions to APRA. These include amendments to:

the Australian Prudential Regulation Authority Act 1998, to provide for matters relating to secrecy of information concerning private health insurers, and to provide for the administration of industry levies;

the Financial Institutions Supervisory Levies Collection Act 1998, to cater for the collection of the private health insurance supervisory levy and the collection of collapsed insurance levy; and

the Financial Sector (Collection of Data) Act 2001, to facilitate the collection of data relating to private health insurers by APRA. This amendment will ensure that APRA can continue the current collection of industry data and the subsequent production of reports. This includes enabling APRA to remake the existing reporting obligations of private health insurers as a series of reporting standards that replicate the standards currently set by the council. The current reporting obligations and methods of reporting for private health insurers will remain unchanged.

Minor amendments will also be made to the Income Tax Assessment Act 1997, the Life Insurance Act 1995and the Medibank Private Sale Act 2006 to update or replace references to the new Prudential Supervision Act, and to the Ombudsman Act 1976 to enable the sharing of information with APRA.

A number of transitional provisions have been provided in the bill relating to the repeal of provisions establishing the council and the transfer of functions of the council to APRA.

Such provisions are needed to ensure that actions undertaken or deemed to be undertaken under the old regime immediately before the transition time are taken to be undertaken under equivalent provisions in the Prudential Supervision Act. Examples include: continuing the registration of private health insurers; continuing to progress applications for registration that have not been finalised by 30 June, and continuing the restructure of health benefits funds should the approval already be in place.

Finally, there are machinery provisions for the transfer of the council staff, assets, liabilities and records to APRA.

The full details of amendments made by this bill are contained in the explanatory memorandum.

Debate adjourned.

Mr FRYDENBERG (Kooyong—Assistant Treasurer) (10:20):

I move:

That this bill be now read a second time.

The Private Health Insurance Supervisory Levy Imposition Bill 2015 is one three bills in this package which provide for the continued imposition of levies upon the private health insurance industry.

The Private Health Insurance Supervisory Levy Imposition Bill 2015 replaces the Private Health Insurance (Council Administration Levy) Act 2003, repealed by the Consequential Amendments and Transitional Provisions Bill.

This Supervisory Levy Imposition Bill establishes the legislative framework for the calculation, and collection, of a supervisory levy to recover APRA's costs incurred in regulating the private health insurance industry.

Consistent with the collection of APRA's other supervisory levies, from 2016-17 the levy will be determined with a legislative instrument by a treasury minister. In 2015-16, the levy will be collected on a quarterly basis in line with the existing legislative instrument. This ensures no change to the levy arrangements for private health insurers in 2015-16.

The full detail of this bill is contained in the explanatory memorandum.

Debate adjourned.

Mr FRYDENBERG (Kooyong—Assistant Treasurer) (10:22): I move:

That this bill be now read a second time.

The Private Health Insurance (Risk Equalisation Levy) Amendment Bill 2015 is one of three bills in this package that provides for the continued imposition of levies upon the private health insurance industry.

This bill will amend the Private Health Insurance (Risk Equalisation Levy) Act 2003 to give APRA the functions previously undertaken by the council. These functions include the setting of the amount of the risk equalisation levy.

The purpose of the risk equalisation levy is to ensure that no insurer is unduly impacted by costly claims because of the risk profile of its members. It does this by allowing for cross-subsidisation for aged, chronic and long-term acute-care patients and other high-cost policy holders across different private health insurers.

The risk equalisation levy assists insurers to offset the effects of complying with the principle of community rating established under the Private Health Insurance Act.

The health minister will retain overall policy responsibility for the risk equalisation levy, with APRA maintaining a similar role administering the risk equalisation special account as the council had administrating the Risk Equalisation Trust Fund.

APRA will maintain the council's power under the Private Health Insurance Act to request information from insurers about their liability to pay the risk equalisation levy, and APRA will also have the power to investigate in relation to the levy under part 6 of the Prudential Supervision Act.

The full details of the amendments are contained in the explanatory memorandum.

Debate adjourned.

Mr FRYDENBERG (Kooyong—Assistant Treasurer) (10:24): I move:

That this bill be now read a second time.

The Private Health Insurance (Collapsed Insurer Levy) Amendment Bill 2015 is one of three bills in this package which provide for the continued imposition of levies upon the private health insurance industry.

This bill will amend the Private Health Insurance (Collapsed Insurer Levy) Act 2003tohelp facilitate thetransfer of responsibility for the administration and collection of the collapsed insurer levy from the council and the health minister to APRA and a Treasury minister.

The Private Health Insurance (Collapsed Insurer Levy) Act 2003 establishes the legislative framework for the imposition and calculation of a levy to recover the cost of meeting a collapsed insurer's liabilities to the people insured under its complying health insurance policies that it is unable to meet itself.

The full details of the amendments are contained in the explanatory memorandum.

Debate adjourned.

Mr FRYDENBERG (Kooyong—Assistant Treasurer) (10:26): I move:

That this bill be now read a second time.

Today, I introduce a bill that amends various taxation and superannuation laws to implement a range of improvements to modernise Australia's tax system. This bill also furthers the government's commitment to update and continuously improve the Australian tax and superannuation systems.

The bill will also remove uncertainty from our tax and superannuation laws and remove laws that are ineffective and outdated. And it will make our laws more relevant and provide incentives for investment so that Australia is well placed to compete on the global stage.

This government, with the release of the tax white paper on 30 March 2015, is demonstrating its ongoing commitment to Australians to modernise our tax laws and making genuine reforms.

The amendments today are a step towards that.

Schedule 1 to this bill will abolish the first home saver accounts scheme.

When first home saver accounts were introduced by the previous government, they were expected to hold around $6.5 billion in total combined savings after four years. At the beginning of last year, more than five years after the scheme was introduced, fewer than 50,000 accounts were open, and containing total combined savings of only $540 million. This is less than 10 per cent of the previous government's prediction.

The scheme is being abolished using a phased approach.

New accounts opened from the 2014-15 budget night will not be eligible for any concessions. For existing account holders, the government co-contribution and the tax and social security concessions will be phased out and abolished from 1 July 2015.

This government recognises that homeownership is an important goal for many Australians; for many it will be the most significant financial investment they make. We recognise that rising house costs are a concern, especially for young Australians and families.

However, it is clear that the first home saver accounts have not helped address rising housing costs in Australia. If we are to help young Australian families realise the dream of owning their own home, then we need to address the real issues faced by families looking to enter the property market.

The supply of housing is not keeping pace with recent growth in demand. To improve housing supply, regulatory barriers relating to state and local governments' planning, land use and housing infrastructure policies must be removed.

While housing supply is primarily the responsibility of state and territory governments, we are working together to reduce the red tape that holds up the supply of housing and construction and to increase land release for new homes. This will improve housing affordability, and will allow more Australian families to realise the goal of homeownership.

Abolishing the first home saver accounts scheme will save more than $130 million over five years.

Schedule 2 to this bill will also abolish the dependent spouse tax offset with effect from 1 July 2014, as announced in last year's budget.

We want to make sure that the tax system is equitable for all Australians. That means making sure concessions in the personal tax system are well targeted, including tax offsets. At their core, concessions need to assist the people they are designed to help, and provide support where it is most needed.

When the Dependent Spouse Tax Offset was introduced many decades ago, its purpose was to provide a concession to taxpayers who 'maintained' a dependent spouse. It was introduced at a time when the welfare system was in its infancy. With changes in our society and our economy, this offset is obviously outdated.

Maintaining concessions that have outlived their purpose is simply not sustainable—particularly in view of other assistance available through the welfare system that is more targeted and appropriate and the need to promote workforce participation as our population ages.

This measure is not about undermining our strong social safety net. Rather, it is about future-proofing it. That is why the Dependant (Invalid and Carer) Tax Offset, introduced in 2012, will still be available. It is already constructed in a way that takes account of current arrangements in the welfare system. It is an offset for those taxpayers supporting a dependant who is genuinely unable to work due to carer obligations or disability.

Abolishing the Dependent Spouse Tax Offset completes phasing out the offset, which the former government had already commenced. For most taxpayers, eligibility for this offset is currently restricted to taxpayers with a spouse born before 1 July 1952. Its abolition is expected to return $320 million to the budget over the years to 2017-18.

This is an important step towards repairing the budget, because it means maintaining Australians' living standards well into the future.

Schedule 3 to this bill amends the taxation law to modernise and improve the integrity of the Offshore Banking Unit regime.

In January 2014 the Government announced that it would delay the start date for this measure to ensure that this concession was better targeted and also to address integrity issues. The changes we have proposed include key recommendations arising from the 2009 report Australia as a financial centre, known as the Johnson report, to promote Australia as a regional financial services hub. One of the key focus areas of that report was to improve the international competitiveness and efficiency of the Australian financial services sector.

The offshore banking unit reforms will better target the offshore banking unit tax concession by updating the list of eligible activities which will attract additional mobile financial services activity to Australia. These changes will improve our competitiveness and better position Australia as a leading financial services centre. Alongside these changes, we will also improve the integrity of the regime to ensure that this concession is not subject to abuse. The government believes that the schedule strikes an appropriate balance between encouraging offshore banking unit activity and maintaining the integrity of the tax system.

Schedule 4 adds the Global Infrastructure Hub to the list of named income tax exempt entities in division 50 of the Income Tax Assessment Act 1997.

The Global Infrastructure Hub was established to implement G20's multiyear infrastructure agenda. The Australian government along with several other countries has pledged financial contributions to the Global Infrastructure Hub. Without the amendment to the act, the contributions made to the Global Infrastructure Hub would be assessable and taxable accordingly. It would be inappropriate for the Australian government to tax assistance provided to the hub under an arrangement agreed to as part of Australia's G20 presidency.

Schedule 5 extends the specific listings of two entities as deductible gift recipients for a further three years: Australian Peacekeeping Memorial Project and National Boer War Memorial Association.

Both Australian Peacekeeping Memorial Project and National Boer War Memorial Association have fallen short of their fundraising targets. This extension of their deductible gift recipient status will help these organisations attract public financial support for their activities, as taxpayers can claim an income tax deduction for certain gifts to deductible gift recipients.

Schedule 6 makes a number of amendments across the tax and super law to provide certainty for taxpayers. These amendments make sure that the law operates as intended by correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes.

This furthers the government's commitment to restore simplicity and fairness to the Australian tax system. It also demonstrates the government's commitment to the care and maintenance of the tax law. By clarifying the law and repealing unnecessary provisions, these amendments also further the government's deregulation agenda.

A number of the amendments relate to issues lodged on the Tax Issues Entry System, a platform for members of the community to raise issues regarding the care and maintenance of the Australian government's tax and superannuation systems.

These include:

Ensuring that life insurance companies are not inappropriately liable for franking deficit tax; and

Correcting inconsistent wording in the definition of in-house residual fringe benefits;

Additional amendments fix a defect in the law preventing the Commissioner of Taxation from revoking access to certain tax concessions for past noncompliance by the entity seeking to rely on the concessions.

Schedule 7 to this bill amends the income tax laws to implement the final stage of the investment manager regime.

The establishment of an investment manager regime was another key recommendation of the Johnson report which I referred to earlier.

The investment manager regime reforms are aimed at encouraging greater foreign investment into Australia, and promoting Australia as a financial services centre. It does this by removing the uncertainties in the application of Australia's tax laws as they apply to widely held foreign funds and foreign investors. In particular, the investment manager regime clarifies the income tax treatment of gains made by these foreign funds and made by foreign investors investing through Australian fund managers.

The government believes that the bill strikes an appropriate balance between encouraging foreign investment and maintaining the integrity of the tax system.

In conclusion, this bill is very much a part of the government's overall plan to update and modernise our tax system. Our tax system has to be adaptive to the changes both domestically and beyond our borders. These changes today lay the groundwork for our continued efforts to ensure our tax system is efficient, modern and well targeted.

That is why we are talking to the Australian people and having an open dialogue through the tax white paper process to hear what is important to all Australians. We want to listen so we can truly improve and modernise our tax systems.

An effective and relevant tax system is the foundation to any healthy working economy and we are investing resources to make sure that we get it right.

It is no secret that, globally, many economies are doing it tough. We are not isolated and cannot ignore what is happening around us. Our commerce and industries are more connected internationally today than ever. We need to be cognisant of the work currently being undertaken internationally by the Organisation for Economic Co-operation and Development and explore ways we can improve our laws to address multinational tax avoidance, such as through the G20's work on base erosion and profit shifting. And we must confront new business models, such as the increase in internet and business operations, which are increasingly borderless.

It is clear that our tax system must evolve to stay current. We must continue to adapt to our changing environment.

That is why we are discontinuing some things.

And that is why we are building and improving those things that are working.

Full details of all these measures are contained in the explanatory memorandum.

Debate adjourned.

Mr FRYDENBERG (Kooyong—Assistant Treasurer) (10:38): I move:

That this bill be now read a second time.

Today I introduce a bill to amend the Income Tax Assessment Act 1997 as a step towards repairing the budget.

In our first budget, we announced a plan to repair Australia's financial situation: a plan that makes important government services sustainable and stops borrowing at the expense of future taxpayers.

This government is committed to a stronger and sustainable economy. We are committed to prioritising investment and making tough decisions on spending so that we can redirect funding to where it most benefits Australia.

The measures in this bill will return around $826 million to the budget over the forward estimates period in fiscal balance terms.

These are important savings for Australia's budget, and we believe that the proposed changes are fair and measured.

We inherited from Labor an unsustainable budget position. The former government's economic management is reflected in the deficits they delivered, the six biggest in Australia's history—a quarter of a trillion dollars in actual deficits.

Contrast that shameful record with the Howard government's successful economic management which consistently produced Budget surpluses of one per cent of gross domestic product.

Before we came to office the coalition recognised that taxpayers could receive better value for money from their government, and that is what we pledged to do when we were elected.

We have already put a number of measures in place to make good on that promise.

They include the savings measures included in our first budget and our continuing efforts to both place government finances on a sustainable path and improve workforce participation.

They set the scene.

This bill is a further step towards repairing the budget and providing taxpayers with value for money from the government.

And the measures we are introducing in this bill contribute to restore a sound economic framework.

This government will make sure that our taxation and spending policies meet our needs as a nation and also allow our economy to withstand any adverse, external shocks.

So we will continue to make sure that taxpayers' funds are spent wisely. Australians have every right to expect this from their governments.

There are two measures in this bill.

Schedule 1: Abolish the Seafarer Tax Offset

The seafarer tax offset is a refundable tax offset provided to eligible companies for 30 per cent of salary, wages and allowances paid to Australian resident seafarers who are employed to undertake overseas voyages on qualifying vessels.

Companies are eligible to claim the seafarer tax offset if the company employs the Australian seafarer on such voyages for at least 91 days in the income year.

When the former government introduced the seafarer tax offset, they claimed it would stimulate opportunities for Australian seafarers to be employed on overseas voyages and to gain maritime skills.

We are abolishing the seafarer tax offset because it is not achieving this policy intent. We will not continue to spend valuable taxpayers' dollars on policies that just do not work.

The repeal of the seafarer tax offset will apply to assessments for 2015-16 and later income years.

Only five certificates were issued by the Department of Infrastructure and Regional Development for companies seeking eligibility to claim the seafarer tax offset in 2014.

The Australian Taxation Office estimates that fewer than five companies will be affected by the abolition of the seafarer tax offset.

The low uptake of the offset may be due to several reasons, including the fact that there are significant differences between Australian wages and conditions in the shipping industry and those of some other countries. The seafarer tax offset is unlikely to be sufficient to address these differences.

Abolishing this offset is expected to return $16 million to the budget bottom line over the forward estimates period.

And that is another small step towards repairing the budget.

It is also a step towards simplifying coastal shipping regulation in Australia.

Full details of the measure are contained in the explanatory memorandum.

Schedule 2: Reducing the tax offsets under the Research and Development Tax Incentive

We are also reducing the rates of the tax offsets available under the Research and Development Tax Incentive.

The rates will be reduced by 1.5 percentage points for all income years commencing on or after 1 July 2014.

Changing the offset will not affect the eligibility of companies for the R&D tax incentive or the way companies claim the incentive.

Nor will the changes affect the administration of the R&D tax incentive more generally.

The R&D tax incentive will continue to provide generous and easy-to-access support for thousands of eligible companies in all sectors of the Australian economy.

The amendments included in this bill are in addition to the amendments to the R&D tax incentive in the Tax Laws Amendment (Research And Development) Act 2015, which received royal assent on 5 March 2015.

In repairing the budget, this government will build a stronger economic base—a stronger framework—which will give businesses confidence to invest in the R&D they need to help their businesses reach their potential.

The gain to revenue and savings from this measure will be around $810 million over the forward estimates. This will contribute significantly to the government's task of repairing the budget—a task which will benefit every Australian taxpayer.

Full details of the measure are contained in the explanatory memorandum.

Conclusion

The measures in this bill are responsible. They represent another instalment in our Economic Action Strategy towards a stronger, better and more compassionate Australia.

This bill might seem like a small chapter in this story—but it is a significant element in reducing our debt. As a government, we recognise that we cannot continue borrowing $100 million every day to pay the interest on Labor's debt.

The measures in this bill will return around $826 million to the budget over the forward estimates in fiscal balance terms.

These measures represent a careful and measured approach to re-prioritising government revenue.

This government will continue to make the right decisions to position Australia for future opportunities and challenges.

Debate adjourned.

Dr LEIGH (Fraser) (10:45): I rise to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015, and I move:

That all the words after "That" be omitted with a view to substituting the following words:

"while not declining to give the bill a second reading, the House condemns the government's cuts to Australia's innovation and science capacity."

In 2009 this parliament passed a set of laws relating to employee share schemes. As the then minister, Robert McClelland, noted:

This measure will better target the employee share scheme tax concessions to low- and middle-income earners and decrease taxpayers' ability to evade or avoid tax. The new measures will also protect Commonwealth revenues needed to support jobs and invest in nation building.

The measure was related to a Productivity Commission inquiry then on foot, recommendation 17 of which suggested:

There should be a review of the corporate governance arrangements that emanate from the Australian Government's response to this report.

It said in particular that the review should consider:

… the effectiveness and efficiency of the reforms in meeting their objectives both individually and as a package, including recent legislative reforms to termination payments and employee share schemes

The decision that the government made in the 2009 measure was described in that year's budget as follows:

Removing the tax deferral option will ensure that remuneration in the form of share discounts is taxed at an appropriate time and rate, and reduces avoidance opportunities.

We do know that there are benefits of employee share schemes to firms. Some evidence, such as that put together by my former professor, Richard Freeman, suggests that firms with employee share schemes are more productive. But it is important, too, that we ensure the employee share schemes are not used for avoidance at the higher end. Warren Buffett has raised the issue in the United States of high-income earners being taxed at the capital gains tax rate while low-income earners are taxed at their marginal labour income tax rate. He told an event in 2007:

The 400 of us—

Meaning the Forbes Magazine list of the richest 400 people in the United States—

pay a lower part of their income in taxes than our receptionists do, or our cleaning-ladies for that matter.

That has evolved into what the Americans call 'the Buffet Rule'—the principle that marginal tax rates ought not drop at the very top. That context is important in understanding where we are today.

This is a bill which does not repeal the 2009 changes but, as the explanatory memorandum notes, it makes modest adjustments to employee share ownership schemes. The explanatory memorandum goes into some detail as to how the new law differs from the current law. In the case of ESS deferred schemes, where income tax is deferred, the current law provides that the taxing point is the earliest of the following: when there is no real risk of forfeiture of the benefits and any restrictions on the sale or exercise are lifted; when the employee ceases employment; or seven years after the shares or rights were acquired.

The new law sets two separate tests: one for shares and one for rights. In the case of shares, the test is extended from seven years to 15 years and in the case of rights there is, in addition to the extension from seven to 15 years, an additional principle: when the employee exercises the right, and after exercising the right there is no real risk of forfeiture of the underlying share and the restrictions on sale of the share are lifted.

The current law provides that all employee share ownership scheme rules and concessions apply equally to all corporate tax entities and their employees. The new law provides that employees of certain small start-up companies receive further concessions when acquiring certain shares or rights in their employer or the holding company of their employer. These further concessions are an income tax exemption for the discount received on certain shares and the deferral of the income tax on the discount received on certain rights, which are instead taxed under the capital gains tax rules.

The principles underlying this measure are to ensure that employee share ownership schemes are available to start-up firms. Boosting the number of start-ups in Australia is a national priority. We need, as the investment phase of the mining boom tapers off, to have industries which are continuing to create new jobs. Places without new firms are places whose growth prospects in the future will be placed at risk. It is said that you could tell as early as 1960 that Detroit was going to be in trouble for the lack of new firms in that city at that time. A few old, large firms are not enough to continue the sustainability of employment and economic growth in a nation or a city.

That is why Labor is committed to boosting the number of start-ups. It has been my pleasure recently to visit a range of accelerators and innovation hubs around my electorate and across Australia. I pay tribute to the team at Entry 29 here in Canberra, where entrepreneurs are working cheek by jowl and learning from one another about how to break into new markets and how to crack new technologies.

I was greatly impressed when Sebastien Eckersley-Maslin took me around BlueChilli in Sydney and, indeed, had me participate in a stand-up pitch meeting which takes place on Monday mornings. The principle of holding the meeting standing up is to ensure that no-one waffles on too long. It is, indeed, a principle which could perhaps be usefully employed in this place from time to time! The way in which BlueChilli operates is to allow firms to share the facilities of coders and effectively be able to draw on in-house engineering expertise in the early stage of their start-up.

With the member for Throsby and the member for Cunningham, last week I visited the iAccelerate facility at the University of Wollongong. There it was a pleasure to meet with a range of different entrepreneurs, one of whom is currently in involved in the production of 3D printers that are cheap and ideal for use in schools. They have to be robust for use in schools, but they are also designed in such a way that the kids can see exactly what is going on in the 3D printer. The work being done at iAccelerate is particularly impressive and important given that the unemployment rate in the Illawarra is above the national average. Yet that is a part of Australia which retains better than average manufacturing skills. So the role of start-ups in creating jobs is vital there, too. Companies such as Google are also doing their own work in order to facilitate the start-up ecosystem here in Australia.

Labor's position on changes to employee share ownership schemes was first signalled by opposition leader Bill Shorten in March of last year when he said that Labor would be willing to consider amendments to the employee share scheme rules to make sure that innovative start-up companies are not unnecessarily targeted by those integrity measures. Labor believes that if you are an Australian with a good idea it should be easy for you to attract talented employees. One way in which that is done is through access to employee share schemes. Many members of the Labor frontbench have engaged with the start-up community, including Jason Clare, Ed Husic, Terri Butler—she has engaged deeply with this sector—Chris Bowen and Bill Shorten himself. The issue of employee share ownership schemes and the structure of the government's proposal has been front of mind there.

The start-up concession is based on three rules. Companies have to be an Australian firm that is privately held, less than 10 years old and have a turnover that does not exceed $50 million a year. It is also a requirement of this bill that the employee share or option must not be provided at a discount greater than 15 per cent and, in the case of an option, have an exercise price greater than an ordinary share. Naturally, one could quibble over each of these particular thresholds, but it is important to recognise that each of them is a compromise. There will be some start-up firms which are not able to satisfy all three of those criteria but, in the circumstances, I believe they are reasonable.

The importance of start-ups too, though, turns on having appropriate skills in place. That is why the Leader of the Opposition's budget reply focused so strongly on the jobs of the future. He spoke about the value of introducing coding in schools, a discipline which has moved greatly since the days when I sat down at an Apple II computer to write BASIC programs with my friends. But the rudiments of coding remain the same. The principles are that you need to understand logical thinking, the way in which loops can work and if-then statements. All of those are useful even for those who will not end up working directly in coding jobs.

The Leader of the Opposition also spoke about Labor's plan to ensure that we have more science, technology, engineering and maths graduates. We know that one of the secrets to Israel's success as a start-up nation was the influx of Russian Jewish migrants who came in after the collapse of the Soviet Union. The boost in the number of engineers that that created for the country is a part of Israel's success, although of course not the only part. Australia needs to look to examples such as Israel and the United States in thinking about how to boost the start-up ecosystem. This is an important step, but it is just one of many things that this nation needs to do in order to create a better culture of innovation and entrepreneurship.

The DEPUTY SPEAKER ( Mr Vasta ): Is the amendment seconded?

Mr Conroy: I second the amendment.

The DEPUTY SPEAKER: The original question was that this bill be now read a second time. To this the honourable member for Fraser has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the amendment be agreed to.

