TOM CONNELL:
Welcome back. Well, for people that perhaps are looking to venture out, start their own business, perhaps start afresh in the same industry, they sometimes get a big surprise. A non‑compete clause that they’ve signed maybe many years ago means they’re very restricted on doing so. Labor, we think, are going to do something about this. Joining me is Andrew Leigh, who’s Assistant Minister for Competition, Charities and Treasury. Thanks for your time. So, submissions on this are flooding in. I think they’re closing today.
So, what happens? You go through these and you decide how hard to act. Presumably, you’re going to hear from business too, that are going to say, we build up this IP; this is our property as well, and don’t go too far. How are you going to balance that?
ANDREW LEIGH:
If you’re a business who’s looking to start up, then non‑competes really are an impediment. If you’re hiring in a full employment economy, typically you’re going to be hiring workers from another firm. But if all those workers are locked up by clauses that say they can’t work in your city for 12 months, you’re not going to be able to hire the same number of people, which is a drag on productivity. We know one in 5 workers are bound by non‑compete clauses, including not just executives, but early childhood workers, security guards and the like, and that they are potentially a drag on wages and a drag on productivity.
CONNELL:
In terms of a principle on this, and I know you want the economy to prosper. So that’s one thing. But for an individual, if you have to sign something like this, should the minimum be that while you can’t work, you should get paid by that company? If they really want to do that, they have to pay. Is that sort of a prerequisite at least so the individual isn’t found effectively unable to work, unable to support themselves or their family?
LEIGH:
It’s a great point, Tom. Other countries have gone down that approach. So, Finland says you’ve got to be paid at least 40 per cent of your wage, which makes it harder for an employer to costlessly throw in a non‑compete clause. It means they’ve got a bit of skin in the game. The United States have just announced a nationwide ban on non‑compete clauses. Their Federal Trade Commission has decided that by banning non‑competes, they’ll see better wage growth, stronger productivity growth and more innovation across the economy. California has banned non‑compete clauses since the late 1800s, and it’s one of the most productive places on the planet.
CONNELL:
Total ban? You can’t put one in any way, shape or form?
LEIGH:
They’re unenforceable but these clauses do still have a chilling effect. Even in California, where they’ve been unenforceable for over a century, employees look at their contract, they say, I’ve got a non‑compete clause and sometimes that impedes them from moving.
CONNELL:
Useless words on a bit of paper, basically.
LEIGH:
Precisely. And many of ours may well be unenforceable.
CONNELL:
So, where do you sit? Are you considering a total ban? Would you go that far?
LEIGH:
We’re considering all options, Tom. We want to make sure we engage with business. This is the first stage and we’ve got a range of submissions to consider. If we announce policy proposals, we’ll go through the usual consultation process.
CONNELL:
We’ll wait to see, on inflation how concerned were you by this figure this week? Well above market expectations, is inflation now no longer under control?
LEIGH:
Inflation is half of what we inherited. When we came to office, it had a 6 in front of it. Now it’s got a 3 in front of it. It needs to have a 2 in front of it to be back in the Reserve Bank’s target band. The monthly figure bounces around more because it doesn’t cover as much as the quarterly figure, it covers about two‑thirds of the items that are covered by the quarterly figure. So, we pay more attention to the quarterly figure and of course, we’ve just brought down a Budget which is aimed at taking pressure off inflation.
CONNELL:
Treasury says, and this is a measurement from April so, on the beyond now, beyond the Budget if Labor does get it wrong on inflation, as in inflation comes up, not comes down, or can’t come down, will you be punished by voters? Do you own inflation in the political sense?
LEIGH:
I’m focused on getting the policy right, but the Budget, according to Treasury, will take three-quarters of a percentage point off inflation this year, half a percentage point next year. That’s because of what we’re doing in energy, in housing and in childcare. Those measures are really important particularly in the area of energy bill rebates, the last lot opposed by the Coalition. Those significantly reduced electricity price inflation from where it would otherwise have been.
CONNELL:
The RBA tends to look at that trimmed mean but anyway, I won’t get too wonky on a Friday afternoon.
LEIGH:
I’m happy to go as wonky as you like.
CONNELL:
I’m more worried about our viewers, I know you’ll out wonk me any day. Taxing super earnings above 3 million. So, this is a measure that’s set to take effect. I don’t think it’s passed, but takes effect in the middle of next year. So, after the election, I’m just interested in the unrealised capital gain aspect, because that’s unprecedented in our tax system, isn’t it, that you tax someone on a capital gain before they’ve actually sold something? Is there anywhere else that’s done in Australia, in the tax system?
LEIGH:
First of all, to the broad measure, this is a measure that affects just the top 0.5 per cent of super balances. 99.5 per cent of super balances are unaffected. It’s only those with more than $3 million. They still get concessional tax treatment, just not as concessional as they currently get. And there is a requirement that your assets be diversified. So in 2019, we had the Australian Taxation Office writing to a range of holders of self‑managed super funds saying, you can’t just have one asset…
CONNELL:
We’re nearly out of time, so, excuse me jumping in, but that diversification, as in, someone won’t just have 3 properties and have to sell one, they’ll always be a liquid asset. Is that what you’re looking to around there?
LEIGH:
There’s a requirement to have diversification, not to just be in a single asset class. That ought to, if people are complying with those rules, which have been in place under the Coalition and under Labor, then they ought to be able to follow smoothly as this small tax change takes effect.
CONNELL:
So, that’s where you’re warding off any claim that someone has to sell something, as in a property, I guess. A liquid asset might need to be sold like a share, but they won’t have to sell like a million dollar property to pay a $20,000 tax bill. You don’t think that would have to happen?
LEIGH:
Well, your superannuation should be separate from your personal affairs. Your superannuation should also be diversified. The Australian Tax Office has been monitoring that for years.
CONNELL:
There’s no prospect of changing the unrealised capital gain element? You’re happy with where that’s at? Despite all the criticism and question marks.
LEIGH:
We have no further plans for changes to superannuation. Our focus is on the multinational tax changes and, of course, seeing every Australian taxpayer get a tax cut on the first of July.
CONNELL:
Andrew Leigh, thanks for your time.
LEIGH:
Real pleasure, Tom. Thank you.