Mr TONY SMITH (Casey) (10:57): It is my pleasure to speak on this legislation that has such importance about it. We are here today passing this legislation to rectify the damage that was done six years ago in Labor's budget. I will not take up the time of the House to go through each and every measure in this bill; the previous speaker read out most of the explanatory memorandum. The minister outlined the importance of the main changes around options, eligible start-ups and deferral periods.

But we do need to go to the history of this issue—why we are here today and why this is such an important day on employee share ownership for the start-up sector in particular. Those opposite say they believe in employee share ownership. I would say to them: to have credibility, they should acknowledge they made a monumental mistake six years ago—that is what they should do—and not engage in political point-scoring. The member for Fraser did not quite do that but he knows enough to know that Labor's changes in 2009 were devastating. They snap-froze employee share ownership and they harmed the start-up sector dramatically. That damage has been going on for the last six years, and this legislation repairs what they wrecked. It is important that they acknowledge that if they are to have credibility on the issue.

I welcome the fact that Labor are saying that they are supportive of employee share ownership, but to be believed they have to start with that acknowledgement. We need to go back. The member for Fraser, who is listening and typing intently at the same time, understands this. He mentioned all of those Labor members who he says are supportive, and he mentioned the shadow Treasurer. It was the shadow Treasurer who was then the Assistant Treasurer who carried those 2009 budget measures that were so devastating. If we go back to the media commentary at the time, we had experts in the field from the day after the budget warning of what would happen. Within a couple of weeks of the budget, we had front-page stories in the Financial Review about 450 of the top 500 companies freezing or reviewing their schemes. We had experts across the field pleading with the government to see common sense; but, instead, they stubbornly moved on. The outcome was that employee share ownership, particularly for the start-up sector, was shut down. That was because, as the Minister for Communications outlined yesterday in the matter of public importance discussion, and as the minister outlined, Labor changed taxed options before they could be realised. That made it completely unviable.

The Minister for Small Business and the cabinet have had this legislation as a priority. The announcement was made last year. There has been extensive consultation with the sector on this legislation, and I want to congratulate the Minister for Small Business, the member for Dunkley, for that consultation. I particularly want to mention Employee Share Ownership Australia and New Zealand and the head of that organisation, Angela Perry, for all of her advocacy over what have been a long number of years, for her work on the consultation and for the work that she does with that important organisation.

The member for Fraser made the point that this will help start-ups—and he is right. That is why the government is doing it. But, as I said, the speakers that follow should acknowledge that Labor mucked it up. When you make a mistake, acknowledge it. The disappointing thing—and I am passionate about this issue, as you can tell, Mr Deputy Speaker—is that not only did they muck it up, but at no point over their years in government was there any attempt to rectify it. I am not sure whether the member for Fraser was in the parliament in 2009—I do not think so, but the problem here was obvious from day one and it was obvious in ever year of Labor's government. At no point did Labor ever seek to revisit this issue. In fact, they refused to have a conversation about it. And that, I hate to say, is a reflection on the way they approached this policy.

It is true the Leader of the Opposition at the National Press Club, as the member for Fraser said, outlined his support for employee share ownership, and sitting in the audience was the now shadow Treasurer, who was responsible for wrecking it. I want the policy settings in this area to be durable into the future, and that means widespread support and understanding. These changes today rectify so many of those things. I say to the House: these changes are a great step forward, but if Australia is to fully realise the transformative nature of employee share ownership in a way that other countries are in the months and years ahead then, as a parliament, we need to be committed to doing more. I am very hopeful that. As part of the tax white paper discussion, we can look at what else can be done in the years ahead.

I also think it is important in this area that we have in the future an expert panel of people like Angela Perry and key regulators working in a way similar to the Board of Taxation, looking at all the issues that that need to be rectified and promoting the importance and the value employee share ownership. Whilst tax is a barrier—and we are removing some of those key barriers today—so, too, is regulation in the ASIC area in terms of prospectus. Ensuring that we have got the best settings possible is a priority for our economy—it absolutely is. We should have the ambition as a nation to have the best employee share ownership settings in the world. That will take time, but the changing nature of our economy, I believe, demands it. The United Kingdom is very advanced in this area and, of course, the United States is as well, as everyone speaking in this debate would be aware.

Today is an important day. It restarts employee share ownership, particularly in the start-up sector. It is a shot in the arm; it builds confidence. It will provide the platform for other business owners to positively contemplate the possibilities in this area—the benefits for their business, for their employees and for the wider economy. That is why today should be a beginning; it is why, in the months and years ahead, we as a parliament should be looking at what more we can do to assist this area so that we can have vibrant businesses providing the jobs of the future.

Mr CONROY (Charlton) (11:08): I am pleased to make a contribution on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. The last speaker, the member for Casey, spent most of his speech demanding an apology from the Labor Party for supposed past sins, but he was remiss in not pointing out why the 2009 changes were made. They were made to stop massive tax evasion being undertaken by established companies through the misuse of employee share schemes. We have to get the balance right, and that is why Labor are supporting this bill—because, on the whole, we believe it gets the balance right between providing an appropriate tool for start-ups and appropriate incentives for start-ups in this country to develop, to grow and to be a vital part of the economy, while ensuring that established companies do not misuse employee share schemes just to provide remuneration to employees in a way that avoids tax. We have to get the balance right.

People can talk about what happened in 2009, but the most important thing is to talk about this bill and the second reading amendment to the bill to understand that this is part of a broader debate, and that debate is about how we support innovation and research in this country and how we support jobs, going into the future. The previous Labor government did make significant reform in this area. We are supporting the sensible amendments contained in this bill. What we do not support are the government's short-sighted and drastic cuts to science and innovation that will have a devastating impact on Australia's economic growth and productivity. I am keen in my contribution to highlight the different approaches of the two parties.

This bill makes three primary changes. It reverses some of the changes of the previous Labor government that were made in 2009 regarding a taxing point for share rights for employees; it introduces further taxation concessions for employees of certain small start-up companies; and it provides for the ATO to work with industry to develop and improve safe-harbour valuation methods for employee share schemes. The Labor amendments made in 2009, as I said, were designed to ensure that employee share schemes were not misused to avoid tax. The government's sensible amendments to the integrity measures on employee share schemes will be supported by Labor. It makes sense for policy regarding employee share schemes to be enhanced six years after the previous reforms. The government's amendments constitute a logical refinement, with the aim of boosting innovation while, importantly, still ensuring that those types of schemes are not used for the purpose of tax minimisation or evasion by wealthy Australians.

It should be noted that these amendments, to a large extent, keep Labor's integrity rules in place. The new concessions are only available to genuinely new enterprises. In March last year, the Leader of the Opposition first indicated that we would consider amendments to employee share scheme rules to make sure that innovative start-up companies are not unnecessary targeted by the new measures. Since that time, Labor has consulted widely with investors, tax experts and, importantly, start-up companies. We have a very clear commitment to ensuring that Australia has the appropriate policy settings in place to support innovation, which is so fundamental to our future economic growth and prosperity. Labor has listened to feedback from stakeholders regarding the current difficulty for start-up companies to offer employees a package with the potential for a higher return through employee shares.

The government's amendments do retain some of the integrity measures of the 2009 changes and provide for more people to defer the taxation of options and shares until they are able to sell the shares. This is a sensible amendment. The proposed amendments provide for a new start-up concession. Employees of certain small start-up companies may receive this concession if their employee scheme meets a number of conditions. It is appropriate that the following limits apply to the concessions: a company must be an Australian company privately held, under 10 years old and have a turnover below $50 million; and the share or option must not be provided at a discount rate greater than 15 per cent and, in the case of an option, have an exercise price greater than an ordinary share.

The bill also provides a new power to the Australian Taxation Office to determine a more straightforward safe-harbour valuation calculator so that new companies are not required to undergo expensive valuations to allow them to access employee share schemes. So the substance of these amendments to the 2009 changes is sensible and supported by the Labor Party. It improves the balance between minimising tax evasion and supporting start-up companies, which are integral to the innovation system of this country.

In the time remaining, I would like to turn to the broader innovation system in this country that this bill needs to be considered within; that is the context of the debate we are having right now. Unfortunately, I must depart from the rhetoric of bipartisanship I have enjoyed over the last five minutes to bewail this government's appalling record on science and innovation more broadly. This bill is an important measure and is a good contribution, and should be applauded as such. But it is in the context of an appalling record on science and innovation more broadly. The result of that will be fewer jobs into the future and less economic prosperity. The last two federal budgets have cut research funding by 17 per cent. That is a straight fact. In the budget before the last one, there was a $528 million cut to science and research, including an incredibly short-sighted $111 million cut to the CSIRO.

On the broader innovation agenda, the government, and these political parties that form the government, have form on not supporting innovation. One of their first acts in 1996, when the Howard government came into power, was to slash the R&D tax concession from 150 per cent to 125 per cent. This had a devastating impact on local innovation. The new coalition government are no better. They have cut $2 billion from innovation programs, and that is having a massive impact out there. Whether it is the Commercial Ready program, Enterprise Connect or various other measures designed to support innovation and research, this impact is being felt—not just by researchers and not just by scientists but by businesses trying to increase their value-adding and increase their international competitiveness.

I have many advanced manufacturers in my region that are suffering because of these changes. And there can be no greater flagship for this short-term, myopic focus than what they have done around precincts. The last government announced a $500 million policy around precincts to drive applied research, to drive innovation. We identified a problem, and that problem was that there was not enough effective applied research being done in this country. There was plenty of blue sky research being conducted by scientists that was world's best, but too often they were focused on the research and not focused on what business needed. And on the other side there were so many businesses that were so busy, so focused on the day-to-day struggles—which is quite understandable—that they were not engaging effectively with the research community to really mine that research for new ways of improving their competitiveness.

So, in a job statement that we put out in 2013 we put aside $500 million for the precincts, which is all about bringing business and research together to develop the new ideas. We have a great track record of discovery, whether it is helping with aspects of wi-fi, whether it is a black box recorder, whether it is leading solar research in the 1980s and 1990s or whether it is the humble Hills hoist. We are great at inventing things, but we are very poor at commercialising that research in this country and having the jobs dividend that comes with it. So this $500 million package was aimed at bringing together 10 industries in precincts where we would effectively cluster, where you would get lots of applied research, learning by doing, world's best practice to really advance the competitiveness of our industries so that we could grow the industries of the future.

My region of the Hunter was well positioned to benefit in advanced manufacturing, mining related services or energy network research, where we lead the country in that particular aspect. This government has adopted and acknowledged that precincts and clustering is something to be supported, and the growth centres program is effectively the same program with a different title. New governments will change the titles of programs. That is a time honoured tradition, and that is not a problem. What is a problem is that they have slashed funding for this program from $500 million to $188 million—a massive $312 million cut in funding. They have reduced the number of growth centres or precincts from 10 to five, and obviously those five will be woefully underfunded. They have basically stood stock-still for the past two years rather than getting on with the job.

This will have a real impact on applied research in this country, and it is a real missed opportunity. It shows that this government yet again is heavy on rhetoric and light on action. They need to match their rhetoric with action, and, quite frankly, in this area dollars do matter, and that $312 million cut is very significant. And their undermining of innovation and advanced industries is not just related to precincts. We should look at what they have done in manufacturing, which is not just a driver of employment but also a driver of innovation and of research and development. For example, their destruction of the automotive industry, their destruction of an industry that employs 50,000 people directly and 200,000 people indirectly, will actually have an impact on research and development and on productivity in this country. The automotive industry conducts around $700 million worth of business research and development each year. That is about four per cent of the total, which is more than 10 times their employment contribution to this economy. In fact, it is more than 20 times their employment contribution to this country.

So, this single act of destroying the automotive industry, of withdrawing funding, of daring and bullying General Motors and by consequence Toyota to leave the country will have an impact on innovation. Their short-sighted policy around submarine construction in this country will also have a massive impact on innovation. It is well known that not only did the Collins class construction lead to the building of six world-class conventional submarines that the Navy in testimony repeatedly says are amongst the best performing submarines in the world but it also led to a vast modernisation of Australian industry. Before the Collins class project, fewer than 100 companies in this country were specified up to ISO 9000 standard. After the Collins class project thousands of companies were qualified for ISO 9000. I know there is sensitivity on the other side about the submarine project, because it represents a gross betrayal of the Australian community. They made a promise before the election to build 12 submarines in Adelaide, and they are now going to build them, by all likelihood, in Japan. Not only will we miss out on thousands of jobs, and not only will the ability of our Navy and our naval industry to maintain, repair and upgrade these submarines be in peril, but they are actually reducing the innovation capacity of this nation and the ability of the Australian manufacturing sector to be modernised to compete globally.

Another area where they are showing their short-sightedness around innovation policy is in their ideological attack on clean technology, both the industry and research. As part of the Clean Energy Future package that we introduced in 2011 there was $15 billion of industry and innovation research policy. There was the $10 billion Clean Energy Finance Corporation, there was the $3 billion ARENA program and there was the $1.2 billion clean technology program. All these were designed to help do a number of things. One was to help industry transition. The second was to recognise that just as in the 18th century the economies that pioneered research into steam power—the United Kingdom—dominated the global economy and just as in the middle of the 19th century it was the economies that pioneered research into steel manufacturing and railways—the United States and Germany—that dominated the global economy and just as in this century it is the economies that first did research into chemistry and then into the electronics industry through the transistor revolution—that is, the United States and Japan—that dominated the global economy, in the future, just as those industrial revolutions led to a series of economic dominance by those countries that did the research, the clean energy industrial revolution will be massively important to our economic competitiveness.

Those on the other side have betrayed that. They have destroyed ARENA, they have tried to get rid of the Clean Energy Finance Corporation, and they have destroyed the clean technology program—all because they want to stick their head in the sand about climate action, all because they would rather have a rust belt economy next century rather than being clean technology innovators and having clean technology industries that compete with the rest of the world.

And what is the result of all this? The result of all this is that we are facing a jobs crisis now that will get worse into the future. We have an unemployment rate that is at a 14-year high. We have an underemployment rate that is higher than any time since records began in 1978. We have a higher underemployment ratio now than during the 1980s recession or the 1990s recession, which is a massive issue. We have youth unemployment at 20 per cent, well above when we were last in government. We have 190,000 people who are classified as long-term unemployed, more than any time since records began. The long-term unemployment ratio is 25 per cent. One in four unemployed people is long-term unemployed. These people are victims of this government's lack of focus on industry and innovation policy, with a myopic focus on slashing and burning rather than investing in the key drivers of competitiveness in the 21st century: productivity and innovation. Nevertheless, this bill is an important step in rescuing that and we will support this bill. I commend the bill to the House.

Mr BROUGH (Fisher) (11:23): He is good for a bit of a laugh, isn't he? The old ideologue gets up and parrots the lines and just goes on and on and on. Can I take you back to the submarines? Do you want a little lesson on the submarines? Other than the fact that the propellers did not work and we had to buy them from someone else because 'our submarines sounded like a rock concert when they tried to stealthily disappear', other than the fact that the fire control systems were not as advanced as the Oberon, other than the fact they could not communicate with home, other than the fact that salt water used to get into the diesel engine, they were absolutely brilliant! And they were after the coalition came into government, changed the procedures, bought in the US and got something moving: a submarine. It is a wonderful innovation, but if we continued down the path we were on they would have been spending their whole time in the dock.

In 2009, the Labor Party changed this policy. What is this policy all about: employee share ownership scheme? It is actually about people. I say to the member for Charlton, as he wanders off to start to consider the loss that New South Wales are going to have inflicted today—

Dr Chalmers interjecting—

Mr BROUGH: One thing that some of us agree with across the chamber is that Queensland are dominant when it comes to the rugby league tonight. But it is all about people. What the Labor Party did in 2009 was a form of class warfare. We heard it today from the shadow Assistant Treasurer when he said that there was concern amongst Labor ranks that, with an employee share ownership scheme, perhaps those who have the potential to earn more would have a differential tax rate to those able to earn less. What it did was remove aspiration. That is a great Australian tradition: people aspiring to do better, no matter where they started. It does not matter where you start in a company; it is what you contribute to it and what you contribute to your family, your community and your country. By being part of an employee share ownership scheme, you could have some skin in the game.

Let me take you to a good friend of mine, Tom Potter, who was Young Businessman of the Year some time ago, in the early 90s. He was the founder of Eagle Boys Pizza. That is not an innovative company in the form of tech start-ups, but it was innovative. He will tell you the story of good quality managers—that when they became franchisees they had skin in the game. The same stores that they were operating as managers would see marked improvement in their bottom line, sometimes exceeding 30 per cent because they had some ownership. So it is about people.

We have heard the shadow Assistant Treasurer and the member for Charlton wax lyrical about innovation. Innovation comes from the minds of individuals—people who can see things in a way that most of us unfortunately cannot. They see the future and then they try to make it happen through their skill sets. Since 2009, so much innovation has happened throughout the world. The shadow Assistant Treasurer mentioned Israel. He and I both travelled to Israel and saw the Israeli start-up nation founders and key people recently. We appreciate what they have done. What we learnt from them is that they did not hold back their people. They embraced the individual and gave them the opportunities to flourish. In doing so, they created wonderful things. In the other place, Senator Sean Edwards whilst there was saying how he has benefited from Israeli tech start-up businesses by putting their drip-feed irrigation into his vineyards. It shows you what you can achieve if you invest in people.

What the Labor Party did in 2009 was lose an opportunity. It lost an opportunity for Australia to stay at the forefront. Many people who could have contributed to our economy and grown the jobs that the member for Charlton refers to were lost to the Australian economy because the Labor Party decided on class warfare and being concerned about what an individual might earn as opposed to growing the collective pie and letting everyone benefit. When they talk about these things, what they have to acknowledge is that, through their ideology, they have actually driven good Australian potential entrepreneurs out of this country, taking with them their innovation. They have set up overseas and the opportunities and jobs that come from them have been lost. So it is timely that an Abbott-led government leads the way, values people, puts people first and says that the only way you get good innovation is to make sure that people have skin in the game and they can do so without a tax burden.

Those who are listening to this debate must be wondering how this worked under Labor's proposal. What Labor did for the last six years meant that, if I had a start-up company and I needed to employ a programmer or a software engineer and I really had nothing but my own sweat capital, my intellect and the idea to offer them a position, giving them a stake in the business meant that they had to recognise and realise a tax liability before they made any money. How familiar is that? It is like having a mining tax that does not raise any tax. In fact, it can cost the Commonwealth. The Labor Party has form on this. They did not do it once; they did it on several occasions. Here, it impacted upon the fastest-growing sector in the world economy, which of course is the digital revolution.

These changes that are being introduced today and that come into effect from 1 July this year are not only important; they are critical. They are critical because we have been behind the curve. Where we are seeing more innovation occurring each year, and growing at a rapid rate, time is of the essence. A great thinker in this field and a futurist told me recently that, for all of the innovation that the world has seen over the last 40 years—if you think about that for a moment and reflect, that is everything from the mobile phone, the internet, plasma screens and a million different bits and pieces—we will see four times as much innovation in the next 10 years. What the Labor Party did in 2009 is deny Australia's best and brightest the opportunity to work in Australia, to have skin in the game and to use their intellect, their vision and their passion to create jobs for Australians.

This is all about the ideological divide. Begrudgingly, the Labor Party come in here today and say out of one corner of their mouth, 'We are going to back this. However, here are all the awful things that the coalition do.' But this is good. It is rectifying a crucial mistake that the Labor Party made that, in four years in government, they did not see fit to overturn. When you fail, when you make a mistake, there is nothing wrong with that: we learn from our mistakes. But, when we fail to rectify them, that is when we compound the issue. That is what Labor have done here. Start-up companies and their owners will benefit from this, as the Entrepreneurs' Infrastructure Program, the research and development tax incentive, and the venture capital, limited partnerships, small business and capital gains tax concessions will all be of benefit to this incredible ecosystem.

On the Sunshine Coast, we intend to grow our economy, to deepen our connection with the start-up community, to make sure that companies like atmail, which is now taking the world by storm, are not isolated but become the norm. We will use the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 that we are debating here today to say to young entrepreneurs, to university graduates: come to the Sunshine Coast, because here you can enjoy lifestyle as well as the ecosystem to make your dreams a reality. Create the jobs that we need there. Broaden our economy from health, construction and tourism. Show people that working from your own home, starting in a garage, is not where you end. Some of the biggest businesses in the world today started in garages. They started because people could work together and have skin in the game by owning part of that business. This is a good policy. This is the way forward for Australia, and we need to do a lot more.

Shortly in the other place, in the second chamber, in addressing the appropriations bill, I will share with that chamber a few other ideas and ways in which we can take the innovation world and make it ours. We are competing against places like Singapore, which are giving tax-free status for seven years; Israel, being the second largest ecosystem; and of course Silicon Valley, which we all know about. But we have really talented people here. Let me read some comments from some of the people that I refer to in relation to this policy. An article by Paul Smith in The Australian Financial Review on 25 March states:

StartupAUS Peter Bradd said the changes would help attract and retain talent for innovative companies and make Australia's startup eco-system globally competitive.

We have no choice here but to be globally competitive. The member for Charlton talked about rust belts. Rust belts happen when you do not invest in your people and give them a chance to flourish. The article continues:

"Changes to the ESS [Employee Share Scheme] will help Australian start-ups become strong drivers of increases in job creation and, because many help to drive technological change, this will lead to productivity gains and job creation for our economy," Mr Bradd said.

There were many similar comments from people such as founder and CEO of Engagement Innovation, Tim Glover, also a former PwC director. He agreed, as the article states:

"Start-up leaders can consider this a green light to inviting key employees to participate in an ESS with little downside tax risk to the employee," Mr Clover said.

I come back to where I started from. This all happened because of the ideological beliefs of the Labor Party and class warfare—that someone should not get ahead, that we all should be equal. We are here because of our intellect, because of our capacity to drive change and to drive innovation. People should be rewarded. They were not getting something for nothing, which is Labor's way. They were having to put the hard yards in, with no return. What Labor was giving them was a tax liability before they had realised any potential income—unbelievable. Now they can invest their time, their intellect, their passion and their commitment. In doing so, if they are successful and they return a profit to that business and it grows and their shares become of value, only when it is realised or when they leave that company will they have a tax liability. I am sure everyone listening to this would say: 'Isn't that just common sense? Isn't that the way it should be? How the hell can you be asked to pay a tax on something that has not actually realised an income or a profit?' Well, that is what the Labor Party do. They come in here and wax lyrical about innovation and science and technology, but let's look at their record. They did not back people. They did not back the intellectual capacity and the innovative capacity of Australians, and the coalition does.

I say to the innovators of Australia: come and look closely at the Sunshine Coast. We are going to set the world on fire. We want you to be part of it. We have an exciting future up there. Enjoy the lifestyle, enjoy the generosity of the people and, using the share ownership scheme, make sure that you are part of growing a stronger ecosystem in this start-up community for all of Australia.

Dr CHALMERS (Rankin) (11:36): I am pleased to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. I am particularly pleased to follow my great colleague, the member for Charlton, who spends a lot of this time working up and thinking about innovation policies. He is one of the authorities on our side of the House in these matters. It is a pleasure to follow the member for Charlton, but when it comes to the member for Fisher, who is leaving the House now, it is fair to say that his side is so desperate to look for division and disunity that he seems to have missed him the point that we are supporting this bill. Our amendment concerns a related matter, but we are supporting the employee share schemes bill, which makes changes to the tax arrangements for share schemes to incentivise firms to introduce such schemes and to encourage more employees to participate in them.

I have been following this debate in the House, and it is worth providing the context for this decision. In about March last year, the Labor opposition called upon the government to reconsider the employee share scheme legislation to better support entrepreneurs. There is some history to this measure of course, and I played some part in it when the original changes were made in 2009. It is worth putting on the record that if that decision were taken again, we would not go down the path we went down. I am very pleased therefore that Labor is supporting the changes proposed by the government. We are also pleased that some of the important integrity measures that we put in place in 2009 are being retained by the government. The original purpose of the 2009 changes was to ensure the integrity of the scheme and so maintaining those measures is good. I acknowledge that changing the taxing point for employee share schemes is an important initiative, and I will come back to the taxing point issue in a moment.

In my contribution, I want to focus particularly on smaller and start-up firms for three reasons. Firstly, larger companies have the means to compete for employees in other ways. Secondly, the valuation of shares and options for larger companies is immediately more obvious than for start-ups—so the taxation treatment and timing is less a problem. Thirdly, the bill itself explicitly singles out start-ups with the start-up tax concession, which the government is introducing. As I said, we are pleased to be supporting the legislation. We have moved an amendment which notes, outside this area, sub-optimal performance by the government when it comes to investing in science and technology but we do support the specific measures in this legislation.

Speakers from both sides have acknowledged that innovators face difficulties when trying to get a product off the ground. We know that founders take all of the risk of the new venture: they quit their jobs, work for no pay and leave themselves open to financial risk. At the same time we have also heard the famous start-up success stories—think about Bill Gates or Steve Jobs and Steve Wozniak involved in Apple. Closer to home, think about Greg Ellis and Sean Teahan, who mowed lawns at odd hours for two years while they put every cent they had into developing the small-loan platform called Nimble. These well-known stories remind us that there are huge risks involved with innovation, but there is no doubting that the rewards for success can be substantial as well—and not only for the individuals involved in the start-ups but for the broader economy too. If we are to succeed in the 21st century as a nation, it is crucial that we benefit from the sum total of all the effort, enterprise and entrepreneurship that goes on around the country.

PricewaterhouseCoopers estimates that the Australian text start-up sector alone has the potential to contribute $109 billion, or four per cent of GDP, to the Australian economy and 540,000 jobs by 2033. But, as they say and we agree, this will require a concerted effort from entrepreneurs, educators, the government and corporate Australia. It is part of what this bill wants to achieve. One of the major difficulties that start-up companies face at the moment lies in attracting employees. As a business starts to grow, new employees need to be hired, and it is hard for start-ups to compete with the established companies for employees; they cannot hope to match the salaries, bonuses and work conditions that companies like Google or Microsoft can offer to employees. We need to offer employees equity in the company as a supplement to wages, and that is what this bill promotes—employee share schemes.

It is important to understand that such offers are not usually in the form of shares, but rather options to buy shares, which is a means for protecting employees from the downside risk of shares. Options for equity are not only a good financial incentive for new employees in lieu of wages but they also give employees a stake in the business. On this I agree with the member for Fisher: giving employees a stake in the business gives people an interest in the success of the enterprise, a reason to work hard, to think hard and to make big contribution to the company.

Some schemes are really successful. In the United States there are almost 14,000,000 people participating in employee share ownership plans, which benefit employers as well. Studies in the United States have found that companies with such schemes grow 2.4 per cent faster than otherwise. US studies have also found that participants made between five and 12 per cent more in wages and had almost three times more retirement assets than workers in companies without these schemes.

If these schemes are work in the interests of start-ups, employees and the economy, why are not more of them being taken up in Australia? I come back to where I began my contribution—with the taxing point of these schemes. The current taxation system makes these schemes less attractive for employees due to the period over which the scheme is taxed. The market value of the equity given to employees can be very high, based on the valuation of the start-up. But, practically speaking, an employee is not going to want to sell their equity stake at the start of employment, and there is unlikely to be a market for such an equity. The prospects of selling equity for a start-up at a fair price are not going to be good, so the value of the employee equity is more theoretical than it is practical.

The real value of the shares or options only comes after holding them for some time. For example, Ron Wayne, one of the original founders of Apple, has been called—as others have noted in this place—the unluckiest man in the world. He drew the first Apple logo, he wrote the partnership agreement and he wrote the Apple-1 manual. In 1976, after a disagreement with Steve Jobs, he sold his 10 per cent share in Apple for $800. If he had retained his company shares, today they would be worth $35 billion. The moral of this story is that the real valuation of equity in start-ups is very difficult to make at an early stage in the company's existence.

So with difficulty in valuation comes difficulty in taxation. The current legislation charges income tax on the value of the equity at the time that the shares are granted. Or, in the case of options, income tax is charged when the option vests—when it can be exercised. That means that employees can receive a tax bill for options even when they have no cash benefit from the shares and, worse than that, even when they have no ability to derive cash benefit from the shares. That makes employee share schemes options unattractive for individuals that are not liquid enough to cover the type up-front tax cost of the option. So we do need to change the taxation point of employee share schemes again, and that is what the bill does.

Among other important initiatives, one of the most consequential changes will be that change of the taxation point. Schemes will now be established either as deferred or up-front tax schemes. Start-ups can then design schemes that suit their employees. They can have an up-front tax scheme, which attracts a $1,000 tax exemption for people with income of less than $180,000 a year, or they can have a deferred tax scheme, which attracts tax when options are actually exercised. This will make it easier for more employees to take up the scheme and will, therefore, make it easier for start-ups to attract employees. The bill will also introduce new provisions to allow for a simpler safe harbour valuation tool to make it easier for firms to value their company in order to access employee share schemes. That means that they can avoid costly valuations. Again, all of this makes it more attractive to take up employee share schemes.

Smaller start-up companies are the ones that will most benefit from the schemes and from this bill; they are also the ones who face the most difficulties in setting these schemes up. So the bill contains some provisions to specifically target smaller start-up companies through tax concessions for these schemes. So employees of small start-up companies will not be required to include any discount on ESS interests in their assessable income, and the bill sets out the eligibilities and various characteristics of that scheme and how to access it. In the time remaining, I will not go through that.

As I said, we are supporting the specifics of the bill. My colleague the member for Fraser has moved an important amendment. The amendment is important because it goes to the broader issue of investment in science, technology and innovation in our economy. If you had to think of the things that would determine the success or failure of our nation in the most dynamic region on earth, they would be our ability to innovate, keep up, train our people, and invest in science and technology as well as our capacity to benefit from change and not be a victim of change. The member for Fraser's amendment notes that, when it comes to this government, their record is poor; their first budget cut $3 billion from science, research and innovation, and this year's budget does nothing to reverse or rectify those savage cuts. The government abolished programs such as Enterprise Connect and Commercialisation Australia, and they also abolished innovation precincts. I think it is fair to say that they are now dragging their heels on crowdsourced equity funding as well—something that my colleagues the members for Chifley and McMahon, and others, have put a lot of work into and done a lot of thinking on as they lead the debate in this building on crowdsourced equity funding.

Labor is the only party with a proper plan, a forward-looking plan, for the jobs of the future, driven by science and driven by technology. As I said before, one thing above all will determine the success of this generation and the ones that follow: the ability to benefit from technological change. That means mastering the necessary skills. In that context, the commitments made by the Leader of the Opposition in his budget reply are just so crucial to the future of the country. They go to teaching kids computational thinking and getting them involved in coding, which is the language of the 21st century; making sure that our universities are graduating people who are skilled in science, technology, engineering and maths; encouraging people to complete those degrees by writing off their HECS debt, which will mean 100,000 extra graduates; and making sure that teachers in our schools are literate when comes to the language of the future.

We do want a country that is fuelled by aspiration, and we do want a country that is fuelled by economic and intergenerational mobility. We do want a dynamic economy and an economy that is powered by people who are prepared to start their own businesses. They might have an idea which they want to turn into a big job-creating enterprise, and on this side of the House we want to do whatever we can to encourage that aspiration. The future of this country and the future of its economy will be determined by people's capacity to innovate, to create new things and to create new jobs based on the ideas and their imagination.

So we will support the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. We will support the bill, because we are interested in supporting start-up businesses, especially in the technology sector. The bill, of course, does not go far enough to make up for the government's cuts to science, technology innovation. As I said, Labor is the only party with a plan for future economic prosperity fuelled by innovation, aspiration and creativity, and that puts us in direct contrast to this short-sighted government motivated by politics not economics.

Mr COLEMAN (Banks) (11:51): I am particularly pleased to be able to speak on this very important legislation to end this disastrous policy in relation to employee share schemes, which was implemented in 2009 by the former Labor government. It is something that I know a little about because, prior to coming here, I spent the majority of my career working in and with the Australian internet industry. I have both participated in employee share schemes and helped to design some, and I have talked with founders and employees about how these things might best be structured over quite a number of years.

It is a truism—it is something of a motherhood statement—to say that we all want the Australian technology sector to succeed. It is very, very easy to say that, and I dare say that it is a little bit fashionable to say it. The reality is that the successes of the Australian technology sector will be created by that sector, not by government. The role of government is minimal. Most importantly, it is not to make life difficult for companies that are creating value through start-up activities in our economy. Unfortunately, the previous policy of the Labor government, which we will happily undo through this legislation, created a world of pain for Australian technology start-ups.

In very practical terms, let's explain how Labor's 2009 policy change was such a disaster for the Australian start-up sector. The situation that the sector faces is that most start-up companies do not have much money. That is a pretty important starting point to bear in mind: there is not a lot of money. Therefore, it is generally not possible to attract employees by paying very high salaries. The people that Australian start-ups want to hire, of course, are highly educated, highly entrepreneurial, sophisticated employees who have the dynamism and drive to really create new opportunities, and they are people with options. Often the question that is faced by the potential employee is, 'Do I go to this interesting start-up company on a low salary, or do I go for a more traditional job, maybe in banking, management consulting or law on a higher salary?' Often, it is a materially higher salary. The argument of the star-up company to the employee is: 'We can't pay you as much as that bank or that law firm can pay you, but what we can offer you is (a) the opportunity to be part of something very exciting and building a brand-new business from scratch and (b) the possibility of being part of the success of the company, should we succeed.'

The way that start-up companies typically do that is by offering employees share options—sometimes shares but generally options. Basically, an option is a capacity to buy a share at some point in the future for an agreed price, with that price being agreed today. So it might be that I can buy shares for 50c and it might be that I can buy them in a year's time or in two years, three years, four years and so on—but the price is still 50c, even if the shares might be worth, say, $5 in four years time. That is potentially a really important benefit for an employee. It only works for the employee if, in fact, the company is successful and if the shares over time are worth significantly more than the value agreed at which the option can be exercised. Most of the time, unfortunately, that does not actually happen. Most of the time, small start-up companies do not reach the great heights that they would like to reach; and, most of the time, employees who take on those option plans do not end up making a huge amount of money from them. There are of course exceptions, when things go really well. But in all cases, even if things go exceptionally well, the employee does not actually make anything from the option until they exercise it at least one year—and, often, many more years—after it is issued.

What Labor did—and this just implausible; I find it quite extraordinary that this was implemented in 2009—was to say that, even if you have not exercised the option and you have obtained no practical financial value from that option, you should pay tax immediately, effectively, on the perceived value of the option. So the option is worth nothing in cash terms and it cannot be sold because it is in a liquid company; it really has no practical financial value. But Labor said, 'You have to pay tax on it now.' Something that, effectively, has no value to the employee becomes a millstone around their neck and something on which they have to pay tax.

So, in my example earlier, where the employer was saying, 'Don't take the higher salary'—with that bank, law firm or whoever—'take the lower salary with us,' the proposition became, remarkably and appallingly: 'Take the lower salary with us; and, by the way, you're going to have to pay tax now on share options that are of no practical value to you.' The proposition of share options went from being the quite attractive one of, 'We'll see how it goes and, hopefully, they will be worth something one day,' to, 'I effectively have to pay a penalty tax now on something from which I can get no value.' If the salary were $80,000, the tax payable might be $5,000 or $10,000 and the employee would be worse off, in a cash sense, than they would have been if there were no options granted.

It is absolutely unbelievable to me that the previous government insisted upon that policy. It is pleasing that they have seen the extraordinary folly of that policy and are supporting these changes, but it is appalling that that was ever allowed to occur. It says a lot about their lack of practical understanding of how start-ups work that the policy was ever seriously proposed, let alone implemented. What this bill does—and with great credit to the Minister for Small Business, who has pulled together this very attractive package for the start-up sector—is to basically say that you will only pay tax on share options when you exercise them. They are often exercised around the same time that they are sold as shares. Usually the time of exercise is a similar time to when you get some cash for these things, and that is the appropriate time at which to pay tax on their value. It is very simple—incredibly simple. Rather than forcing people to pay tax up-front for something that there is a good chance will have no value, ask them to pay tax when they actually realise some value and actually have some cash in their pocket as a result of making money from these share options. It is incredibly simple. It is extraordinary that we have to have this debate, and it is really remarkable that this was implemented by the previous government.

We are fortunate to have a start-up sector which, I think it is fair to say, punches above its weight in global terms. We had the first wave, of course, in the technology sector in the late nineties. Companies have gone on to be multibillion-dollar organisations, like SEEK and carsales.com.au and realestate.com.au and various others, and as we have moved through the last 15 years we have seen more and more Australian internet companies and technology companies really grow.

I was very fortunate in 2007 when I came across a company called 3P Learning for my then employer, PBL. It was the sort of company that we absolutely want to encourage in this country. The next 3P Learning will benefit from these policy changes we make today. When I found 3P Learning in 2007, it was a pretty small group of people situated above a shopping centre in Gordon, working on a product called Mathletics, which was pretty new. It had been CD-ROMs, and they had decided to try it out online. They had a few customers, but it was very early days. Through the extraordinary industry perseverance and vision of that company, they have now grown into a business which employs hundreds of Australians, is a world leader in the area of online mathematics, is listed on the Australian Stock Exchange and is worth about $350 million. It has created an enormous amount of economic activity in Australia and has created lots of well-paying jobs. Those are the sorts of businesses that we want to encourage.

In these provisions in the bill, we also provide some particular incentives for smaller start-up companies. Of course, it is not limited to the technology sector; it is start-up companies generally. There is the capacity to provide a discount on a share issue of up to 50 per cent without the employee being liable for tax on the difference between the market value of the share and the price at which those shares are issued and a number of other important provisions for the start-up sector because we all want to see this sector succeed.

I must admit I do find it a bit amusing when those opposite purport to be the friends of this sector. The 2009 changes could not have done more damage to the start-up sector if you had expressly tried to do so. If you had said, 'How can we actually make things really, really difficult for small Australian start-ups who want to grow?' you would probably have come up with an idea like this. You would probably say, 'How can we make it hard for them to hire employees?' Anyway, it was just an extraordinarily foolish idea. So those opposite really have no credibility in this space.

I have to say that it does help, when you are seeking to legislate in an area, to have some practical understanding of it, and I think those of us on this side of the House have a clear understanding of this sector and why it is so important. It is not about the government determining the outcomes. It is not about the government picking winners. It is about the government giving them the space to grow and not taxing them out of existence.

I do find the opposition's policies in this area quite extraordinary. I do not think they have learnt from their manifest failure in this area. We saw the announcement in the budget reply a couple of weeks ago by the opposition leader where he is clearly wanting to get on board this high-tech train, so to speak. Just as the former leader, Mr Rudd, would parade around holding laptops, the current opposition leader clearly wants to be seen to be associated with technology and growth, which is just ridiculous, given the record in this space. It is a concern when the opposition seeks to align itself with the start-up sector when, in the opposition, there is no practical understanding of how to run a start-up or how to build a business or anything of that nature.

The opposition leader, to much fanfare, announced the proposal in relation to the forgiving of HECS debts for STEM students in the budget reply. He said it was going to cost $300 million. At some other point it was $45 million. Then they thought it might be about $1 billion. It is actually a pretty simple calculation. There are about 100,000 STEM students in the time period. The debt of each student on average is about $22,500. So the cost is $2.25 billion. It takes probably five minutes to calculate, maybe less. But they got that wrong and showed a real lack of understanding of even the most basic statistics.

You do worry when the opposition leader stands up on budget night and says he is going to set up a smart innovation fund to invest in Australian technology start-ups. This is the same party that smashed the Australian technology sector through implementing this completely absurd tax on the payment of employee share options. The notion of those opposite running around investing in start-ups is, I think, something to give grave concern. So it would not be running around with a laptop a la Kevin Rudd. It is the opposition leader clutching a bunch of share certificates and saying, 'We're on your side.' They are not on the technology industry's side. They have made that very clear through their past record. This is very good legislation, and I am very pleased to support it in the House.

Ms MacTIERNAN (Perth) (12:07): I could not disagree more with the member for Banks. In fact, he epitomises the problem of the current government and their misunderstanding of the role that government does need to play in the development of a knowledge economy and an innovative community.

We strongly support this legislation, the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015, and we recognise that the very important amendments that we introduced in 2009 to protect the integrity of the taxation system had an unintended consequence when it came to start-ups. So we are acknowledging that this correction does need to take place. I just want to put it on record that these very important integrity measures—which were designed to ensure that the granting of share options to employees was not used as a rort in a more general sense—have indeed been kept by this government, but we have acknowledged there was an unintended consequence which was having an impact on start-ups, and we are prepared to acknowledge that and to support this legislation.

I want to reflect on the fundamental concepts that we heard from the member for Banks and that we have heard over and over again. These concepts really bring to the fore the very important questions of whether or not, in the 21st century, a government does enough by ensuring that we have a macro-economic environment and a legal and physical infrastructure that supports private-sector funding, and whether or not that is indeed enough for us to advance to a true 21st-century innovative economy. The fundamental view of our conservative friends is: 'Yes, that is what we do—we provide the macro-economics, we provide the physical infrastructure, we provide that legal framework, and,' as they love to say, 'we just get out of the way.' But really that has proven to be an intellectually very primitive point of view and not one that is going to see Australia becoming a technology maker rather than a technology taker. So if we are going to truly leverage off the intellectual and temperamental assets of Australians—and, when I talk about the temperamental assets, I mean the nature of Australians, of being a bit iconoclastic, of not being hidebound by tradition or traditional ways of thinking but being a community where people are encouraged to think for themselves, be different, create their own ideas and follow their own dreams—then government actually has to do more, and that is what international experience tells us.

Recently, even the Minister for Industry and Science—who probably is a little bit more ahead of the pack than the rest of the coalition—acknowledged at a recent forum that Australia had come 81st out of 143 in the global innovation efficiency rates. That is an index which records the comparative ability of nations to convert innovation inputs—that is education and research—into innovation outputs. He described that performance as average, but I have to say that I think it is considerably worse than average. Let us look at some of the countries that rated more highly than Australia. They include Saudi Arabia, Pakistan, Bulgaria, Thailand and Costa Rica. They are all perfectly fine countries, I would imagine, in many ways, but not ones that necessarily spring to mind as the leaders in innovation, and yet each of these countries rated more highly than we did in their ability to convert these fundamental inputs into real, live, operating business innovation. I think that, with all of the economic and cultural advantages that we have here in this country, we should be seeing ranking 81st in the world as being something of a crisis and demanding urgent action, rather than there just being a few bland exhortations that we must do better accompanied by budget settings that are in fact going to take us backwards rather than forwards.

There has been an unpacking of this data by Dr Paul Jackson of the Edith Cowan University in collaboration with the Humboldt-Institut in Berlin and Cambridge University. They have shown that, while we do relatively well in education, R&D and institutional infrastructure, we do poorly in high-business innovation performance. They have done some analysis of why this might be. They have looked at whether or not we perhaps favour tax concessions over direct funding—indeed, in other countries this whole role of direct funding has a more central role in R&D than it has in Australia. They also reflected upon the reduction of a local level of high-tech procurement in defence spending—another way in which countries are able to drive the innovation within their local economies. They also noted that in Australia we have a high degree of foreign ownership and that companies that are foreign owned within Australia invest very little in R&D. They also looked at the other structural problem that Australian business had very low levels of business collaboration. So, whether or not you were looking at the interbusiness collaboration, collaboration with suppliers and customers, or collaboration with universities and other institutes, our rate of business collaboration was one of the lowest in the OECD.

What has been the response of the current government to this?

It has been a response that has cut back the level of scientists in the CSIRO. There have been 800 scientists' jobs cut—those important collaboration scientists embedded within industry have been cut back. In this last budget we had another round of cuts to the CRCs, the Cooperative Research Centres. These centres are one of the ways that we foster interbusiness collaboration, and collaboration between those networks of businesses with scientists and universities. They are the very instruments we should be beefing up—but they are reducing funding there too.

The response seems to be just a 'get out of the way' mantra accompanied by the idea that if we cut wages, penalty rates, for baristas and waitresses somehow or other that will lead to the fluorescence of our economy. I cannot see that. Tradies tax incentives were introduced. Whilst we are supporting that, we do recognise that under the current settings of government the economy has tanked and we do need a bit of a sugar hit to generate a bit more economic activity. Getting people to buy utes, coffee machines and ovens will provide a short-term economic boost. None of us should think this will be, in any way, a response that will produce a long-term sustainable 21st century industry. It is a very short-sighted perspective from a government that does not understand, cannot come to grips with, what the true role of government is, in the 21st century, in creating industry engagement and industry policy. I note there has been some very powerful analysis in Bloomberg Business about what the impact will be on Australia of our focus on a barista-led recovery.

The member for Banks picked up on the conventional wisdom of the government in this area and said that this is not about picking winners, that we cannot get into this business of picking winners. In fact, I would say that the debate has to be a little more sophisticated than that. I want to reference the work of Dr Mariana Mazzucato, a very important writer in this area. She talks about the need to see the state as a catalyst, a leading investor, as having a role of sparking that initial reaction in a network that will cause knowledge to spread. We need to get to an understanding of the true nature of innovation and how we can foster that. And we need to dispel some of the myths that it is all about venture capital, getting together with these small start-ups and that this will make everything happen.

In reality, over and over again, we can see that strategic government intervention has been absolutely critical. Take for example the Google algorithm. That algorithm, which enabled Google and its search engine to go out there and attract this massive private-sector funding, was initially funded under a National Science Foundation grant in the US. Likewise, most of the molecular antibodies that are fuelling the biotech industry were initially funded through processes like the UK Medical Research Council—well before venture capitalists ever got involved. Many of the most innovative young companies, in the USA, were funded first not by private capital but by public venture-capital organisations, such as the Small Business Innovation Research centre.

The US came to realise this after the Russians beat them with Sputnik and the first man in space. They became very concerned that the industrial military complex was not producing the degree of innovation that they needed. So they changed tack. They said, 'We are going to start funding, now, a lot more blue sky. We are going to go out there and fund people to come up with ideas. We are not going to have a success with each one.' That is critical to this—understanding that not all of these will be a success. They said, 'If we do not do this, we are not going to get anywhere.'

Where do we have a structure like this in the Australian arena? It is the Australian Renewable Energy Agency. This is a fantastic example of a government organisation, with a highly experienced commercial board, that has been able to make strategic interventions, funding a little pure research but mostly funding that early commercialisation phase—where you take it from a laboratory concept to something that is nearing the ability to attract private-sector funding and provide some of that funding for implementation.

This is a perfect example of what has been done in other countries. Those countries that are successful, those countries that come within the top 10 of the innovation conversion states, have governments that do it. It is done in the 'home of the free'. In the United States they are aggressively funding—through their defence agencies, energy agencies and small-business agencies—this early stage of research and capitalisation.

We are completely naive if we think embracing a 'let's get out of the way' small-government approach, in this area, will 'bring home the bacon' for Australia in the 21st century. We have all of the talent and ability out there to do this. What we need is a government that is able to move beyond its narrow neocon ideology and actually understand why countries are doing well, why countries that are ranking other than 81st are there.

Mr HAWKE (Mitchell) (12:22): I rise to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. Listening to that fascinating dissertation from the member for Perth on how the Russians beat the US and the US changed themselves to become more like the Russians, you would think that no-one in human history would ever have been able to function without a government handout, but the reality of the west and of free societies is that people put together their own capital and their own enterprise without the help of the government and do it for their own innovation, profit and development of their businesses and their companies.

It is strange that the member for Perth and the Labor Party continue to talk about strategic government intervention. When you look at the record of the last government, I wonder if they would say the government's intervention into the insulation industry was a strategic government intervention. They engaged with industry as the member for Perth was talking about. They engaged heavily with the insulation industry, and the government learnt they really had no idea how to do insulation. The industry knew how to do it better than you did. That strategic intervention from the government was disastrous. It shut down the whole industry and destroyed the competitive nature of it. That strategic intervention into the insulation industry was a total disaster.

The strategic government intervention into the live export market was a complete and utter disaster. That strategic intervention did not go very well either. In fact, you might need to look at that strategy again, Member for Perth.

The strategic intervention into the green cars program—cars which were already high on the demand list of the consumer, being the new variant models of cars that were energy and fuel efficient and were already being bought by the consumer—had the government intervene to in some cases pay money to car manufacturers to provide cars at three times what the taxpayer would pay for these cars. They would pay with the green car subsidy and in the fleet acquisition of the government when actually the demand in the market was very high and the companies had already developed the innovation. Another strategic intervention into a marketplace.

This bill is so important because it also acknowledges yet another failed strategic intervention into the marketplace, as the member for Perth will tell us, and that is into employee share schemes. She mentioned the United States and how it is a great story. The United States, the freest society on the planet, constructed on the freedom and rights of the individual, as a model of success of government and government intervention in the marketplace. It is a really interesting thesis; she should put together something for the newspaper.

But actually the reason we are uncompetitive in relation to the United States is the bills and legislative measures the Labor government in the last six years brought into place, including in 2009. The Minister for Small Business made an excellent point on this when he said just one minor example—I can give dozens more if I need to—about the competitive nature of Australia and America. He mentioned that stakeholders revealed that companies offering an employee share scheme in Australia are required to have a company valuation completed. The cost of one in Australia is $50,000. The cost in the United States is $2,000 to $5,000—10 times more expensive in Australia for a start-up. That is a product of Labor's thinking, Labor's legislative red tape and other measures they have brought in over many years. There are so many more examples where the United States recognises small start-ups and venture capitalists.

The member for Perth was quite derisive about small business, quite derisive about baristas and coffee shops, but these are the backbone family businesses of the economy, and we should not be derisive about anybody's small business, whether it is a cleaning business, whether it is a gardening business, whether it is a coffee business, whether it is making toast and sandwiches. Anybody's small business, anybody's enterprise, I do not care. It does not have to be high-tech. We do have a high-tech sector and we do have an important future in technology, but the ordinary service provision of our economy every day is not something to be derided or put down even casually by members in this place.

When we consider bills like this, there is a reason why start-ups cannot get going in Australia today: it is because of laws like this that we are amending here in this bill. That is because the Labor Party felt it was a good idea when you offered options to employees up front to pay tax before you could realise a benefit from any option you had been given. In other words, you paid the tax up front. And they wonder why this was never going to succeed. At the time, of course, the opposition spoke about this. The opposition pointed out this was never going to work.

The Labor Party has been lecturing us in the last 24 hours about how they have a plan. They have a plan for a vision, they have a vision for a plan, they have a plan to have a plan to have a vision and they have a vision to have a plan to have a plan. It is so wonderful that they have this great plan and vision for the technology sector in Australia. What would the technology sector do without the plan and the vision of the Labor Party? The answer is that, if the Labor Party would get out of the way on stupid regulations such as the one they put in here saying you have to pay tax up front, venture capitalists, start-up companies and employee share schemes would already have been going for six years now. All of that innovation is much more than could have been delivered by any government five-year plan the Labor Party is so fond of—and there are many statist governments in the world who are big fans of five-year plans.

For six years Australia has suffered under this regime which was never going to work in the first place. Labor thought that, if you tax up front, people will somehow still take up employee share options. Of course, this was a complete naivety about human behaviour, a complete naivety about the functioning of the economy and a dangerous naivety about the role of government in our society. To say people should pay tax before they can realise any benefit from anything is to get no tax and to have something completely and utterly stunted.

We are six years behind in Australia because of the Australian Labor Party, and we do not have time to be behind. We do not have time to be behind our Asian neighbours. We do not have time to be behind the United States. The member for Perth talks about industry engagement and strategic intervention; if she engaged with industry more often, she would learn the No. 1 complaint of businesses large, medium and small in particular in this country is that they are overburdened with red tape and regulation—ridiculous, inefficient regulation that, as the Minister for Small Business pointed out, can cost an Australian business getting a valuation 10 times what it does in the US. If you want to get something approved by the FDA, they recognise small start-up companies and allow for smaller fees to be paid in the US. In Australia, the TGA, one of the most inefficient and bureaucratic regulators in the country, does not recognise small start-ups or Aussie manufacturing. It is the same here with the taxation treatment of employee share schemes.

The Labor Party says: 'Yes, okay, we apologise. We had an unintended consequence of this legislation.' Once again, six years of unintended consequences and Australia is the one that suffers, because all companies which wanted to do this or progress down this path were unable to and, naturally, the taxation treatment that the Labor government put in place meant that you could not even access capital gains tax concessions when you realised your options.

So the government is, again, amending this very important legislation so that those capital gains tax concessions can now be accessed in a reasonable time frame and, importantly, give flexibility to the tax commissioner in order to be realistic with people and not so brutal. We know that, under the previous government in the race for revenue, everybody was a source of revenue. The tax commissioner was sent out to get as much revenue out of the economy as possible, naively, not realising that the more you crack down on that, the less revenue you actually produce. Working with business, working with people realistically and working with the tax commissioner in a flexible way, ironically, enables the collection of more revenue, rather than this heavy-handed approach.

I think the government's amendments here are very worthwhile because they really do understand the nexus between capital gains tax, capital gains tax concessions and the viability of options, especially in the early start-up phase of any business, enterprise or any venture capital work.

While we have heard some apology from the Labor Party, it is more a case that they have been mugged by reality on this topic and so they should be! Six years of going backwards, under this particular legislation they brought in, has really hurt the venture capital market in Australia. And of course they continue to—

Ms MacTiernan: If you were so on the ball, why did it take you so long to bring this in? It was so obvious.

Mr HAWKE: We only just came to government. You were in government for six years so that is why it has taken so long. You have been mugged by reality. You have to support these measures.

Mr Snowdon: You were in government for 11 years before that!

Mr HAWKE: You brought these measures in in 2009. This was your legislation. So if you had kept up and if you were paying attention, you would realise that. This was your idea. Let us just go over it again: to tax options up-front before anybody could realise the benefit from those options. You do understand this, don't you? You do understand what we are doing here today? I really hope you are paying attention because, if you put the tax up-front, nobody can realise the benefit. People are not going to pay the tax up-front. There will not be any options. You are not going to take them, are you, because you have to pay the tax up-front?

Was that ever going to work? That was a very silly idea, wasn't it? You could say that paying your tax up-front was a very silly idea. Do you think it is surprising that any taxpayer in any start-up venture is not going to take these options—

Ms MacTiernan interjecting—

The DEPUTY SPEAKER ( Mr Craig Kelly ): Order! Member the Perth! There are options, if she wishes to make a personal explanation. The member for Mitchell has the call.

Mr HAWKE: Thank you, Deputy Speaker. Member for Perth, I do think you should make a personal explanation on this and explain to the Australian people why we have had to suffer for six years under such an onerous regime, really setting us back. All of your government planning, all of your wont for borrowing money or for taxing, appropriating people's money so you can pick the winners and losers shows a really naive lack of understanding about how the real economy functions. It is not the role of government to pick the winners and losers. For every success story that the member for Perth has raised, there are millions of success stories in the private economy, in the private sector space. For every one that the former government had a hit on, there were hundreds of thousands of government misses. And of course I should mention their strategic interventions in all those industries I have mentioned, including insulation, live export, green cars, which were graphic failures—a government picking absolute losers, costing the taxpayer borrowed and appropriated money in the hundreds of millions of dollars, and including, tragically, some lives in some cases. The role of government is not to pick the winners and losers, it is not to strategically intervene into these areas; it is to allow people to have options given to them up-front, with the appropriate tax concessions.

The government has some amendments here that are appropriate tax concessions, which are reasonable and which are small incentives to incentivise people to have their own employee share options and schemes. These schemes are much more competitive in our competitor nations—the UK, the US. These are very attractive schemes. They provide great benefit for start-ups, employees and employers. They enhance the employee-employer relationship because the employee has a direct involvement in the wealth and success of the business, something that we in this place should all welcome. They seek to break down the negative industrial barriers that the retrograde union movement in Australia so often sets up, which is the employee versus the employer all the time. It is actually a great partnership. We should do anything we can do to provide those incentives for employees to have a great investment in their own business, in the success of their business. It is good for employees, good for employers, good for business and good for the country more generally. So it is vital that we pursue these amendments and make these arrangements more competitive.

I want to commend the approach of the Minister for Small Business. His approach to deregulation for small business is vital. It is the No. 1 thing you will hear from industry and from business on all scales. His moves in this space and, in particular, his getting rid of these ridiculous arrangements the Labor Party put in place that were never going to work in employee share schemes will of course mean that we are much more competitive internationally, attracting more capital and the ability of valuable employees from around the world, who will be able to exercise these options. We just simply cannot compete on the international labour market, the global labour market, with arrangements such as this where options are not attractive to those high-capacity individuals that we do want to see coming here and helping Australians start up in business. This is of course very sensible in that space.

We are increasing the percentage to 10 per cent, in taking into account the reality of the modern economy. I note even one of the members opposite noted the 10 per cent stake in Apple. So 10 per cent is a reasonable threshold.

Finally, I also note, just as a footnote, because it is not very significant, the ridiculous and pious amendment of the member for Fraser, attempting to hide the Labor Party's singular embarrassment about these dreadful measures that have set Australia back by six to seven years, by condemning the government for science and innovation cuts. I have to say to the member for Fraser: no amount of smokescreen can hide the fact that the Labor Party brought in these unnecessary and ridiculous measures that were always going to completely shut down the capacity for employee share schemes to be viable. We are six years behind. I would say to the member for Perth, who is very fond of this phrase, that there is something that the Australian Labor Party can do to help small business, help the economy and that is to absolutely get out of the way.

Ms BUTLER (Griffith) (12:36): I am very pleased to rise in respect of the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 because I want to talk not only about the measures in the bill but also about why employee share ownership matters, what the bill itself does and some other reforms that I think might need to be considered in the future. Firstly, I will go to why employee share ownership matters. I am very pleased to say that I have Andrew Pendleton from the United Kingdom coming in this week; Tony Smith and I are the co-chairs of the Parliamentary Friends of Innovation, and we will be hosting Andrew. Could any members of this House who are interested in talking about the United Kingdom's arrangements for employee share ownership please get in touch with one of us, and we will be happy to arrange a time for you to see Andrew.

I wanted to talk very broadly about some of the big economic issues and where I think employee share ownership fits in with those issues. Standards of living and inequality are affected by a whole range of things, including incomes from wages and salaries, assets and returns from assets, taxes and transfers, prices and economic growth. The middle-class and working-class households generally have assets in the form of superannuation and real property. Some invest in managed funds or have shares themselves and other forms of assets, but I think that this class of asset, employee share ownership—owning shares in the business in which you are employed—opens up another class of assets for employees to own and to benefit from. The reason I think this is important is described quite well by David Hetherington of the Per Capita institute, which is a think tank, in his paper Employee share ownership and the progressive economic agenda, written in 2009, in which he said:

The most important feature of ESO—

that is, employee share ownership—

for employees is that it offers them access to returns on capital, in addition to their returns on labour. The benefits of Australia's 15-year economic boom have flowed disproportionately to investors (owners of capital) rather than workers (owners of labour).

He went on to say:

The economics journalist Ross Gittins has observed (2007) that the share of national income going to workers is the smallest it's ever been, having shrunk from 70.2% in 2001 to 66% in 2007.

And I might add that you continue to see the profit share of the national income rising and the wages share dropping to the present day. David Hetherington went on to say:

This lost share flows instead to investors through corporate profits.

And he said that employee share ownership:

… addresses this imbalance by giving workers access to the flow of corporate profits. It ensures that workers are not unreasonably excluded from this flow by institutional or information barriers.

Employee share ownership schemes could be a way for middle-class and working-class people to get access to more and different assets in the form of shares or as beneficiaries of a trust that owns shares in the business in which they work. As returns on capital can be higher than economic growth and incomes growth, I would argue that middle-class and working-class people should have greater access to assets of this type to assist our nation in combating inequality.

It is worth remembering why it is important to combat and arrest inequality, and I will say something about that when I talk about economic growth shortly. But firstly I do acknowledge that, with greater returns, you often have to bear greater risk. For that reason there should always be appropriate safeguards in place in relation to employee share ownership schemes. For employees, for example, employee share ownership schemes must only be a secondary form of remuneration—it can never replace wages and salaries as the primary form of remuneration in the employment relationship.

There are also other risks. There is a risk to the revenue—a risk that employee share ownership schemes might be misused to avoid tax. Again, safeguards are needed. That is why Labor's 2009 changes were made—to avoid these schemes, which have a rightful place in our economy, from being misused and exploited by people who would avoid their taxation obligations and therefore not pay their fair share.

So of course there are risks, but we cannot let risk aversion stand in the way of opportunity and growth. There is opportunity in share ownership—the opportunity, as I have said, to build wealth through asset ownership and returns. There is also an argument that employee share ownership helps with growth from a couple of perspectives: firstly, if it does in fact help to combat inequality, then that will help with growth, and I want to say something about that, but also, secondly, because of the economic benefits that employee share ownership can bring in terms of private sector economic activity, through providing a capital source for start-ups and also through the productivity and buy-in benefits that you get from employee share ownership schemes. I wanted to mention both of those things.

First, on inequality and economic growth: growth is low and it is slowing around the world. We have seen OECD figures very recently that show that that is continuing—that growth is slowing around the world. Some writers have even suggested that we are in a new low-growth paradigm—that our economies will never grow as quickly as they have done previously. Some are less pessimistic about the future of growth. But, whatever your view about the future, it is a fact, if you look at the numbers, that we do have low growth around the world, and the recent OECD figures show that their member states are suffering slower growth.

Any discussion about worldwide low growth requires that we give some thought to inequality—the two are linked. Inequality matters not just for fairness reasons but also because it can impede economic growth. Last week The Wall Street Journal reported that the secretary-general of the OECD had said:

We have reached a tipping point. Inequality in OECD countries is at its highest since records began. The evidence shows that high inequality is bad for growth. The case for policy action is as much economic as social. By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth.

In very widely reported remarks last year, the IMF's managing director, Christine Lagarde,said the following:

Let me be frank: in the past, economists have underestimated the importance of inequality. They have focused on economic growth, on the size of the pie rather than its distribution. Today we are more keenly aware of the damage done by inequality. Put simply, a severely skewed income distribution harms the pace and sustainability of growth over the longer term. It leads to an economy of exclusion and a wasteland of discarded potential.

Those are very evocative words from Christine Lagarde. These high-level people in major economic organisations talking about income inequality in this way should remind all of us in this place that we need to deal with the growing inequality in developed nations, including our own.

So, if employee ownership schemes could conceivably be used as a tool for combating inequality by opening up access to additional assets and returns on assets for working and middle-class people, then that is an issue that we should be treating very seriously. If we can combat inequality, then that will help us with growth. As I said, for growth to occur our country needs new businesses, new economic activity, new jobs, and innovation that improves products, improves services, and improves work practices—leading to better productivity. We also need to improve, as I said, buy-in—ownership in the real sense of the word, not just in the legal sense but in the sense where employees actually feel like the business is their business, that they have a stake in it.

Start-up companies are important forms of new economic activity that can create jobs and opportunity. A recent study commissioned from PwC by Google, The startup economy: how to support tech startups and accelerate Australian innovation, showed that in the right conditions high-growth technology companies could contribute four per cent of GDP, or $109 billion, by 2033 from a base of approximately 0.2 per cent of GDP today—and add 540,000 jobs to the Australian economy.

But start-ups need access to capital. They need access to finance. The people behind start-ups are often using their family homes as security to get capital. Employee ownership schemes can be a piece of the capital puzzle for new businesses—and so too can the measures that Bill Shorten recently announced in his budget reply. I think his start-up finance measure is an example of excellent policy. In my work as an MP, and as a co-convener of the Parliamentary Friends of Innovation and Enterprise group, I have heard businesses talk about their concerns that there is a culture in Australia where people are scared of failure. Businesspeople are worried about risk aversion, about people being too cautious. They say we do not have a culture where it is seen as okay to fail. They draw a distinction with Silicon Valley, where people are actually expected to fail a few times in business. They are concerned that our home-grown entrepreneurs are being too cautious and risk averse.

One important difference between the US and our country is that here, as I have said, the family home is often used as security. I am told that is not the case in the United States. So Bill's announcement on start-up finance is, I think, a great initiative. It is a way of giving those new businesses access to finance without their having to use their family home as security. Bill said:

Currently Australian micro-businesses either struggle to get a loan or may borrow via other means, such as residential mortgages, in the absence of cheaper, more appropriate financing alternatives.

We want to help more Australians convert their great ideas into good businesses. We will enable entrepreneurs to access the capital they need to start and grow their enterprises without them having to take risks on the family home.

I think, as I have said, that that is an excellent policy and I congratulate the Leader of the Opposition for that announcement in his budget reply.

To return to employee share ownership schemes: they can be a piece of the capital puzzle. But, as I have said, they can also be useful in creating that sense of ownership, that buy-in, and for so many other things. They can build employees' preparedness to give discretionary effort. We all know that in business it is discretionary effort that really makes for a great-performing team or individual. Employee share schemes can be a means of providing additional remuneration. If you pay people better, you tend to get better performance out of them. I know that comes as a shock to some people in the coalition, but that is the case. Employee share schemes can also create incentives for innovation—not only in products and services but in work practices and collaboration.

In the paper I mentioned before, David Hetherington said:

Employee shareholders enjoy the returns of improved company performance and can affect this performance through their own productivity.

A host of studies demonstrate that employee shareholders do in fact demonstrate greater productivity.

He went on to list a number of studies from the United States, from Australia and from Japanese firms. He noted, for example, the study by Douglas Kruse and Joseph Blasi of 250 companies that had adopted ESO plans. That study found that these firms increased sales per employee by 2.3 per cent per annum over what would otherwise have been expected. David Hetherington went on to say:

In addition to the specific productivity benefits, a second set of research indicates that companies with ESO plans demonstrate higher performance across a number of parameters. An analysis of seventy separate studies by Blasi et al. (2003) considered the effects on company performance of "partnership capitalism" (defined to include employee stock ownership, broad-based stock options, profit sharing and employee participation). This found that companies that embraced any one of these four approaches experienced a 4% gain in productivity, a 14% gain in return on equity, a 12% gain in return on assets, and a 11% gain in profit margins (controlling for other factors).

This research shows that you can link a greater employee stake in businesses with greater returns for everyone—in other words, growing the pie. For those businesses that think, 'I am happy to share my profits but I do not want to really share ownership', I would say that, if sharing ownership can improve returns for you and for your employees, it seems to me to be something that really ought to be considered—and those additional benefits I have spoken about are really important benefits for our wider economy.

So, as I have said, there is a really progressive case for employee share ownership. I think it is an issue that requires a lot more discussion, debate and investigation. There are a lot of things we can talk about in this space. Last week Employee Ownership Australia and New Zealand held their annual conference in Melbourne. I was fortunate enough, with my colleague Tony Smith, to attend a breakfast hosted by a number of the larger companies with employee ownership plans. We talked there about some of the issues they faced. There are so many different large businesses that use these plans—not just as a form of remuneration and a way of engaging their most senior executives but as a way of engaging people throughout the business.

The businesses at that breakfast mentioned one possible future reform that I do want to cover, but before I do I wanted to make it clear that Labor are supporting these changes because we believe that they build on our approach to employee ownership. We do want to see protections against tax evasion. We have made that really clear. We do want to see integrity measures, but we think the amendments being made today represent a sensible refinement aimed at boosting innovation while still ensuring that that tax evasion, that misuse of schemes, does not occur. We have been consulting with start-ups—and I pay particular tribute to Ed Husic in that regard. The next step, as raised by a number of businesses, is to address taxation upon cessation of employment. It is an issue I will be continuing to raise.

WYATT ROY (Longman) (12:51): It is a great honour to speak on these bills because it has been a very long journey to get to where we are today. Members of parliament come from very diverse backgrounds. I am very proud to say that I come from a farming family, and my brothers work in the mines in Queensland. Those are great industries but our nation's future prosperity extends beyond the farm gate or the mine head. Despite how great Australian agriculture is, despite how great our mining sector is, our future prosperity as a nation must extend beyond just the farm gate or the mine head. Our nation is at its best when we embrace the cultural heritage of having a go, when innovation is active in our collective psyche.

There is no doubt that our country faces significant challenges in the future. We have the challenge of an ageing population: today 7½ people are working for every person who is not, but by 2050 that will only be 2½ people. We have an intergenerational debt burden left behind by the former Labor government. We have the resources boom coming off. Despite all these challenges that we face, we should be infinitely optimistic about our potential future prosperity—not because of the resources we have in the ground but in light of the abundant innovative capacity of our people. Critical to harnessing this innovation that we have in our country is creating and fostering a proper start-up ecosystem of innovation that supports the next generation of entrepreneurs.

To develop this start-up ecosystem in Australia we need to do a number of things. We need to have a coordinated approach across government, across higher education and across capital investment, and we need to have a cultural shift as a nation to realise that people going out and taking on a risk by starting a business and trying to create their own future success is something that we need to embrace and champion as a nation. We have the fundamental components to create this new culture, this new start-up ecosystem, in Australia. We have deep reserves of young, bright, talented Australians. Countless numbers of young and intelligent entrepreneurs from across the globe want to come to Australia because of our lifestyle. Sure, Silicon Valley, Israel, Singapore, Hong Kong and South Korea are achieving much in this space, but if you ask somebody of my generation whether they want to live there or in Sydney, Brisbane or Melbourne our Australian lifestyle is a major magnet for some of the brightest entrepreneurs across the globe. I think we as a nation underestimate the importance of being placed at the heart of a new global economic powerhouse, a growing Asia. Australia has the potential to harness that and become the epicentre of Southern Hemisphere entrepreneurship.

I would like to point out what we can achieve if we take hold of these opportunities. The Startup Economy, the PricewaterhouseCoopers study commissioned by Google Australia, showed that high-growth technology companies could contribute four per cent of GDP, or $109 billion, and add 540,000 jobs to the Australian economy by 2033—and that is coming off a base of only 0.2 per cent. Ultimately if we get these policy settings right, there next generation of Australians, as they graduate from high school, will be able to find future jobs in new industries where we have a massive export potential to the globe. Today, services make up about 80 per cent of our economy but only 17 per cent of our exports. If we get this right, we can do so much better as a nation.

There are three areas that I said we need to look at as a nation to get that start-up ecosystem at its best in Australia. The first is capital. Last year, Australians bet $200 million on the Melbourne cup—we love to have a gamble—but venture capital in Australia only invested $100 million in start-up companies. So when we have entrepreneurs looking to grow their businesses through the valley of death, there is obviously a clear need to attract venture capital in particular. I would also say—and the opposition has made some policy statements on this that I welcome and support—that there needs to be an understanding that, as we do that, we need to attract not only the capital but also the talent to put that into businesses in the most effective way. Other countries across the world have not done this on their own. They have attracted the largest and most successful venture capital firms to partner with venture capital firms in their own country to help grow not only the capital pool but also the talent pool.

The second area that we need to address is a shift in culture. Australians are good at being entrepreneurs. But something unique about us is that we like to hold ourselves back and invest in things that have a secure and safe return in the long term. We like to invest in resources, infrastructure and real estate—things where we can ensure we will get a little bit of a return. But if we are to reach our full potential, we need to have a culture shift that says if you go out and start a business you might fail one, two, three, four, five, six or seven times but if the eight businesses is successful you have developed the skill set you need to grow that business and create prosperity. Ultimately what we would hope is that the next generation of Australians would feel as excited about starting a business as they would about going to the mines and driving a truck for $100,000 a year. And while small business start-up rates are now at the highest level they have been at in over 10 years, the rate for people aged under 35 starting in business is actually falling. So we do need to have a cultural shift where we champion success in this country—not attack it, not vilify people who have had success. We need to say it is a great thing that they have taken on some risk; they might have had some failure but they are ultimately helping to create future prosperity not only for themselves but for the country.

The other thing we need to look at is attracting talent from across the globe. We should not say that smart entrepreneurial people coming to Australia from around the world are taking Australian jobs. Too often the debate evolves into a cheap political thing at that point. In my mind, if a smart young entrepreneur or smart scientist or a smart person in the IT sector comes to Australia to help create a business and help develop the Australian start-up ecosystem, that is a great thing for us as a country. We should champion that and, ultimately, if those businesses grow and invest in Australia they employ more Australians and we create more jobs for future generations of Australians.

There are many things that we can do as a country to help attract that talent. That could be entrepreneurship visas when we are looking at the skilled migration system that we have—ensuring that we are getting people with these critical skills to come to our country. The final measure in that, of course, are employee share ownership schemes, which I will come back to and go through in greater detail because that is what this legislation seeks to change here today. They are an important key point in developing Australia's start-up ecosystem.

But, as I said, we need cooperation as well. We need cooperation from government, from higher education and from capital investment to develop the Australian ecosystem. In Australia, we seem to do something very odd: we have some of the best research and science in the world, but we seem to fall a little short when it comes to the commercialisation of those great ideas. We have some of the most amazing research happening of anywhere in the world, particularly in the medical field, but those ideas and the research that has been developed often goes off to places such as the United States or Israel to be commercialised. When you look at the success across the globe of the commercialisation of those great ideas, there is very clear cooperation between higher education, the government and the private sector. If you are in Technion university in Israel or if you are in Stanford University in the United States, there is very clear cooperation. A business is effectively set up at those universities and its sole purpose is to commercialise those great ideas. The KPI on those universities is not research for the sake of research but it is research for the sake of changing the world—making the world a better place and actually commercialising those ideas. I think we have an enormous amount that we can learn from our partners around the world when it comes to cooperation between those different sectors.

But, finally, I want to come to the legislation—what we are seeking to change in the parliament here today. In the bill we are changing the employee share ownership plan for Australians. Employee share ownership is such an important part of developing Australian entrepreneurship and the start-up ecosystem in Australia. Employee share ownership schemes do a number of things. They drive motivation in those companies. If, as an employee, you have a direct stake in that company then you are invested in its own success, and that entrepreneurial spirit is driven not just by those at the top of the company but all the way down. ESOPs allow us to attract the best talent from around the world. As I said before, if we can attract the smartest people from around the world to invest and grow Australian companies—to have a direct stake in those companies—that will help create a much better ecosystem here in Australia.

Ultimately, there is an equity issue here as well: what ESOPs allow is the spreading of those benefits throughout the entire company. So if a company has had great success, that success does not just sit with the boss but everybody in that company who has a stake in the company gets some of the rewards. That is how we can attract someone who is very bright and very talented, and who might come and invest or be part of an Australian company. They may take somewhat of a pay cut, but they take some of the stake in that company so that when it achieves success, collectively, they all enjoy those rewards. If we look to the United States we can see what is achievable. In the United States approximately 28 million employees have an employee share ownership plan—one-fifth of the entire private sector has an employee share ownership plan.

This is correcting a wrong—and I do not want to be partisan in this debate. Perhaps it is political naivety, but I do think that when it comes to innovation and entrepreneurship in this country we do have an amazing ability to have a bipartisan approach or bipartisan policy creation. Perhaps that might not come to pass, but at least we are going to try. But I do have to make the point about what we are fixing. In 2009, unfortunately—perhaps it was an unintended consequence and perhaps it was not so deliberate—when the Labor Party changed the employee share ownership schemes they removed those incentives, simply by taxing an employee at the time of the issue rather than when they received those proceeds. They took away all of these amazing benefits that we can see in the employee share ownership schemes. They took away that motivational connection and they took away that ability to attract the best talent. Essentially, we saw start-up businesses, in many cases—and I have spoken to them myself—moving overseas simply because of this one policy initiative. So today we are correcting a big wrong in history when it comes to developing Australia's start-up ecosystem.

But there is obviously so much more work to do. As I look at the debate that we are having around innovation and entrepreneurship in Australia I am very excited. I feel that through history we have often been a country that has simply been prepared to ride on luck. But for the first time I can feel us sensing something far greater in this country. For the first time—well, not for the first time—we might take a very significant step in history and be prepared to be a nation that starts making its own luck, taking hold of the opportunities that are clearly sitting there for the next generation of Australians.

I very proudly commend the bill to the House.

Ms OWENS (Parramatta) (13:06): I am really pleased to stand to speak on the Tax and Super Laws Amendment (Employee Share Schemes) Bill 2015 today, because this is the one of the things that parliament should do more often.

This is very much about the parliament as a maker of space for the people who will drive our prosperity in the future. I use the phrase 'maker of space' quite deliberately. It comes from the last paragraph of a book called Invisible Cities by an Italian author, Italo Calvino—a great author, by the way, and an extraordinary book. It is essentially a conversation between Marco Polo and Kublai Khan. In the last paragraph of the book—and you can read the last paragraph first; it is not a linear narrative, so I will not wreck it!—they are talking about hell and hellfire:

And Polo said: "The inferno of the living is not something that will be; if there is one, it is what is already here, the inferno where we live every day, that we form by being together. There are two ways to escape suffering it. The first is easy for many: accept the inferno and become such a part of it that you can no longer see it. The second is risky and demands constant vigilance and apprehension: seek and learn to recognize who and what, in the midst of the inferno, are not inferno, then make them endure, give them space."

In many ways, when we talk about these start-ups, extraordinary people have come up with something new. These are not businesses based on things that people have thought of before. These are not people who copy other ideas. These are people who start with nothing and find a way of looking at the world that causes them to come up with a new idea and then set about making that happen. These are extraordinary, rare people in every society. It is not a normal feature of a human being that we can throw aside the assumptions that we have built up over a lifetime. But there is this relatively small number of people who can. They just see the world differently. They recognise within themselves what is an assumption and what is reality and find another way to look at it. They come up with ideas that, once they have come up with them, we all say, 'Well, that was obvious.' But in all the world they were the only one who actually came up with that idea. These are extraordinary people and people we should value, because they are the people who will drive this country into the next century. How we make that space for them to do what they do will be one of the major determinants on how well this country prospers in 2050.

I first encountered one of these people many, many years ago. I am going to tell this story because it demonstrates this quirk of perspective which is so special. There was a consulting company back in the late 1980s that I knew quite well. They were problem solvers. They were the kind of company that you engaged when you had a big problem that no-one else could solve. That was it. The problem that a particular company had was that they had built a new building that had one lift and it was slow. Retrofitting a lift is really expensive. The staff who were on the top floors of this building were getting really annoyed. That the lift was slow was destroying morale. Who would have thought? But, apparently, it was really slow. It took something like two minutes to get to the top of the building. So they employed this consulting company and asked, 'What can you do? We cannot afford to retrofit.' A month later, the consulting company came back with a piece of paper with one sentence on it. It said, 'Put in mirrors.' The conclusion was that the problem was not that the lift was slow; the problem was that no-one had anything to do in the lift while it was slow. Speed was not the problem; it was boredom. So they put mirrors in and the problem went away. They put mirrors in so that people could fix their make-up, do their hair or whatever else they wanted to do. So the two minutes became the time when you fixed your make-up or checked out your pimples—whatever you do in a mirror!—and the problem went away.

It is an amazing ability for a person to see a problem that everyone sees as the same and to flip it over and turn it into something else. I remember that at the time I thought, 'That is a very valuable trait in any country.' We have people like that. These are not people who respond to change. We often hear in this parliament, in the media and even from some of our great academics and policy thinkers about the need to respond to change. These people do not respond to change; they are the change. They pick the world up and they turn it into something else. They are some of our most valuable contributors. There are few of them. For those of us in this parliament looking for votes, there are not many of them. The return that we get as a country will not come until the next generation. Ten years down the track we will be seeing the benefits of the space we create for those people today.

We are doing something quite special today. We are recognising in many ways that, just as these special thinkers turn the world upside down through their perspective of what can be done and how to fill a need, they also quite often turn the world upside down on how to fund it. They really do. Those old assumptions we have on how you raise capital, build it and appreciate it, how the world works, when you invest and what the return period is essentially came from the agrarian age and the industrial age. All of that, for these people, is not it. They look at the world of finance and they turn that upside down as well. They come up with ways of moving from where they are with nothing to profit through a different path than we have considered. They are making up new ones all the time. They are finding new ways to do it all the time.

We as a parliament needs to be as flexible as possible in recognising that those changes will come and that they will keep coming. It is our job to keep that space as flexible as possible as long as the behaviour is about the business model, not the tax break. As long as it is about the business model and what the business needs to finance its growth, governments should be there supporting these rule breakers and these people who generate the next wave of change.

This amendment does that. This amendment is to the work done by the previous Labor government in 2009 designed to take out the behaviour of many people, particularly at the upper end of business, who were using employee share schemes as a way—let's be honest—to avoid tax.. It did that, and it did it quite effectively. Then it was discovered that those laws were also impacting on people who were using employee share schemes in a perfectly legitimate way to build their business, particularly in the early stages of start-ups. It is not like the old way. I often say that accounting was invented in the agrarian age when there really was an annual cycle. There is not an annual cycle for many, many businesses now. This employee share scheme recognises that quite often a person contributes to your business in the early stages of it well above an employee. In fact, what they contribute profoundly affects the ability of the idea to be finalised and exploited. These share schemes provide in that business model a genuine way to reflect the contribution that a person makes to a start-up. It also allows a group of people to share in the future of that start-up and to have a greater degree of buy-in. So it serves a very real purpose. One of the unintended consequences of that action in 2009 was that it shut down that option for a range of very, very important people who we need to do well.

As the previous speaker said, we as a country also need to be more forgiving of the level of failure of new ideas. They are not always successful. I am well aware that, if you go into business with a person on a start-up, experience in past ones, successful or not, is incredibly valuable. Getting it right is incredibly difficult when you are making the path as you go, when you are not treading a path already trodden.

This is a good amendment. In the interests of being extremely flexible, I suspect that changes will still need to be made in the not-too-distant future because the world is changing even in this space as we speak. We as a parliament need to be incredibly flexible and willing to consider the changing needs of this sector. That is where I want to say one thing about the government's speed on this legislation. I will try to be very mild about it, because I genuinely believe that if we, as a nation, want to provide the space for start-ups, for the people who will create the change that will drive growth in the future, we need to have a very bipartisan and cooperative approach to flexibility. I know that the Assistant Treasurer, who is sitting here at the table, has already said that, in terms of crowdfunding, this bill and a whole range of other—

Mr Tudge: Shadow Treasurer.

Ms OWENS: 'Shadow'; sorry. I was jumping ahead there.

Mr Bowen interjecting—

Ms OWENS: Did I say that? My apologies, shadow Treasurer. I thought I had called you 'Treasurer' by mistake. The shadow Treasurer—I almost did it again—has already said that we will cooperate with the government in these areas—and that is very fine thing.

My criticism of the government in relation to this bill is that it has taken an extraordinary length of time. In the world that we are dealing with, speed actually does matter. This legislation is something that the start-up community has wanted for some time; it is something that the Labor opposition committed to supporting back in March last year. So we are actually a year down the track now. I hope that when the government deals with crowdfunding, which it says it is going talk about it, it is a little faster than it has been in this area. They are not the only two areas. We have also got Fintech and a whole range of other new ways of funding activity that are emerging and which this parliament needs to deal with and deal with them as quickly as it can in a bipartisan way and accept that flexibility will be required as the world changes.

I was reading up on crowdfunding again the other day. I have been following it for quite a while. Not only have I been following it for quite a while; but I have probably been doing it for about 30 years. It is amazing how sometimes new ideas are not that new. Back in the music world we used to regularly crowdfund CDs. If you were into really niche music, where a band would release maybe 500 copies of a CD at the most—and 300 of them would stay under their bed—which I was, the only way that you could get those CDs was to buy one a year before they made them. I remember I once bought a CD from a group called Mind Body Split—Rik Rue, Sherre De Lys and Jim Denley—which were a really interesting group of musicians back in the late eighties and early nineties. I bought it at least a year before it was released. All their fans basically crowdfunded their recordings, and that was quite common. So it is amazing sometimes how a good idea comes into its time.

There is an incredible amount of work to do by this parliament in those areas, and I would urge the government to take advantage of the bipartisan approach to the need to do that and to take action as quickly as possible. It is a welcome amendment, as I said, if not a little bit later than it could have been. It is not finished yet. I think various sectors still have issues, so there is more work to be done. But I am very pleased to stand up and speak to this bill, because it is a bill that is a maker of space.

Mr WILLIAMS (Hindmarsh) (13:18): The Australian economy faces many challenges as it transitions from the mining boom and competes with the growing economies of Asia. People often ask me where the jobs of the future are. I do not intend to attempt to address this point today but part of the answer is in the start-up and entrepreneurial hi-tech sector.

When commenting on the entrepreneurship culture in Australia, EY Partner Annette Kimmit said that, as the mining investment boom wanes, successful entrepreneurial businesses will be more important than ever for future job creation and the sustainability of the Australian economy. Our track record in Australia in the hi-tech sector is something we can be proud of. The bionic ear was invented by Cochlear, and this company employs over 2,000 people. The wi-fi technology that connects billions of devices around the globe was made in Australia. Other success stories that are commonly known include Seek, with revenues of around $500 million; Atlassian, a worldwide leader in software development, employs around 450 people; and Freelancer, whose founder Matt Barrie was born in Adelaide, has over 14 million registered users, with revenues of $66 million and 270 staff around the world, and was listed on the ASX in 2013. But there could be more success stories—and we need more.

Government has a small role to play. Part of our plan to help grow the economy and incentivise business and enterprise is the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. In 2009, the former Labor government made a number of changes to the way that employee share scheme arrangements are taxed. One of these changes meant that the discount component of shares or options issued under an employee share scheme was taxed when the employee received those shares or options. This forced employees to pay tax on their options before they could take any action to realise a financial benefit from those options. This was a major problem. The Labor changes were widely criticised by those in the start-up community and the business sector more broadly.

The member for Rankin, who spoke earlier on this bill, quoted PricewaterhouseCooper's figures. He may have also noted that the same PwC report—which I assume he quoted the figures from—said:

Changes were made to the Employee Share Option Plan in 2009 and...... the startup community would like to see Employee share ownership plans brought into line with the US and the UK where it is still treated as a capital gain and not as income.

The changes in the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 are intended to better align the interests of employers and their employees, and stimulate the growth of start-ups in Australia.

This bill makes two main changes to the tax treatment of employee share schemes. Firstly, for all companies, employees who are issued with options will generally be able to defer tax until they exercise the options—convert the options to shares—rather than having to pay tax when those options vest. Secondly, eligible start-ups will be able to issue options or shares to their employees at a small discount and have that discount exempted for shares or further deferred for options from income tax. An eligible start-up is a business with a turnover of not more than $50 million, is unlisted and has been incorporated for less than 10 years. In addition, employees will need to hold the shares or options for a minimum of three years to qualify for this concession.

Other changes that are being made for all companies include that the maximum time for tax deferral will be increased from seven years to 15 years and the maximum individual ownership limit will be doubled from five per cent to 10 per cent. The government has also addressed this red-tape burden. Like we are doing with so many other sectors of the economy, we are looking at reducing red tape and deregulating those sectors that are causing obstacles for businesses and organisations. In this area, we are developing a standardised documentation that streamlines the process of establishing and maintaining an employee share scheme, and also developing a safe harbour valuation method for unlisted shares. The Australian Taxation Office has recently completed its consultation on both of these changes.

The government consulted on the draft legislation and heard a wide range of views. Consultation meetings were held and around 50 submissions were received. In my state, South Australia, I discussed the employee share schemes with key bodies such as Business SA and the Entrepreneurs Organisation, as well as leading professional advisers like Piper Alderman lawyers, PwC, EY and BDO. They responded positively to the government's proposal, as did the majority of written submissions, which noted that the changes are positive and encouraged the government to implement the proposed changes by 1 July 2015. That is what we are doing here today.

Following these consultations, the bill now addresses technical concerns and further clarifies policy on the start-up concessions. As a result of the draft legislation, the final bill has changed to extend eligibility rules for the start-up concession. Stakeholders will welcome these changes, including that start-up concession recipients will be able to benefit from the 50 per cent capital gains tax concession and that large venture capital investors do not rule out eligibility for the start-up concession.

From my time advising small businesses in Europe and in Australia, I have always been impressed by the talent, passion and commitment of entrepreneurs and leaders in the high-tech sector. One of these is Alan Noble, head of engineering for Google Australia. Mr Noble, who is based in Adelaide, said in Adelaide'sThe Advertiser last year that Australia must move from a country with low start-up rates and venture capital investment into a knowledge-intensive industry and economy. Alan said that, with the right conditions, high-tech companies could add thousands of jobs to the economy. The PwC report stated that the Australian tech start-up sector has the potential to contribute over $100 billion, or around four per cent of GDP, to the Australian economy and over 500,000 jobs by 2033 with a concerted effort from entrepreneurs, educators, the government and corporate Australia.

Most start-ups in Australia are located in Sydney and Melbourne, which is expected. A matter of concern for my state is that only one per cent come from South Australia—lower than Queensland at seven per cent and even the ACT and WA at two per cent. That is not to say that there is not a great entrepreneurial culture in my state. Those involved in the 'engine room' include Marcus Bailey and Conor McKenna of Twoeyes. They are two of a number of individuals I have been engaged with who invest in the South Australian start-up community. Individuals like Marcus and Conor are not waiting for government to act, however. As highlighted in the PwC report, experience around the world suggests that government initiatives are unlikely to be the catalyst for growth. Importantly, by international standards Australian governments are relatively supportive. R&D tax credits and the Innovation Investment Fund contribute positively to the sector. This is supported by an EY report in 2013 that found Australia ranks fifth among G20 countries in having a conducive environment for entrepreneurial activity.

This bill is an important step in better positioning Australia to benefit from the economic benefits from emerging high-tech companies. Naturally, there is more that can be done, but, through other initiatives, such as improving our education system and a greater focus on STEM—science, technology, engineering and maths—by government, industry and tertiary institutions, we are on the right track. I note that the Abbott government has, in its Students First initiative, committed an additional $12 million to restore the focus and increase student uptake of science, technology, engineering and mathematics subjects in primary and secondary schools across the country. But entrepreneurship, as a career, needs greater support at all levels of education. Students should be encouraged to think outside the box of traditional jobs and consider being a business owner, generating wealth and employment.

This is a challenge for governments, policymakers and educators. It is also a challenge for our society, including our media, to profile successful entrepreneurs in the same way that we profile and promote our sporting stars. Research about growing ecosystems emphasises the importance of leadership, communities, culture and education. We need more people interested in entrepreneurship. I again quote the PwC report, which said:

Entrepreneurial activity is heavily influenced by the cultural environment surrounding entrepreneurs. Ecosystems where … entrepreneurial successes are highly visible in the media are good indicators of the population's entrepreneurial intentions and total early-stage entrepreneurial activity.

In closing, I want to quote Maria Pinelli, the Global Vice Chair of Strategic Growth Markets at EY. She says:

Entrepreneurs have the power to create jobs and drive growth—but first we need to give them the tools and the environment that will enable them to succeed.

Ms Macklin: Keep going! They won't let us start until 1.30.

Mr WILLIAMS: You're not ready? Come on, guys!

Mr PYNE (Sturt—Leader of the House and Minister for Education and Training) (14:07): by leave—I move:

That the resumption of the debate on the Speaker's announcement relating to the death of Hon. Leslie Royston Johnson AM be referred to the Federation Chamber.

Question agreed to.

The SPEAKER: The member for Ryan?

Ms Ryan: My question is to the Prime Minister—

The SPEAKER: I am sorry. The member for Ryan is quite out of order and will resume her seat.

Honourable members interjecting—

The SPEAKER: I hope that is not an indication of the way the game will be played tonight!

The SPEAKER (15:16): I present the Selection Committee report No. 25 relating to the consideration of committee and delegated business and private member's business on Monday, 1 June 2015. The report will be printed in the Hansard for today and the committee's determinations will appear on tomorrow's Notice Paper. Copies of the report have been placed on the table.

The report read as follows—

Report relating to the consideration of committee and delegation business and of private Members' business

1. The committee met in private session on Tuesday, 26 May 2015.

2. The committee determined the order of precedence and times to be allotted for consideration of committee and delegation business and private Members' business on Monday, 1 June 2015, as follows:

Items for House of Representatives Chamber (10.10 am to 12 noon)

COMMITTEE AND DELEGATION BUSINESS

Presentation and statements

1 Joint Committee on Law Enforcement:

Examination of the Annual Report of the Australian Crime Commission 2013-14.

The Committee determined that statements may be made—all statements to conclude by 10.15 am.

Speech time limits—

Mr Kelly — 5 minutes.

[Minimum number of proposed Members speaking = 1 x 5 mins]

2 Joint Committee on the Australian Commission for Law Enforcement Integrity:

Examination of the Annual Report of the Integrity Commissioner 2013-14.

The Committee determined that statements may be made—all statements to conclude by 10.20 am.

Speech time limits—

Mr Matheson — 5 minutes.

[Minimum number of proposed Members speaking = 1 x 5 mins]

3 Standing Committee on Economics:

Review of the Australian Prudential Regulation Authority Annual Report 2014 (Second Report).

The Committee determined that statements may be made—all statements to conclude by 10.30 am.

Speech time limits—

Mr Alexander — 5 minutes.

Next Member — 5 minutes.

[Minimum number of proposed Members speaking = 2 x 5 mins]

4 Standing Committee on Tax and Revenue:

2014 Annual Report of the Australian Taxation Office: First Report.

The Committee determined that statements may be made—all statements to conclude by 10.40 am.

Speech time limits—

Mr van Manen — 5 minutes.

Next Member — 5 minutes.

[Minimum number of proposed Members speaking = 2 x 5 mins]

5 Standing Committee on Infrastructure and Communications:

Balancing Freedom and Protection: Inquiry into the use of subsection 313(3) of the Telecommunications Act 1997 by government agencies to disrupt the operation of illegal online services.

The Committee determined that statements may be made—all statements to conclude by 10.50 am.

Speech time limits—

Mrs Prentice — 5 minutes.

Next Member — 5 minutes.

[Minimum number of proposed Members speaking = 2 x 5 mins]

6 Standing Committee on Agriculture and Industry:

Circumvention: closing the loopholes — Inquiry into Australia ' s anti-circumvention framework in relation to anti-dumping measures.

The Committee determined that statements may be made—all statements to conclude by 11 am.

Speech time limits—

Mr Ramsey — 5 minutes.

Next Member — 5 minutes.

[Minimum number of proposed Members speaking = 2 x 5 mins]

PRIVATE MEMBERS' BUSINESS

Notices

1 MR PALMER: To present a Bill for an Act to prevent the disclosure of information by public officials in circumstances that may lead to the imposition of the death penalty in foreign countries, and for related purposes.

(Notice given 12 May 2015.)

Time allotted—10 minutes .

Speech time limits—

Mr Palmer — 10 minutes.

[Minimum number of proposed Members speaking = 1 x 10 mins]

Presenter may speak to the second reading for a period not exceeding 10 minutes—pursuant to standing order 41.

2 MR SHORTEN: To present a Bill for an Act to amend the Marriage Act 1961 to establish marriage equality, and for related purposes.

(Notice given 26 May 2015.)

Time allotted—10 minutes .

Speech time limits—

Mr Shorten — 10 minutes.

[Minimum number of proposed Members speaking = 1 x 10 mins]

Presenter may speak to the second reading for a period not exceeding 10 minutes—pursuant to standing order 41.

3 MR KATTER: To present a Bill for an Act to establish a Commission of Inquiry into Iron Ore Supply and Demand, and for related purposes.

(Notice given 26 May 2015.)

Time allotted—10 minutes .

Speech time limits—

Mr Katter — 10 minutes.

[Minimum number of proposed Members speaking = 1 x 10 mins]

Presenter may speak to the second reading for a period not exceeding 10 minutes—pursuant to standing order 41.

4 MR BROAD: To move:

That this House notes:

(1) that Australian small business is a major contributor to the national economy and should be acknowledged for its innovation, entrepreneurship and endeavour, as demonstrated by the 15,000 small businesses across the electoral division of Mallee and many small businesses across the rest of Australia; and

(2) the recent budget must be commended for assisting small business with accelerated depreciation for assets purchased under $20,000.

(Notice given 26 May 2015.)

Time allotted—remaining private Members' business time prior to 12 noon.

Speech time limits—

Mr Broad—5 minutes .

Other Members—5 minutes each.

[Minimum number of proposed Members speaking = 6 x 5 mins]

The Committee determined that consideration of this should continue on a future day.

Items for Federation Chamber (11 am to 1.30 pm)

PRIVATE MEMBERS' BUSINESS

Notices

1 MR NIKOLIC: To move:

That this House:

(1) recognises the:

(a) need to destroy, degrade or contain terrorism in all its forms in source or origin countries;

(b) clear and present threat posed by transnational terrorism in our region;

(c) sustained efforts of both the Australian Defence Force (ADF) and our civilian national security agencies to identify, attack and degrade foreign or 'source nation' terrorist threats at the very earliest opportunity, most notably since the 2002 Bali bombings (which claimed the lives of 202 people, including 88 innocent Australians, and injured a further 209);

(d) unique geo-political circumstances of Australia which will continue to emphasise the need for cooperative and heightened security vigilance and activity with, by and from our key regional partners and allies, over the long term;

(e) potential for Australian security forces, both civil and military, to continue to act as effective, practical agents to reinforce, bolster and continually invigorate critical regional partnerships and engagements, toward a stable and prosperous long term regional future, and one which is mutually beneficial to all national participants;

(f) potential offered by the Government's holistic approach to home-grown terrorism, to constitute a working model for consideration, adaptation as appropriate, and possible implementation, by equally determined Governments and nations, throughout our region;

(g) need for sustained vigilance and regional engagement by all like-minded nations in our region;

(h) need to maintain and support both ADF and civilian security agency capabilities, at the very forefront of counter-terrorist operational capacity and capability;

(i) need for sustained border protection regimes and procedures; and

(j) importance of maintaining and sustaining Australia's traditional defence alliance and treaty arrangements;

(2) acknowledges:

(a) the Government's active and constructive efforts to do all within its powers to halt terrorism at its source, or points of origin;

(b) that the Attorney-General's Department has led and implemented a diverse array of constructive initiatives and measures in support of community safety and resilience, which will further complement 'offshore' counter-terrorist initiatives and endeavours;

(c) that Australian Government actions are in lockstep with sensible international responses to this global trend and challenges; and

(d) the importance of secure information-sharing with traditional allies and regional partners, to achieve the negation of potentially diverse terrorist threats; and

(3) endorses and lends ongoing support to the Government's longstanding efforts to diminish the current and future terrorist threat to all Australians, including the removal of Australian citizenship status from dual citizens who are involved in terrorism in Australia or abroad.

(Notice given 26 May 2015.)

Time allotted—40 minutes .

Mr Nikolic — 5 minutes.

Other Members—5 minutes each.

[Minimum number of proposed Members speaking = 8 x 5 mins]

The Committee determined that consideration of this should continue on a future day.

2 MS HALL: To move:

That this House:

(1) condemns the Government's decision to cut, without any warning and consultation, all funding from the Inborn Error of Metabolism (IEM) Programme that provides for families and carers with children who suffer from Phenylketonuria (PKU);

(2) acknowledges that sufferers of PKU require a vital expensive medically prescribed diet, supplemented by the funding, to avoid brain damage, seizures, liver failure, coma and in some cases death; and

(3) calls on the Government to reinstate the funding to the IEM program.

(Notice given 26 May 2015.)

Time allotted—30 minutes .

Ms Hall — 5 minutes.

Other Members—5 minutes each.

[Minimum number of proposed Members speaking = 6 x 5 mins]

The Committee determined that consideration of this should continue on a future day.

3 MR HUTCHINSON: To move:

That this House:

(1) recognises that:

(a) the Coalition's Economic Growth Plan for Tasmania dated 15 August 2013, committed the Government to creating a Tasmanian Fruit and Vegetable Industry Taskforce focusing on the growth of the fruit and vegetable sectors in Tasmania;

(b) the Taskforce will develop an industry-led plan to promote competitiveness, investment and jobs growth in these sectors; and

(c) the terms of reference prescribing the scope of the Taskforce included reviewing existing work, drawing conclusions and developing a unified and agreed plan for the Tasmanian fruit and vegetable industries to:

(i) increase grower returns and reduce their costs;

(ii) increase competitiveness, investment and jobs growth across the supply chain; and

(iii) develop domestic and export markets;

(2) acknowledges:

(a) the vital importance of the agriculture sector to Tasmania, and for all Tasmanians;

(b) that Tasmania is an important producer of fruit and vegetables, mainly potatoes, onions, carrots, cherries and other stone fruit, pomefruit and berries;

(c) that in 2011-12, the gross value production of fruit and nuts in Tasmania was $100.8 million, vegetables $213.4 million, and nursery production (nurseries, cut flowers and cultivated turf) $28.4 million, with Tasmania also being an important producer of the special poppy and pyrethrum crops;

(d) that in contrast to other states, exporting and direct sales to processors are the predominant sales channels for fresh produce, for example:

(i) in 2011-12, an estimated 70 per cent of Tasmanian vegetable growers sold their produce directly to a processor (this includes the manufacturing of canned, bottled, preserved, quick frozen or dried vegetable products, dehydrated vegetable products, soups, sauces, pickles and mixed meat and vegetable cereal products, processing and packaging of fresh salads and pan-ready vegetables, as well as bulk packaged and cleaned vegetables); and

(ii) approximately 10 per cent for export, which compares with the national average of 26 per cent and 4 per cent, respectively;

(e) that in 2011-12 only 5 per cent of Tasmanian vegetable farms reported selling direct to state capital wholesale, compared to the national average of 62 per cent;

(f) that Tasmania exports significant volumes of onions and cherries, for example:

(i) in the 12 months to June 2013, it exported $44 million of fresh fruit and vegetables, 6.7 per cent of the total value of national exports of fresh fruit and vegetables, and of this, 98 per cent of the fruit were cherries and 94 per cent of the vegetables were onions,

(ii) Tasmania accounted for 52 per cent of all cherries and 86 per cent of all onions exported from Australia in 2012-13; and

(iii) in 2012 the Australian exports of fresh onions and fresh cherries accounted for 0.9 per cent and 0.4 per cent, respectively, of global exports of these products;

(g) that an independent assessment of the economic development potential of sectors of the Tasmanian economy found that the wine, dairy and aquaculture sectors had the greatest economic development potential;

(h) that horticulture also presents opportunities for growth in employment, though not as great as those in the wine, dairy and aquaculture sectors;

(i) that the challenges and opportunities faced by Tasmania's fruit and vegetable industry have been well documented and the industry has been subject to many reviews and planning processes; and

(j) that, to assist the deliberations of the Taskforce, the Commonwealth Department of Agriculture, as the secretariat to the Taskforce, has identified and summarised a collection of previous work and in so doing, is mindful that individual Taskforce members would be familiar with a number of these documents, in some cases contributing directly to their production; and

(3) notes the continuing importance of investment in the Tasmanian agriculture sector, as a traditional and ongoing source of economic development, including employment, in that state, and one which continues to enjoy a relatively high national and international profile for the reliability and quality of its primary food production.

(Notice given 26 May 2015.)

Time allotted—40 minutes .

Mr Hutchinson — 5 minutes.

Other Members—5 minutes each.

[Minimum number of proposed Members speaking = 8 x 5 mins]

The Committee determined that consideration of this should continue on a future day.

4 MS CLAYDON: To move:

That this House:

(1) notes that:

(a) Australia, as an island nation, has a national interest in fostering an Australian coastal shipping industry for economic, environmental and national security reasons;

(b) comparable major trading nations have strong regulatory systems in place to support their coastal shipping industries;

(c) in 2012 the former government put in place a broad package of taxation, regulatory and workplace reform to revitalize Australian shipping; and

(d) people who perform work in Australia should be paid according to Australian‑standard wages and conditions; and

(2) calls on the Government to act to support and promote the Australian coastal shipping industry, and to actively support Labor's recent changes to give the industry the certainty it needs to invest in new Australian flagged shipping.

(Notice given 26 May 2015.)

Time allotted—remaining private Members' business time prior to 1.30 pm.

Ms Claydon—5 minutes.

Other Members—5 minutes. each.

[Minimum number of proposed Members speaking = 8 x 5 mins]

The Committee determined that consideration of this should continue on a future day.

Mr BANDT (Melbourne) (16:17): I rise to make a few brief comments in support of this legislation, the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. The legislation makes what can only be described as a common-sense change and that is to make it easier for people who are in a position to have start-up companies, who want to succeed and to be part of that from the ground. We know that some of the changes that have been made before attempted to strike the right balance but did not in fact do so. They did that because an up-front tax bill was essentially imposed on the people who wanted to join in on start-up companies from the beginning.

We have a significant challenge in Australia, which is to grow those sectors of our economy that are not reliant on a 'dig it up, chop it down, ship it off' mentality. To do that, we will need to create an environment and ecosystem that will support companies and businesses that put a premium on innovation. To that extent, this bill makes a sensible change. In addition to removing the up-front tax bill, it will also provide tax concessions for start-ups acquiring shares under schemes, and employees of start-ups who are issued options will get a 15 per cent income tax deduction when those options are exercised after three years.

That is a series of sensible moves. There are two things that this bill does not do, though, that need further attention. Firstly, we need to address the critical issue of how in an environment where we support start-ups we also ensure that people who are genuine employees are not forced to live on less than the income they would otherwise get if they were treated as bona fide employees. That is, we have to ensure that arrangements that are struck in the course of start-up businesses or in similar areas do not undermine the basic floor of minimum wages and conditions that people would take for granted. Under this government, we have seen the proliferation of the carving out of sections of the Australian workforce from Australian minimum standards. We see it with the use of certain kinds of visas, the contracting out and the proliferation of independent contract arrangements that could only be said to be designed to avoid minimum standards and, in that context, potentially undermine tax revenue as well. We need to address that. Sadly, this bill does not do that. There is no reason to stand in the way of this bill, but it needs further attention.

Secondly—and I spoke at the start about the need to create a supportive ecosystem—if we want to create an environment in Australia where we can grow those sectors of the economy that are based on innovation and on our intellect, then we need to ensure that research and development and innovation in this country is supported. Yet, under this government, we find ourselves spending the lowest that this country has spent on research and development and innovation since we started keeping records. We are at an over 30-year low on spending on research and development and innovation in this country. So you cannot, on the one hand, create a notional legal framework that supports the establishment of start-ups and innovation while, on the other hand, you take the axe to other tax concessions such as for research and development but also to those public institutions that helped create the environment to partner with the private sector to grow research and development and innovation in this country. We are going to need to have something to sell the rest of the world when the rest of the world tells us to stop digging, and that point may come sooner rather than later. To do that, I have to be clear that we cannot compete with China and India on wages, nor should we try to. Our advantage in Australia and in this region is going to be based on our minds. That means putting in place the kinds of investments in research and development and innovation that other countries, our trading partners, are doing. Korea or Japan have well above three per cent of their GDP being spent on research and development and are on their way to four per cent and possibly even higher, and the US has set itself a goal of three per cent of GDP for public and private investment and spending on research and development. Yet here in Australia we languish at 2.2 per cent and we are going lower under this government.

It is not enough to come up with a piece of legislation that makes a common-sense change; you also need to match it with support in the innovation ecosystem. That is something that we have seen attacked every budget time under successive governments. Every time it comes to the federal budget, governments seem to treat the R&D pool as a bit of a honey pot to dip into, and the consequence of that is that people do not see Australia as a place to continue to invest in or to start a job and continue a job. If you are a young scientist, if you are a young researcher who could be about to contribute a groundbreaking discovery, and every May you see the threat of funding cuts to research and development and then you look overseas to countries like the US or the UK where they have a stable funding environment, you understand why many of them choose to join the brain drain and go overseas. We need to stop that, and the only way to stop that will be to set Australia on a path to three per cent of GDP—something that we, the Greens, have been calling for for a while. I am glad to see that the opposition is now supportive of that. It is time for the government to get on board as well, because if we get on board in increasing our funding for science, research and development and innovation, then measures like this bill—welcome as they are—will really start to bite and we will be able to grow that sector of the new economy.

Mr TURNBULL (Wentworth—Minister for Communications) (16:24): The Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 addresses one of the most damaging acts of the previous Labor government. It did not involve the wasting of tens of billions of dollars like the NBN project did, but what it did do was potentially cost Australia billions of dollars. We will never know what it did cost, but, by changing the law on employee share schemes and options schemes in 2009, what the Labor government did was to stifle innovation and disincentivise start-up companies.

The reality is that nobody knows when a new idea or a new company will be successful or not. Everyone thinks they do; they think that their new project is going to make them rich but, regrettably, most projects do not succeed, even more are pretty mediocre and only a handful do really well. But it is that eternal optimism and entrepreneurship and that spirit of adventure and innovation that drives our economy. All of the laws that we pass here and all of the great speeches we give are fine, but what really makes Australia great, and what provides the jobs and the security for Australians in the future, is the energy and enterprise of thousands of Australians. I think all of us, whatever our politics, know in our hearts that that is right.

Some people in this place think that the government can tell business how to be innovative and can provide business tips. Oddly enough, the side that thinks that is the Labor Party, which is least qualified to do so. But on our side we believe that government's role is not to tell citizens, let alone businesses, what is best, but rather to enable them to do their best. One of the important things we should do is to make sure that we remove as many obstacles to enterprise and entrepreneurship as we can; in other words, to clear the way for that spirit of enterprise to take off. That is one of the reasons the Abbott government has been so assiduous in cutting regulation and red tape wherever we can, and we will continue to do that. I hope that the governments that follow us in the years and the decades to come will do the same, because there has always been a tendency for governments to create new regulation as new issues arise, but to fail to prune away the regulation that is no longer needed or is no longer fit for purpose.

In any new enterprise, and indeed in existing enterprises, it is absolutely critical to incentivise the staff, the team; and the best way to do that is to give them a sense of co-ownership. Again, who would argue with that? One of the ways that that is done in a modern economy is to provide employees with shares or, very often, with options to acquire shares in the future. The hope is that that gives them a feeling that they have got some skin in the game and that they are not just working for wages or some cash remuneration. That is absolutely critical, particularly with start-up companies, because the reality is that, with a start-up, generally funds are scarce; what little money is available is generally going into the acquisition of necessary resources and equipment and so forth. The people are generally working for below market remuneration, and their upside is expected to come if the project is a big hit. Of course, as we know, often it is not, but sometimes it is. So hope springs eternal, and hence the ability to incentivise your team is absolutely critical.

It is practically beyond belief that something as important as this to the economy of enterprise and innovation and entrepreneurship would have been attacked by the Labor Party in 2009. The effect of the changes that were made to employee share and option schemes was that employees became liable to taxation upon being granted options and being granted rights to shares even though they had no means of realising the value of what they were being given. You would have to be very confident to go off to the bank and borrow money, take out another mortgage on your house or pay tax on some options you had been given in a start-up company. Yes, it might be the next Facebook—there is always the possibility of that—but more likely than not it is not going to be anything of the kind.

This was a change that was absolutely calculated to kill employee share and option schemes dead. If that was the intent, it worked. It was as though the previous government had asked themselves, 'What is the stake that we can drive into the heart of Australian innovation?' They found out, and it worked perfectly. Big companies could spend a lot of money on lawyers and accountants to structure things and get around the rules—there were not many that did that although I know a few did—but the start-up sector basically stopped giving their employees shares and options as incentives. That obviously reduced their ability to attract talented people and, as I think all honourable members who have taken an interest in this matter know—I acknowledge the member for Chifley sitting opposite me at the table, who on the Labor side has taken a keen interest in innovation—this became a huge issue with the start-up sector. Whenever you spoke to people in the start-up sector, particularly in the technology area, this was the one big complaint they had.

Yesterday in a matter of public importance discussion the member for Blaxland, the shadow minister for communications, referred to an Australian entrepreneur in Silicon Valley, Tan Le, and how he had been inspired by her—so he should have been; she has a really inspiring story. During my visits to Silicon Valley in recent years, and I think everyone has shared the same experience, the big complaint from Australian companies over there has been this extraordinary tax treatment of employee shares and options that the Labor Party imposed. By the way, that is entirely at odds with global practice. Everywhere else in the world, one way or another tax is paid—often at a concessional rate, but it is paid—when the employee either realises the share or the option or is able to realise it; in other words, when a share becomes liquid and tradeable. That makes perfect sense because then the employee can realise the security that he or she has been given and pay the tax. This was the biggest single concern that people had. Even though it was attacked by the technology sector, the start-up sector, from the time the changes were made in 2009—and that criticism became more and more intense—it is remarkable and tells you how deaf the Labor Party has been to the spirit of enterprise and the spirit of innovation so critical to our economic future that they made no efforts to change the law. They could simply have turned around and said, 'Whoops, we have made a mistake, let's reverse it,' but they did not.

Mr Husic: We did.

Mr TURNBULL: The honourable member opposite me says they did. That is remarkable. If the bad law in 2009 was repealed, I wonder why we are going to the trouble of debating this bill today. The Labor Party did nothing about it. They made no change to the law; they wrung their hands but we are here actually getting the changes made.

This is a very important reform, starting from 1 July, in the new financial year, that will bring the Australian regime on employee shares and options into line with global practice. It will basically ensure that there will be no up-front taxation of employee shares and options. It will increase the deferral period—the taxing point—from seven years to 15 years. There will be no taxation on the grant of an option. Taxation will occur when the employee exercises the option, and after exercising the option there is no real risk of forfeiting the underlying share and restrictions on the sale of the share have been lifted. There are special tax concessions to employees on the grant of shares and options in smaller start-up companies, and that is very important too. It shows the concern the government has. I know honourable members are familiar with these points, but eligible start-ups that have an aggregate turnover of less than $50 million, are unlisted and have been incorporated for less than 10 years will be allowed to issue shares to employees at a small discount, up to 15 per cent, and issue options on very advantageous conditions. Options that have been allocated at a discount will not be subject to up-front taxation, as I noted, as long as they are held by the employee for at least three years. That means, therefore, that employees will only have to pay tax when they actually have some value that they can realise, when they can get some cash in their pocket to pay it. These start-ups will benefit by having gains on options taxed as a capital gain and not as income and therefore taxed at the lower concessional rate.

I know, as the Minister for Small Business noted in his second reading speech, that there have been some concerns, or complaints if you like, from the industry that these changes could and should go further. There is concern that taxation is payable, or a taxing point is realised, when an employee leaves his employment. There is of course, as the minister said in the second reading speech, the right to have any tax paid refunded if it turns out that there was in fact no gain realised on the shares at the time they are actually granted and become liquid. These are fair comments, and I hope that the government, over time, will be able to further improve and refine this legislation. The important thing is that our approach to the innovation sector is one of enablement. We are making these very important changes in the bill—and we appreciate the support of honourable members for that—but we will continue to seek to improve legislation and regulation that affects start-ups and innovation generally so that, all the time, we can be proactively improving the environment for Australian innovation, upon which our future prosperity depends. In other words, none of this should be regarded as set and forget.

This is a really important first step. It is going to make a very big change to the start-up sector. It will result in thousands of additional jobs being created and millions of dollars—perhaps billions of dollars—of additional value being created in Australia. We will never know the exact numbers, but the bottom line is that anything that can enable innovation in Australia has got to be good for our economy and, indeed, for all Australians—and that is what this bill does. Together with the minister and my colleagues, I commend this bill to the House.

Mr HUSIC (Chifley) (16:39): If the value of innovation to the Australian economy is to be fully realised, we need to address the concern among smaller companies, among start-ups, that larger and more established sections of our economy have had the ear of government, regardless of politics, for way too long. They believe it is easier for miners and farmers to get into a minister's office than it is for some of these firms to do so. We need to actively dispel that notion by demonstrating support, through this parliament, for changing this perception through deed not just word. It is easy for the minister and others to talk about the negatives of the previous bill—the changes that we made in government which we have acknowledged have caused the unintended consequence of making life more difficult for start-ups. We have acknowledged that not just in word but in deed. In 2013, we were the ones who kicked off the process of getting Treasury to look at how we can change the law to ensure that the impact on start-ups would not continue and would not act as a drag on innovation in this country. We started that process.

Based on our dealings with the sector, a lot of us would have preferred that that happened way earlier—absolutely. But I would point out that, as much as the coalition were very keen to see change happen, it is nearly two years since they started talking about this when they were in opposition. The Minister for Communications was talking about this issue when the coalition were in opposition. When the coalition was elected to government, a number of backbenchers said they wanted to deal with this. It took them a considerable period of time; it did not happen in the last budget. In fact, it was continually promised that action would be taken and legislation would be enacted in a speedy way. But it took a long time to happen. Why? It was because, as people know, this is not an easy area to deal with. It took a lot of work to determine how much money would be set aside by government to deal with this—and the answers were not present quickly. Despite the eagerness displayed by a number of people, including the minister, to deal with it quickly, they did not, they could not. So we can certainly play political games if you want to, but I do not think that is of any value to this sector.

What is important is seeing action. That is why the opposition is keen to work with the government in supporting this bill and making sure that it goes through so that we can move quickly to a situation where start-ups are able to offer these things as part of the remuneration package that they extend to people they want to bring on board to help them bring their ideas to life and transform the economy. There is a lot at stake. Matt Barrie, the founder and Chief Executive Officer of Freelancer.com, said: 'The fact that a 20-year-old can start a company worth $20 billion is mind-blowing.' But that is where we are at. Matt Barrie has done remarkable things, and he is absolutely right. That quote, in itself, indicates what a remarkable time it is for young Australians in this country. We are on the threshold of potentially fundamental shifts within our broader economy, and it is younger Australians who can drive it. These are not established companies, people who are long in the tooth and have built up a long list of experiences; these are young people with the guts and determination and capability to change the way the economy works. This been unleashed through the internet and through the innovation that has sprung from it. The imperative is there.

The reason I am so enthused about the sector is that they can fundamentally change and re-gear our economy at a time when we need it most. We are seeing our sources of income and economic wealth change. We have pressure on us to grow sectors of the economy other than mining. We need to see that change occur. We also need to get ready as technology slices into all those jobs that used to exist and changes the way companies work. It will put greater demands on the individual skills of Australian employees. They will not be able to get the same manual jobs and entry-level jobs that once existed. It will fundamentally alter the way that they live in the world of work. And so we need to be able to look at this sector and we need to be able to work out how we can encourage its greater growth.

And, why the fuss? It may seem that start-ups themselves—particularly when they have been mentioned so much in the last couple of weeks on the floor of the House of Representatives—are the fad du jour. But put quite simply, there is no such thing as overnight success. As Seth Godin, the marketing writer, said:

… it takes about six years of hard work to become an overnight success.

He is quite right. Look at the stories of a lot of these people: people like Jodie Fox and Shoes of Prey; Leni Mayo and the others at 99designs; Scott Farquhar and Mark Cannon-Brookes at Atlassian; and Rebekah Campbell at Posse.com—I recall all the stories she has told of the pitches she has had to make to try to get funds and support to build and bring her vision to life—and a lot of them will tell you that there is no such thing as overnight success. They have had to work at it for quite sometime.

They have been on a long pathway to this point. But in terms of start-ups themselves, they also are not just an overnight success. They are actually a reflection on the evolution of innovation. Innovation was once driven primarily by government R&D. It then went into big business and then big business outsourced it to smaller research capabilities and firms and it is now start-ups that are leading in research and development. And they can only do it, fundamentally, through a number of key ingredients. Naturally, having faith in their own ability to bring their ideas to life is one thing. But they need two other things on top of that: they need the talent and skills—people who have the know-how to help bring those ideas to life—and they need capital.

The reason this bill is so important is because it helps deal with the issue of capital. It helps deal with the issue of being able to defer in some way the pressures that might exist on a start-up in being able to stump up money quickly and being able to funnel it through remuneration. For instance, those start-ups that do not have the money there to pay people for the talent and skills that they bring to that start-up can defer that wealth creation by providing options—shares or some sort of equity in the start-up itself. That is how these share schemes and options have arisen.

In 2009 there was an intention to deal with the attempt by bigger businesses to change the way they remunerated their executives—basically by paying them through options and share schemes, and not having salary packages structured in the way that they were. That was the intent. The unintended consequence was that it affected start-ups who wanted to be able to issue these options. It was something that had a terrible impact on start-ups. Certainly, a number of us have acknowledged the impact that existed for these start-ups and this is the big reason why we have been keen to support a change. As I said earlier, we started that process when we were in government. It has now been picked up by this government and we support the move.

We certainly recognise the range of things that this bill seeks to achieve. For example, deferring the requirement to have taxation paid until the actual options are exercised. There is also the provision of an additional concession to start-up companies that will target young enterprises to reactivate and energise employee share scheme arrangements, as the Minister for Small Business indicated in his second reading speech. It will also, through the types of initiatives that have been announced by the government, see the Australian Taxation Office work with industry to develop safe harbour valuation methods and standard documents that will be useful for the sector. In particular, it is targeting those start-ups with revenue under $50 million. And, as I indicated before, there is the requirement for taxation only when the value is realised. These are important steps.

I might add that I have detected, from the consultations that I have had with the start-up sector, a degree of interest by a number of listed companies. They have sought to exercise a degree of pressure on the government—which I see it resisted, and I think it is important that it was resisted—to put in place arrangements that would have benefited listed companies to a far greater extent than was proportionate or proper. The bill makes sure that a lot of this benefit is targeted to start-ups themselves. That has been very important, and it is something we should keep a watching brief on.

In making these changes, if there is a temptation—for one moment—to think that this mechanism alone will support start-ups then that is misplaced. It is quite clear that there is still a very big reform agenda that is required to ensure that start-ups will continue. As I said before, they are at the front of innovation. They are now picking up the lion's share of R&D in this country by way of what they are doing in breaking down existing business models and changing the way that a services economy like ours works—70 per cent of our economy is based on services and they are very vulnerable to disruption. They are doing a lot of work there, but there is still a lot to do.

Start-up communities certainly welcome it. I have detected this in my consultations with the community and I am sure that the Minister for Communications, sitting at the table here, has detected that, as I know he talks with representatives of the start-up community quite a lot. They certainly welcome the extra attention. But my biggest fear is that this will become a fad, and we cannot afford it to be a trend or a passing phase. Start-ups themselves are adding enormous economic value to the nation. They cannot be seen as an afterthought or a passing thought, as the shadow Treasurer said in his Press Club speech last week. They have to remain constantly in our thoughts because they will generate the jobs of the future. Every single job in the tech sector has the potential to generate five others. In the US, the tech sector—as I have indicated previously to the House—is experiencing job growth at a rate of 25 times the rate of other sectors. We cannot afford to think or believe that start-ups are simply the creators of neat or nifty apps that might have some sort of limited productivity benefit. This is the wrong way, and undersells the value of the work of start-ups in our broader economy and in our community. They generate real economic value, and we cannot afford to see them just ignored as a fad that will pass.

This is why shadow Treasurer Bowen, the member for McMahon, indicated that we will set up a Treasurer's entrepreneurial council that will ensure that the Treasurer, one of the key drivers of the development and implementation of economic policy in this country, has input at the time that is critical in the development of policy. The assistant shadow Treasurer said today that this whole area will continue, whether or not the benefits are delivered from the bill that is being debated now. That is important. I certainly welcome that initiative.

We also need to make sure that we continually address those two areas that start-ups say need attention—building up of talent in this country and being able to ensure that the next generation of people who go into the sector will have the skills and capability to do so. But we can also ensure that talent from other parts of the world come here too. That is an area that needs reform as well. We can bring back our own talent that has been developed here in Australia but is sitting in other parts of the world. For instance, when I visited the United States I was staggered to hear that 20,000 Australians work on the west coast in the sector. We need to bring them back. We need to greater support those ideas through capital. I certainly think the other area that needs reform is finding a way to build bridges between one of the largest national savings pools in the world, our superannuation sector, and the VC and angel investor community to ensure that we have greater support for ideas on the way through.

We have a lot to do in this space. This bill is important—I certainly recognise that—but it is not the final step. It is one step in a continuing journey to ensure that Australia can exercise its full potential, generate jobs for the future and make an impact on a world scale.

Ms HENDERSON (Corangamite) (16:54): I rise to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. This bill, like so many of our other initiatives in our budget handed down on 12 May, reflects our government's strong focus on jobs growth and opportunity. This bill recognises that small businesses cannot grow and prosper and become bigger and more successful businesses unless they get the right start. Just consider how quickly the world is changing. This is something about which the Treasurer has spoken often. Facebook is the biggest media company in the world and it does not employ a journalist. Uber is the biggest taxi company in the world and does not own a taxi. Airbnb is a global accommodation giant and does not own a single piece of real estate. At the heart of their success is a great idea supported by great innovators, great financial backing and the right regulatory environments to inspire investors to invest. Great ideas do not turn into great businesses without first creating the right investment climate.

This bill is all about driving innovation by helping to build investment confidence and, very importantly, those incentives. I am delighted that this bill rights the wrong that has been a real drag on driving investment in start-ups. I do not say this with any sense of rhetoric at all. Just a couple of weeks ago I attended a function and spoke to a gentleman who runs a relatively new internet business. It is going well. Sales are improving. But it has the potential to grow into a very major business. He told me that he could not wait for the rules to change on 1 July when our new employee share scheme comes into effect. This will give his employees great incentive and will give him a great way of partnering with his employees to ensure that his business goes from strength to strength.

I welcome the support of members opposite on this bill. I want to particularly recognise the positive comments from the member for Chifley, who has indicated his very strong support for this bill. As we have heard in this debate, back in 2009 under the previous Labor government a number of changes were made to the way employee share schemes were taxed. One of these changes meant that the discount component of shares or options issued under any employee share scheme were taxed when the employee received those shares or options. I accept the member for Chifley's remarks that these were unintended consequences. Nonetheless, it demonstrates that perhaps the previous government did not properly consider the way in which it changed the employee share scheme, because it had a very significant and serious consequence. It meant that employees were forced to pay tax on their options before there was any opportunity to realise a financial benefit on those options.

Very importantly, the changes contained in this bill will better align the interests of employers and employees and do much to stimulate the growth of start-ups in Australia. It is incredibly important that we do everything that we possibly can to do that. Just to reiterate the main changes in the bill, for all companies, employees who are issued with options will generally be able to defer tax until they exercise the options or convert the options to shares rather than having to pay tax on those options vest, and eligible start-ups will be able to issue options or shares to their employees at a small discount and have that discount exempted or deferred from income tax. This is a very important part of our very strong support for small businesses. We are seeing a very strong realisation that, if employees can have skin in the game, it follows that they will be more involved and more interested in a company's future, working together, hand in hand, with the company owner to ensure that the company goes from strength to strength.

I think the member for Chifley said this is only one part of the solution. We have seen in our budget a comprehensive package of solutions for small business to drive jobs growth and innovation. I reflect on the 1.5 per cent company tax cut that we have announced, and for businesses which are not incorporated there is a tax discount of five per cent. They make up some two-thirds of all small businesses. These are the forgotten businesses under Labor. In the Leader of the Opposition's budget reply speech, he spoke about a five per cent unfunded discount or company tax cut that he intended to roll out, but we have heard no detail or proper commitment that that will ever happen. The Leader of the Opposition forgot that most small businesses are not incorporated. It is the sole traders, the independent contractors and the unincorporated businesses which make up the majority of small businesses. So that is perhaps one example of where Labor and members opposite have fundamentally let down small business.

Measures such as our $20,000 small business tax deduction, the instant asset write-off, have been broadly welcomed right across the Australian community. They reflect our have-a-go budget, as I have talked about often. We are encouraging businesses to go out there and spend and invest in their businesses to help grow their businesses. It is a wonderful incentive. I do have to say that when the Minister for Small Business was in Colac and Geelong last week he received a great reception. We hosted small businesses forums in both of those cities. These measures have been incredibly important in exciting the small business community. As Kylie Warne, the President of the Geelong Chamber of Commerce, said: 'We feel that small business finally has a voice.'

As a former commercial lawyer practising in intellectual property, I have to say that Australia has travelled a difficult road when it comes to supporting our innovators, our inventers, our businesses of today to become the giants of tomorrow. It is why this bill is so important, and it is why these initiatives are so welcome. I do believe the wonderful electorate that I represent, the people of Corangamite and the greater Geelong region, has the potential to become an innovation capital. I just reflect on the work of Deakin University. Deakin is now ranked 45th in the world for universities under 50 years of age. Deakin's medical school—an initiative of the previous Howard government—is doing wonders. There is incredible work happening in future fibres. Just last week we were very proud to announce a $4.7 million grant to Deakin University to establish an industrial transformation research hub. Deakin will be working in conjunction with a number of industry players, as well as with universities such as Oxford and MIT, to create a future fibres research hub. It is just an example of the wonderful innovation going on in Geelong at the moment.

We hear a lot about tech companies, but I want to reflect on the fact that innovation is not just about high-tech companies. Innovation should and is being applied across so many sectors of the economy. Advanced manufacturing is an industry, a sector, driven by innovation. We are a very proud home of advanced manufacturing, and I was delighted that Andrew Stevens, the new chair of the Advanced Manufacturing Industry Growth Centre—one of five growth centres being rolled out as part of an initiative of the Minister for Industry and Science—was in Geelong just a couple of weeks ago, holding a stakeholders round table. We are a great home of advanced manufacturing and we have great potential. That is why I am pushing so hard that Geelong become the home of the advanced manufacturing growth centre. There are wonderful advanced manufacturers like Marand, which is helping to manufacture the Joint Strike Fighter. Carbon Revolution, which are based at Deakin University, came out of some research done at Deakin university. Carbon Revolution are building carbon fibre wheels for the world; they are doing some extraordinary work. I will not hear, as I do often from members opposite, that auto manufacturing in this country is dead. I say: do not forget the 490 workers at Ford's product engineering and development plant in Geelong who are doing incredible work, high-tech work, innovative work, for the international car industry. Look at the likes of Carbon Revolution and what they are doing in supplying the global auto market: these are the global auto companies of the future. It is very, very exciting to see what is going on there.

We have also made a very strong commitment to conduct a pilot of a P-TECH in Geelong. The school is yet to be announced, so we are still waiting to hear which school has been selected; but it is incredibly exciting. This model has been very successful in America, particularly in New York, where it brings businesses together with high schools to help students develop an academic and industry path into the jobs of the future. It is a model which focuses very much on science, technology, engineering and maths working hand in hand with industry to present and provide students with those incredibly important opportunities in those sectors.

There is one missing link in Geelong. We are very proudly rolling out the NBN to some 40,000 premises across Geelong There are 35,000 by fixed line, another 2,500 fixed-wireless connections are in the planning and 2,500 are actually active. So we are again very, very quickly righting the wrongs that we saw with the disaster of the NBN under the previous government. However, I am working very hard at advocating that the rollout of the NBN be expedited in Geelong, particularly in Grovedale, Waurn Ponds, Belmont, Highton and Marshalls. These are very large growth areas in Geelong. There has been very significant growth in these areas and many residents are struggling with internet connections. So I can assure the people of my electorate, particularly in the Geelong suburbs, that I am working very, very hard at advocating an expedited rollout of the NBN

I am very proud to commend this bill today. This is a very important bill for innovators, for inventers. It reflects a strong support for small business, which is very much reflected through many of our measures in the budget. I commend this bill to the House.

Mr FLETCHER (Bradfield—Parliamentary Secretary to the Minister for Communications) (17:07): I am very pleased to rise to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. It is an important bill that will improve the taxation arrangements for employee share schemes. In the time available to me, I would like to make three points. Firstly, we need to encourage start-up companies in the technology sector. Secondly, supporting employee share schemes is a key means of such encouragement. Thirdly, the previous Labor government did the opposite and effectively blocked employee share schemes. This bill will fix Labor's mess and facilitate employee share schemes.

In the technology sector around the world, start-up companies form a critically important part of the growth cycle. A start-up is a company formed from scratch, typically with the aim of commercialising some technology, such as software. It might be medical technology or biotechnology; it might be renewable energy technology. The most successful start-ups grow at extraordinary rates. Google was founded in 1998; by 2014 it was the third largest company in the world by market capitalisation. Facebook started in 2004; 10 years later, its market capitalisation is almost $200 billion.

Australia has had some similar successes. Atlassian produces software which helps software teams collaborate. Founded by two University of New South Wales graduates, Mike Cannon-Brookes and Scott Farquhar, in 2002, it now employs around 1,000 people. A recent transaction valued the company at $3½ billion. Cochlear, based in Sydney, is a world leader in hearing implant technology, with global revenues of around $900 million a year based on technology developed in Australia. I want to pay tribute today to the CEO, Chris Roberts, who has announced that he will be stepping down after a very successful tenure as chief executive.

There are three important reasons why we should encourage start-ups. Firstly, start-ups, particularly in the technology sector, have an outsized role in job creation. According to the OECD's most recent science, technology and innovation report, one-third of job creation in the business sector comes from young firms with fewer than 50 employees, even though these make up only 11 per cent of total employment. A recent report from America's Kauffman Foundation found that new business formation was 23 per cent more likely in the high-tech sector of the US economy than in the private sector as a whole and 48 per cent more likely in the information and communications technology subsector of high technology. Secondly, start-ups are particularly important as a mechanism to introduce and commercialise new technologies. In a world where economic growth and prosperity is tied ever more closely to technological progress, countries with low levels of start-up activity risk missing out on the economic growth which technology can deliver. Thirdly, if we do not have vigorous start-up activity, we risk losing some of our best and brightest to other countries which do. Already, there is a steady flow of Australians with IT skills heading to Silicon Valley or other places, where they can employ their talents and obtain rewards greater than they believe may be possible in Australia.

If we want to courage start-up companies in Australia, then ensuring that these companies are able to offer employee share ownership plans is critical. It is standard practice for start-up companies in the US and many other countries to offer employees options—that is, rights to purchase a designated number of shares in the company at a specified price and usually at a specified time in the future under what is usually called an employee share ownership plan, or ESOP. If the company does well, the market price of the shares will be far in excess of the price that the option-holding employee will pay. This can be an attractive form of remuneration for those wishing to take a risk and work hard on the creation of a new business. Equally important for a start-up with limited resources, it can issue options to employees and, in exchange, the employee will accept a lower cash salary than would otherwise be required because of the potential for a generous pay-off at a later date if all goes well.

Let me quote from the co-chief executive officer of Atlassian, Scott Farquhar, who last year, at my request, delivered the JJC Bradfield lecture on the topic 'Capitalising on the software revolution in Australia'. This is what Scott Farquhar had to say:

… the simple fact is that tax matters in attracting people; tax matters in attracting capital. And, in a global market for both, you simply can't afford to be too far off the pace … we need to fix the tax treatment of employee share ownership plans … These are a vital tool for attracting and retaining talent in the software industry. If Australian companies cannot meet the world standard for rewarding our people, how can we compete on the world stage? … ESOPs are most commonly stock options offered to employees—the rights to company shares which accrue in value as a business grows in wealth. For an employee who is considering whether to join a start-up, the option to share in future riches is needed to lure staff from the big banks and large corporate firms or from start-ups overseas.

Despite the fundamental importance of employee share schemes, Labor effectively blocked them. The previous Labor government and then Treasurer Wayne Swan demonstrated a hostility to employee share plans. They introduced tax settings which made such plans unattractive for companies to offer and unattractive for employees to participate in. The 2009 tax law changes made the issue of share options to employees of a start-up extremely unattractive. In those changes, under then Treasurer Wayne Swan, the then Labor government imposed a new rule that options would attract tax in the year they were issued. So the employee was hit with a big tax bill payable in cash in that year—an employee was issued options and then faced a requirement to pay tax in cash that year even though the options may well ultimately prove to be worthless. It is unsurprising that this tax change resulted in employee share options becoming extremely unattractive. Far from being an incentive to employees, they effectively became a disincentive.

The consequence was that Labor's policy change of 2009 effectively destroyed an important mechanism to stimulate start-ups in the technology sector. It put Australian companies in the technology sector at a marked disadvantage to the position of such companies in other jurisdictions—in turn leading to difficulties in attracting talent to technology companies in Australia. This, in turn, increased the relative attractiveness for Australian businesses of relocating to other jurisdictions.

The bill before the House this afternoon will fix Labor's mess and facilitate employee share schemes. It makes two main changes to the tax treatment of employee share schemes. First, for all companies, employees who are issued with options will now generally be able to defer tax until they exercise the options—that is to say, until they convert the options to shares—rather than having to pay tax in the year they receive the options. This will benefit employees by deferring their tax liability until they are able to realise a financial benefit from their options. Other changes that are being made for all companies include that the maximum time for tax deferral will be increased from seven years to 15 years and the maximum individual ownership limit will be doubled, from five per cent to 10 per cent. Secondly, eligible start-ups will be able to issue options or shares to their employees at a small discount and have that discount exempted, in the case of shares, or further deferred, in the case of options, from income tax. To qualify for this concession, companies must have been incorporated for less than 10 years, be unlisted and have a turnover of no more than $50 million. In addition, employees will need to hold the shares or options for a minimum of three years to qualify for the concession.

Red tape and unnecessary legal expense has been another challenge associated with employee share schemes. The government will address this by developing standardised documentation that streamlines the process of establishing and maintaining an employee share scheme and also developing a safe harbour valuation method for unlisted shares. I have been pleased to have some involvement in the development of these documents, particularly through jointly hosting a round table with representatives from the technology sector, along with Minister Billson, and it was also attended by officials from the ATO. And of course the ATO has been carrying out and has recently completed its consultation process in relation to these changes.

I should highlight that the bill also addresses some technical concerns and further clarifies policies on the start-up concession. It makes it clear that the 50 per cent capital gains tax discount will be available for options issued to beneficiaries of the start-up concession, even where the underlying shares are held for less than 12 months. This will provide a significant concession to employees who are issued with options under the start-up concession. It is also an incentive for employers to offer employee share schemes to their employees.

Let me conclude with the observation that if we want to build a strong technology sector in Australia we need a strong start-up culture. The job for government is to help create the conditions in which entrepreneurs in the technology sector and every other sector have the best possible chance of achieving the success they aspire to. This bill is a significant step in that direction, with measures to improve the taxation of employee share schemes. It is clear that employee share schemes are key to attracting and retaining talent in start-ups. In 2009 the changes that the then Labor government made to the tax law effectively halted the provision of options through employee share schemes, at least for the vast majority of start-up companies that were unable to afford complex and expensive workarounds. This bill will fix Labor's mess and facilitate employee share schemes. It will increase the international competitiveness of our tax system and will help innovative Australian start-ups to attract and retain employees. I commend the bill to the House.

Mr HUTCHINSON (Lyons) (17:18): The government is creating the right environment for over two million small businesses across Australia. Since the coalition came to office around a quarter of a million new jobs have been created. Company registrations reached a record high in 2014. Over 280,000 new businesses were established during 2013-14. Ninety-six per cent of Australian businesses are small businesses; 4½ million Australians are employed in small business. Small business provides $330 billion of our nation's economic output annually,

The government is working to support jobs in small business. Since coming to government we have repealed the carbon tax; repealed the mining tax; delivered three free trade agreements, with China, Korea and Japan; announced $2.45 billion in annual red tape savings; established the $484 million Entrepreneurs' Infrastructure Program; created new employment opportunities through a $50 billion commitment to infrastructure; established a $6.8 billion Job Active Employment Service package; delivered a comprehensive reform package for the vocational education and training sector; introduced Restart, a wage subsidy to help Australians aged over 50 to find employment; established the Small Business and Family Enterprise Ombudsman; expanded tax concessions for employee share schemes—and we will discuss that further—begun to introduce changes to support crowd funding; and extended unfair contract term protections to small business. We have improved the balance between franchisors and franchisees, we have done a root-and-branch review of the competition framework, and we have improved government procurement policy for small business. We want to ensure that Australia is one of the best places in the world to start and grow a business. The Jobs and Small Business package announced in the budget delivers further measures that will energise enterprise and help Australians into jobs.

No-one can describe this as a fad or a trend. Since coming to government we have had in Minister Billson a minister who is absolutely committed to this sector. The address today at the Press Club highlighted the passion, the understanding, and the depth of knowledge that the minister has. Under Labor there were five small business ministers, and Minister Billson's contribution at the Press Club today was a vote of confidence in the sector. I encourage every small business employer and every small business employee to listen to that presentation today and the questions that were answered by the minister. It truly is something that will inspire and empower small businesses to know that their government is behind them. We are committed to supporting innovation and creating the right conditions for Australian entrepreneurs.

As part of that commitment we plan to improve the taxation arrangements for employee share schemes. These changes have been designed to increase the international competitiveness of Australia's tax system and allow Australian businesses to attract and retain high-quality employees in a globally competitive labour market. They are part of an extensive package of initiatives contained in this year's budget to support and encourage small business in Australia. Small business is the engine room of the Australian economy, which is why the government made it one of the cornerstones of this year's budget. Ninety-six per cent of all of Australia's businesses are small businesses, employing more than 4½ million people and producing more than $330 billion of our country's economic output annually.

I have received a huge amount of positive feedback to the $5.5 million jobs and small business package in the budget—the biggest small business package in the country's history. I could give examples. Jane Shaw at the Ingleside Bakery in Evandale and Keith Rice, who is a consultant to a number of agribusinesses around Tasmania, will be expanding their businesses and will be looking to make capital purchases to take advantage of the $20,000 instant asset write-off. At the heart of the package are tax cuts for all small businesses with annual turnovers of under $2 million. The company tax rate for those incorporated businesses will be reduced by 1½ percentage points to 28.5 per cent. Businesses that are unincorporated, which is the majority, will have a discount on their assessable income. This will improve the cash flow of incorporated small businesses and increase their capacity to engage in the economy.

Small businesses will be able to immediately deduct each and every asset costing less than $20,000 that they buy from budget night, two weeks ago, to the end of June 2017. As part of that package, the employee share schemes changes have also been introduced to boost the performance of small businesses. In the past, shares or options were taxed when they were provided to the employee. This meant that there was no real way of determining their true values, which meant that employees were hit with a substantial tax liability even though there was probably no means to generate the resources to pay it at the time. That is particularly true for start-up businesses. These amendments will mean that the tax on the options will be paid when there is an actual value on the options—in other words, when those options are exercised. Eligible start-up companies will be able to issue shares or options to their employees at a small discount, with the discount generally exempt from upfront tax. It is an incentive.

The background to this is that, in 2009, the former federal Labor government made a number of changes to the way that employee share scheme arrangements were taxed. One of the changes meant that the discount component of shares or options issued under an employee share scheme was taxed when the employee received those shares or options. The changes that we bring forward today are intended to better align the interests of employers and employees and stimulate the growth of start-ups in Australia. Not only will these necessary changes be made with this amendment legislation but the government will also develop standardised documentation that streamlines the setting up and maintenance of an employee share scheme, thus reducing red tape. This will also develop a safe harbour valuation method for unlisted shares. Small businesses grow into big businesses. It is about encouraging the entrepreneurial spirit that exists within the small business sector and knowing that there is the confidence and the support of the government to see them succeed. The Australian Taxation Office has recently completed its consultation process on both of the changes mentioned above.

Who does this impact? This will benefit employees of companies which offer such share schemes. It will make employee share schemes more attractive, encouraging more businesses to offer these schemes to their employees. Employers will also benefit from these amendments. Employee share schemes are a great way to bring the interests of employees and employers together. Employees are often the single-biggest asset that small business has and they want to keep good people. Research suggests—and it makes absolute sense—higher productivity in companies that offer these schemes.

An eligible start-up company is a company with an annual turnover of not more than $50 million, is unlisted and has been incorporated for fewer than 10 years. Shares must be provided at a discount of no greater than 15 per cent and options must not be 'in the money' when issued—that is, the option must have a strike price that is either equal to or greater than the market value of the company's shares. That is effectively the buying of puts, if you like—the right but not the obligation to exercise the underlying option at the nominated strike price. Without a tax deduction upfront, they may or may not have a value, and that is the very point: there was no incentive in start-up businesses that were offering shares or options that had that tax payable upfront, let alone the cash flow implications. There are no exclusions based on industry sectors. That is really important. There will be great opportunities within the agribusiness sector particularly to see innovation and entrepreneurial skills released because of this policy. The government has targeted the start-up concession to unlisted companies because during consultations last year stakeholders noted that unlisted companies had problems valuing their business and accessing capital.

We have seen the current tax arrangements effectively stop the provision of options through employee share schemes since the 2009 changes. We know small businesses sometimes lack the cash flow to pay salaries which allow them to compete internationally. Employee share schemes allow firms to be globally competitive by supplementing employees' salaries with equity in the company that they work for. It is the ultimate incentive and has a real and positive impact on productivity, with the ultimate reward being the success of the business, because they are part-owners in that business, as stands to reason. They are a valuable tool for employers to attract and retain talented employees—often the very best asset that new start-up businesses have, and small businesses more generally.

Unfortunately, the potential of employee share schemes has not yet been realised in Australia. We are missing out on opportunities for small business to expand and to be competitive internationally. We are not an island. Australia is increasingly competing with businesses in our region and also around the world. We want to do everything we can as a government to kick-start small business and give back as much control to the sector as possible, because they know best how to do business; they just need the tools to do it. As we have seen in the budget, it is about allowing business to do with their money what is going to be best for their businesses. We know that government will never make choices as good as small businesses will make about what is best for them.

As has been mentioned, there is still work to do, but I reinforce the fact that small business is at the heart of this government; it is at the heart of growing the economy. Ninety-six per cent of Australian businesses are small businesses and they know that they have a government that is right behind them and that is allowing them to get on the with doing what they do best.

Mr IRONS (Swan) (17:31): I too rise to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015, which will make a number of overdue changes to the tax arrangements of an ESS, which will benefit both employers and employees in the short and long term.

Whether you are a member of parliament, a small business owner—I know there are many on this side of the chamber and very few on the other side—or the CEO of a large corporation, each of these people would know that attracting and retaining good employees can be difficult in the first instance but can also be the difference between success and failure. A business's employees are those who are on the front line dealing with consumers or making the products that they intend to sell, so if they are not motivated to work hard and represent your business in the same way that you as an owner would then this can be the straw that breaks the camel's back. The business could be put in jeopardy because of the lack of performance by employees. As someone who employed 16 staff at one stage, I am fully aware of the difficulties that go with employing people and keeping them motivated. The intent of an ESS is to help remove this distinct separation between owners and employees by incentivising the employees to work hard and generate growth in the business—and, of course, profit. That is why we all go into business—for the profit. It is not a charity; it is there to make a profit. I know that 'profit' is a dirty word for those on the other side of the House, especially if it is above six per cent, but that is why we go into business.

The incentive here is not necessarily a large salary each week or fortnight. In fact, the incentives of an ESS can often be in lieu of a large salary, particularly when it comes to start-up businesses, as they simply cannot afford to offer the form of remuneration for an employee's hard work that an established business or a large corporation can offer. What an ESS instead allows a business to do is to provide incentives in the form of options or shares so that employees have a vested interest in the business and its future success. As I said, this removes that owner-employee separation and instead aligns their interests so that they are now working toward the same thing— business growth and profit. No longer is this just for the benefit of the owner; it is also now for the benefit of the employee's own hip pocket as well.

As a small business owner for 30 years, I understand how competition impediments, and in particular those impediments that come in the form of a tax, can significantly hinder a business. I also know that there are some employees who are employed but, in the long run, do not suit the business's requirements and you have to let them go. But there are also those employees you do want to retain—not just for a year or two, which has become quite standard in today's employment arena, compared to 20 or 40 years ago, when you would stay in the same job for the majority of your working life. Instead, you want to retain these people for the long term. You want to keep them for 10 or 20 years and make them what we would now deem veterans in your business and part of a succession plan.

But, to give businesses this opportunity, change first needs to be implemented on a legislative level. And to achieve that, each member in this place and in the other place needs to commend the bill which is before the House. By doing so, you will be supporting business owners and you will be supporting employees across all sectors, because no industry will be exempt from the ESS changes that this bill is seeking to implement. All businesses can benefit, and all businesses will benefit if they make the decision to establish a scheme.

Currently, so many Australian businesses have stopped or shied away from establishing a scheme, for two key reasons. Firstly, as a result of amendments implemented in 2009 by those opposite, the scheme put Australian firms at a disadvantage compared to those in other countries. I have been listening to the speeches made by those opposite on the appropriation bills. I have heard some amazing speeches—you would never have thought that they had been in government for six years, because they had nothing to do with everything that is happening. It was not their fault; they were not anywhere near the balance sheet! I heard the member for Lingiari say that the 1.5 per cent tax deduction for small business was their idea. He blamed us for them not getting it through. The fact was that they canned it. They had the numbers in this place to get it through, but they canned it and then they blamed it on us. It was because of their failed mining tax, which produced nothing but trouble for Australian businesses. That is just one of the many examples we could put forward from those opposite. This is because they introduced measures which forced employees to pay tax on the options they received from an ESS—

Mr Craig Kelly: A good scheme!

Mr IRONS: I hear the member for Hughes saying what a great scheme that was—they had to pay tax on the options they received from an ESS before they even had the opportunity to gain a financial benefit. That is like provisional tax. Paying provisional tax on an ESS scheme—what a crazy idea.

As members would be aware, employees gain this financial benefit by converting the options to shares and selling them. Even if they do not do this, it begs the question: why are they being made to pay the tax? Under this measure, employees are also paying tax on an option that is very difficult to value and could potentially not result in a benefit to the employee at all, depending on how the business fares. We on this side of the House recognise that this is not fair, it is not equitable and it is stifling businesses' ability to offer globally competitive schemes to their employees. In fact, as a result of the changes by those opposite, stakeholders have highlighted that the provision of options under these schemes were effectively ended. This was particularly the case for start-up businesses, which this government recognises as being the businesses which need the most support to ensure their future success. To combat these competition-stifling changes and to re-ignite interest in establishing an employee share scheme, the bill before the House seeks to make two central changes to the scheme's tax treatment.

The first of these amendments will effectively change the way options are taxed so that they revert to being a benefit for employees rather than a potential burden. The government will achieve this by allowing employees who enter into an employee share scheme to defer the tax they pay on the option until they actually exercise those options by converting them to shares, rather than paying the tax up-front. Another provision extends the maximum time for tax deferral from seven to 15 years. This is based on the understanding that it does take time for businesses to grow.

As I said earlier, there are employees whom businesses will want to retain in the long term, but there are also employees who can see the value in a business and will want their share in the business to be greater than what current laws allow them to share in it. To support all employees, no matter whether they work for a large corporation or a business that has just opened its doors, to make a greater investment in their workplace, this government is proposing changes to double the ownership percentage in a business that an individual can have. Currently employees can own a maximum five per cent in a company under an employee share scheme, but, thanks to the new provisions outlined in this bill, they will now be able to own up to 10 per cent. This will assist employers to attract and retain valued employees, who, in the global environment we live in, have the ability to cross not only domestic borders with ease but international borders as well. This 10 per cent threshold is also consistent with other provisions in Australia's tax laws and those of other countries.

The government has not, however, just gone out on a whim with the proposed changes in this bill. We have consulted widely across Australia and we have reviewed all submissions made by an array of stakeholders. I repeat: we have consulted wildly—widely.

Mr Neumann: A Freudian slip!

Mr IRONS: That is another word those on the other side do not understand—consulting. For them: it is just put it in the legislation and ram it through. That is all they do. I see the member for Blair is supporting the changes to the ESS; he is very excited about it.

Mr Neumann: I am very excited about it.

Mr IRONS: I know that, as someone who worked in business before, you would have loved to have a good ESS scheme to support your valuable employees. We held consultation meetings in Sydney and Melbourne, held teleconferences for those who were not able to attend those meetings and reviewed approximately 50 submissions. Following these consultations, the government also announced our policy response on 14 October 2014 as part of the Industry Innovation and Competitiveness Agenda. A further five roundtable meetings were held regarding this draft policy and one teleconference, with another 50 or so submissions received.

In response to concerns raised by stakeholders at this time, a second key measure will be implemented in the bill before the House to encourage more Australian businesses to offer an ESS. These concerns were in relation to red tape and compliance costs, which, as members on this side of the House would know, the coalition has no time for, if they unnecessarily burden business and enterprise. In the case of the comprehensive company valuations that are required to establish an ESS in Australia, this is exactly what we are seeing—unnecessary overregulation. When valuations cost $50,000 in Australia, while the costs in the United States are between $2,000 to $5,000, I think it is safe to say that the government compliance costs are strangling businesses' ability to offer competitive schemes to their employees. And if we cannot offer competitive schemes, we all know what our future will hold. Our best employees may move overseas, where they are likely to receive a better offer because they are not restricted by taxes and unnecessary compliance costs.

I am pleased to advise the House that, as a result of the extensive consultation process, other provisions have been added to the government's original draft policy to form the bill before the House. That is because the coalition understood that further reform was needed, particularly in relation to start-up businesses. As I previously said, we are a government that recognises that it is these new businesses which will need the greatest support in today's economic environment not only to establish themselves but to grow in the long term. They cannot do that without good and valuable staff; and this is a way to retain those staff. Not only do we recognise this, but we also design and implement policies that will meet these needs head on by providing a range of concessions to assist in the future success of these businesses.

Before I explain these additional concessions to the House, I would also like to highlight that it is not only through the proposed changes to the employee shares scheme that this government is supporting small businesses. In fact, the 2015-16 budget, which the Treasurer announced earlier this month, included a number of measures that give small businesses a leg up and encourage them to look at ways to grow their business. They include: tax cuts of 1.5 per cent for incorporated small businesses with an annual turnover of up to $2 million; a five per cent tax discount, up to $1,000 a year, for unincorporated businesses; and an immediate tax deduction for each and every asset purchase up to $20,000 for all small businesses. Each of these concessions will support small businesses across Australia and will give them the confidence they need to have a go and invest in their company's future. This may be through a range of measures, including taking advantage of the tax deduction and buying new equipment, employing additional staff or expanding the business into other markets.

The concession for businesses proposed under the amendments before the House specifically focus on eligible start-up businesses. Under this concession, eligible start-up businesses will be able to issue options or shares at a small discount and, if they hold the shares or options for at least three years, they will not be subject to up-front taxation. Under this concession, eligible start-ups will be those businesses which have been incorporated for less than 10 years, are unlisted and have a turnover of no more than $50 million per year. Start-up companies with venture capital investors will also be eligible for this concession.

The Minister for Small Business Bruce Billson said in this place that the discount component for options concession 'will be taxed when the employee is in a better position to fund the tax liability. For shares provided at a discount of up to 15 per cent, the discount component will be exempt from tax.' These changes, if passed in this place and in the other, will be the rules and regulations by which future employee share schemes will be assessed from 1 July this year. They will not affect existing schemes, as these have already been negotiated between employees and employers and the changes would otherwise, therefore, interfere with these contractual arrangements. Of course, businesses could opt to introduce a new scheme under which these changes would apply.

I also take time to highlight that—although this government is proposing a number of amendments to the employee share scheme in response to stakeholders feedback—we will be retaining the integrity measures that were introduced in 2009, which were designed to limit tax avoidance opportunities. We are also making it clear that the 50 per cent capital gains tax discount will be available for options issued under the start-up concession. This includes those circumstances where the underlying shares are held for less than 12 months.

The last key provision in the bill before the House that I would like to take this time to highlight is in regard to the tax that is currently levied when an employee ceases employment. This is based on the concept that, once a person ceases employment, the mutual interests of that business and the employer also cease and so too should the tax concessions they receive. Concerns were, however, raised by stakeholders that this tax is, therefore, being paid on gains that they may never realise. In response to this, the government is proposing to change the refund provisions so that income tax paid on options when employment ceases will be refundable if the option is not exercised and lapses or is cancelled.

As part of a team that supports small businesses, and we are known to support small business in Australia, and as someone who has had experience, as have many on this side of the House, this is another piece of legislation and support that this coalition government is giving to small businesses across Australia, and I commend the amendments to the House.

Mr VAN MANEN (Forde) (17:46): It is with great pleasure that I rise to speak today on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. Employee share ownership is something that, in Australia, has been around since the 1950s, but we never hear particularly much about it. In the year 2000, the Shared Endeavours report noted that employee share ownership plans have been around for a significant period of time and have also enjoyed legislative support since the early 1970s. In that time, they also enjoyed bipartisan support.

The history of employee share plans in Australia has two facets: their evolving significance in business, where they undergo constant modification in response to global pressures being experienced by business, to contemporary business management practices as well as to changes in taxation corporation law; and the gradual evolution of the legislative arrangements and changes, which have attempted to foster employee share plans and participation in them while at the same time, understandably, limiting their use as vehicles for aggressive tax planning.

As I am sure many of the other speakers on this bill have already noted, this bill seeks to redress a number of the changes that the former Labor government made in 2009 to the taxation arrangements for employee share ownership plans. Those changes effectively put a stop to their use for the past six years. It is important in a global marketplace that Australia is able to compete with other countries such as the United Kingdom and the United States, and is able to land new enterprise opportunities here. The current arrangements that are in place impede the opportunity for that to occur. They impede opportunities for innovation and entrepreneurship in our economy. The way we have done business in the past around employee share ownerships schemes is not conducive to the commercialisation of great Australian ideas. It has not enabled the unleashing of the 'have a go' enterprising spirit that we are trying to encourage in order to grow our economy and employment potential. The changes in this bill are intent on better aligning the interests of employers and their employees, to stimulate the growth of start-ups in Australia.

Sometimes, when discussing these topics, I think it is interesting to look at a little bit of history. The importance of the aligning of interests through employee share ownership was first recognised by philosopher John Stuart Mill in 1848 when he wrote:

The form of association, however, which if mankind continue to improve, must be expected in the end to predominate, is not that which can exist between a capitalist as chief, and work-people without a voice in the management, but the association of the labourers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves.

He went on, interestingly, to give the example of Parisian painter who had complained about the frustrations of being a business owner and being unable to get the results that he wanted from the work that his tradesman were doing. He complained that if they were working for themselves and producing that quality of work, they would be soon out of a job, so he decided to change the way that he operated his business, and introduce a yearly profit-sharing plan. It was so successful after the end of the first year that his business became one of the leading businesses in Paris, recognised for the quality of their work, and the business grew remarkably.

This is just one example of why the government—in listening to enterprising Australians through the extensive consultation that the previous speaker touched on—are taking this road to open up again employee share ownerships to the Australian business community and the employees in that community. Time and again, we have heard business say to us that the current taxation regime for employee share schemes is uncompetitive. Of the 50 submissions received, the majority of written submissions noted the changes were positive and encouraged the government to implement them. This is why the coalition will unwind the harm caused by the former Labor government's amendments to the taxation of options issued under employee share schemes. One of the biggest problems faced was that options were taxed when they were provided to the employee and there was no real way of determining their true values. This means that employees were hit with a substantial tax liability, even though there was no material capacity for them to generate the resources to pay it.

The two main changes to the tax treatment for employee share schemes are presented in this bill. Firstly, for all companies, employees who are issued with options will generally be able to defer tax until the exercise of the options, rather than having to pay the tax when those options are vested. Secondly, eligible start-ups will be able to issue options or shares to their employees at a small discount and have that discount exempt or further deferred from income tax. The other changes include the maximum time for tax deferral, which will be increased from seven to 15 years, and the maximum time for the individual ownership limit will double from five per cent to 10 per cent.

The government will address the red-tape burden by developing standardised documentation that streamlines the process of establishing and maintaining an employee share scheme. Following consultation on the draft legislation, the bill will also address technical concerns and further clarify policy on the start-up concession.

All companies in some way will benefit from these changes. Employees who are issued with options will generally be able to defer tax until they exercise their options, rather than having to pay tax when they receive them. This is a huge win for employees who were hit, as I said before, with a substantial tax liability and no way to pay it. Unwinding the changes to the tax treatment for employee share schemes will make employee share schemes more attractive and encourage more firms to offer these schemes to their employees, who will ultimately benefit if the company is successful.

It is vitally important that these amendments are introduced to allow the application of employee share scheme interests that are issued on or after 1 July 2015. Stakeholders have emphasised the preference for this to be achieved so that employers and employees can begin to benefit from these amendments. It is clear that, when employees have a stake in the business, they have a clear path of participation and control. When business leads directly to worker success, worker-owners will be willing to put forth extraordinary efforts to assure the economic success of the firm. As CentreForum, in its 2012 report Employee ownership: unlocking growth in the UK economy, identified:

There are good reasons why now is a good time to be promoting employee ownership, co-ownership and employee share ownership. Employee ownership and share ownership have been shown to improve company performance and productivity. Employee ownership reduces absenteeism, and fosters greater innovation and a longer term approach to business decisions. Greater employee ownership within the firm leads to less of a differential between the high and the low paid, and wages which are at least as high as in comparable firms.

Employee share schemes are a fantastic way to align the interests of employees with those of their employers.

I do not support the amendment. It is a political stunt from those opposite because they have nothing better to offer. However, I commend the bill in its original form to the House.

Mr CRAIG KELLY (Hughes) (17:56): It gives me great pleasure to speak on the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015. Firstly, this bill is another example of what this coalition government is doing, and has to do, to clean up the mess that we were left after six years of Labor. Before I speak on the details, it is very important to focus on the importance of entrepreneurship, which this bill goes to the heart of. It is entrepreneurship that leads to innovation, and it is through innovation that we raise our living standards. We need to create an economic environment that encourages entrepreneurship, risk taking and experimentation, and that provides reward for those people who are prepared to put their own capital on the line and have a go. That is the way we improve the living standards of all Australians. It is that innovation through small-scale experiments, time after time, with a combination of, yes, good luck, judgement and hard work that gets the innovation and the wealth creation in this country.

We have seen examples of countries where innovation fails to happen. We have seen it in countries such as the former Soviet Union, a very rich and wealthy country. They simply failed to create innovation and they went backwards. The failures of centrally planned economies are simply failures of innovation. They are not able to produce the new drugs, the new methods of transport, the new methods of communication and the new consumer products. That is what happens to a nation if you do not have innovation.

I think of one of the greatest failures of that regime. There is a famous photograph taken in a supermarket in Houston in 1989 when Boris Yeltsin, who at the time was making his first trip to the USA, made a side-trip to a small supermarket. Other Soviet leaders had made trips to supermarkets in the USA, and they always thought these were something that were set up as a dummy display to try and show how rich and prosperous the Americans were. They did not believe it. Because Yeltsin had made an unscheduled detour, he knew that this could not have been something that had been set up. The story is that he wandered around the supermarket in complete amazement. The photograph is of him looking into the freezers, seeing all the consumer products that were available to the average American and to most citizens in Western democracies. Yeltsin later wrote:

When I saw those shelves crammed with hundreds, thousands of cans, cartons and goods of every possible sort, for the first time I felt quite frankly sick with despair for the Soviet people … That such a potentially super-rich country as ours has been brought to a state of such poverty! It is terrible to think of it.

That is what happens when you deter innovation and when you deter entrepreneurship. One of the ways of encouraging entrepreneurship and innovation is through employee involvement—the employees having skin in the game through employee share schemes. That is at the heart of this bill. It has long been known that if you can get employees to have some skin in the game they will perform better. The member for Forde quoted Edmund Burke. I think I have an even better quote, from Adam Smith. Smith noted the importance of ownership and, in the 18th century, he said:

A small proprietor, however, who knows every part of his little territory, who views it with all the affection which property, especially small property, naturally inspires, and who upon that account takes pleasure not only in cultivating but in adorning it, is generally of all improvers the most industrious, the most intelligent, and the most successful.

So for several hundred years employee share schemes have been known to increase productivity.

This brings us to what Labor actually did during its six years of government. We saw many disasters, but perhaps this was one of their greatest: in 2009 they made changes to the way employee share schemes were taxed. Where a share scheme gave an employee an option, they made the tax payable upon the granting of the option, not when the option was exercised. Such an insane policy could only have been cooked up by a government run by ex-union officials—ex-union officials that believed in central planning. As was predicted by all and sundry, it was an absolute disaster. The law of unintended consequences applied—it stifled investment and disincentivised innovation and especially start-up companies. It also placed at an international competitive disadvantage Australian start-up businesses and entrepreneurs with a good idea looking for ways of raising capital to attract talented employees. The carbon tax was a tax on Australian companies—effectively a reverse carrot for producing goods in Australia. This was exactly the same—it placed Australian companies at a competitive disadvantage.

We can measure some of the damage Labor did to innovation and start-ups and new businesses. In 2003-04, Australia's business entry rate saw a total of 325,000 new companies, new businesses, start up. If we fast forward nine years to 2012-13, the last full year of the Labor government, you would expect, with a growing population and a growing economy, more business start-ups. But under the Labor government there was a 50 per cent decline in business start-ups. We were 100,000 start-up businesses less than we had been almost a decade ago, because of the incompetent policies of the Labor government. The damage done will not be known. We can put an economic cost against their wasteful destruction of resources, we can put a value on their wasted pink batts scheme and the wasted expenditure on school halls and the $900 cheques to dead people and people living overseas; we can measure the failure of their border protection and the wasteful destruction of our resources. But we will never be able to measure the damage the Labor Party did by disincentivising start-up businesses and entrepreneurs in this country. We will never know what new products, what new services and what new jobs would otherwise have been created without the economically reckless policies of the Labor government.

That is what this bill addresses—it addresses cleaning up Labor's mess in the area of employee share schemes. It does three things. It reverses Labor's 2009 changes to our tax laws; it introduces further tax concessions for employees of certain small start-up companies; and it supports the Australian Taxation Office in working with industry to develop and approve safe harbour valuation methods and standardised documentation to streamline the process of establishing an employee share scheme.

We on the side of the House understand the importance of innovation. We understand the importance of energising entrepreneurs. We understand that we must encourage risk takers; we understand that we must give them at least a level playing field so they can compete internationally. Ultimately, the money that we get here in the government's treasury simply comes from productive business enterprises. The more productive our business enterprises are, the more money that flows into government coffers, the more we have for all those important social programs.

I acknowledge the presence in the House of the Minister for Small Business, the member for Dunkley, Minister Billson. I commend the outstanding work he has done on behalf of the hundreds of thousands, if not millions, of small businesses in this country. We are slowly turning the tide around. After a Labor government under which more than 500,000 people in small business lost their job, we are turning it around—we are incentivising our entrepreneurs because that is the only way we can grow wealth in this country. I congratulate the small business minister for his efforts and I commend the bill to the House.

Mr BILLSON (Dunkley—Minister for Small Business) (18:07): Firstly, I would like to thank all those who have contributed to this debate—in particular, the member for Hughes. I am grateful for his kind words. The small business community runs through his veins and he has deep convictions about what this nation should be doing to support enterprise. I will briefly touch on the surprising and rather curious amendments from the opposition that do not actually seek to do anything in relation to the bill; they present some kind of alternative view of what perhaps should be happening in this economy but without actually go into much detail. There is no proposition before the parliament to change the legislation that the Abbott coalition government has introduced; we have got a political statement. I will touch briefly on that.

Essentially, we are here because the previous Labor government made a massive error that put employee share schemes on life support. We want to heal that harm and get the momentum back into employee share schemes and options as a great way of energising enterprise. As we have heard, in 2009 the former Labor government changed the way employee share schemes and options were taxed. This deterred the use of employee share schemes in Australia. It is an epic Labor failure that we need to fix, and we are doing that tonight. Clearly, the government is fully in support of Australia's innovation and science capacity. That is a decoy observation Labor sought to inject into this discussion and one I would like to briefly deal with given that it has been the focus of Labor's contribution—not the actual remedy and rehabilitation of employee share schemes, which is the purpose of the bill.

In 2014-15, the government committed around $9 billion to innovation, science and research. There is a $484.2 million Entrepreneurs' Infrastructure Program and a range of measures in the Industry Innovation and Competitiveness Agenda, including $188.5 million to fund Industry Growth Centres. This is all about innovation, science and research. Importantly, it is about taking those insights and discoveries and turning them into commercial activities that deliver jobs and improve living standards for our country and for our economy. The government is currently finalising its national Science, Technology, Engineering and Mathematics (STEM) plan, which will achieve tangible outcomes across the country for decades to come. Announced as part of the government's Industry Innovation and Competitiveness Agenda, this $12 million investment will improve the focus on STEM subjects in primary and secondary schools across the country. The funding will invest over $7 million to provide innovative mathematics resources for teachers and students, provide over $3 million for greater exposure to computer coding across different year levels and contribute $500,000 for an innovation-focused Pathways in Technology Early College High School (P-TECH) pilot program to help develop the next generation of innovators and graduates.

The Commonwealth government has announced new national science and research priorities to ensure our high performing science, research and innovation system delivers maximum benefit. The nine cross-disciplinary priorities are food, soil and water, transport, cybersecurity, energy, resources, advanced manufacturing, environmental change and health. These priorities will help our world-class science and research efforts to reflect the needs of industry, the national economy and the community. Taking those discoveries and research insights and better translating them into commercial outcomes for jobs and economic opportunity is very much our focus.

I will not spend any more time on that because clearly Labor was seeking not to improve this legislation but simply to make a political statement. As I outlined in my second reading speech, this bill will improve the tax arrangements for employee share schemes to make Australia a more attractive investment destination and to give start-up companies a better chance of success. This is because the Abbott coalition government understands the importance of creating good business conditions to encourage entrepreneurs to develop their companies here in Australia.

These changes which will come into effect for new shares and options issued from 1 July 2015 and build on our Jobs and Small Business package. They will provide a significant incentive for Australian companies and their employees to enter into employee share schemes and to work together to achieve synchronicity, with the goals of the organisation being aligned with the goals of the employees. We know that that produces productivity improvements and better outcomes by facilitating that common shared purpose and goal.

To facilitate the take-up of employee share schemes and options we are also producing template documentation so that the regulatory compliance task is not an obstacle to enterprises with an appetite to take up employee share schemes—being overwhelmed by the paperwork, regulatory and compliance task. It is a comprehensive package that really puts the wind back in the sails of employee share schemes and the great potential they offer our economy. That is why I commend this bill to the House with much enthusiasm.

The DEPUTY SPEAKER ( Mr Randall ): The original question was that this bill be now read a second time. To this the honourable member for Fraser has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the amendment be agreed to.

Question negatived.

Original question agreed to.

Bill read a second time.

Mr BILLSON (Dunkley—Minister for Small Business) (18:13): by leave—I move:

That this bill be now read a third time.

Question agreed to.

Bill read a third time.