Payroll Tax

Imagine for a second that the State Governments get the GST revenue. In rough figures this will be about $39billion this financial year. OK. That's true so you don't need to imagine it.


Then imagine that the Victorian State Government put a tax on employers that forces them to pay an additional 5.05% tax when their total wages bill exceeds $550,000 per year. Employers paying $549,999 in salaries and bonuses and commissions and holiday pay do not have to pay this tax, but once they cross the magical line they have to pay the 5.05% tax on every dollar over $550,000. To quote the State Revenue Office (the taxman) "The definition of wages is very broad". Some items included are: "superannuation guarantee payments, salary sacrifice contributions...". So pretty much everything, including fringe benefits. This would even include employer-sponsored maternity leave and childcare!


This is a tax that says to an employer "We are going to penalise you for employing more people". This ridiculous tax looks even more stupid when one remembers that a person with a job pays income tax. Then they pay GST on the things they buy. They may even buy a house in which case they will also pay stamp duty (another argument for another day). If the employee was unemployed then they will stop claiming unemployment benefits and will lose their concession card. They will then pay more for other services such as public transport and utilities. So the Government is going to get more tax income and pay less benefits and be better off anyway.


Employing people is a big decision for small and medium sized businesses. It's a balancing act between retaining profit in the business, passing the profit to shareholders and directors and investing the profit in new people, new machinery or new resources. Why does the Government further complicate the task by penalising businesses for hiring more people? Isn't that what they're supposed to do? There is a cost to putting on a new employee and that's fair and reasonable. Successful growing businesses should pay tax (and they do, by the way). But why is there a tax that directly penalises a company for expanding and hiring past a certain level?


And it's not just the tax (which equates to around $3000 per employee over the threshold per year), but I can promise you that there's going to be more paperwork. More forms more time wasted. Less time growing the business, less time looking after the employees, customers and suppliers.


This week a business in Victoria will sit down and make a decision about hiring someone. They will be a growing business ready to take the next step. They will do a cost-benefit analysis and will have to factor in payroll tax. Some businesses will hire the extra person, others won't and will encourage their existing staff to work harder and share duties and pick up whatever slack there may be. Someone somewhere is going to miss out on a job.

Payroll tax is a tax on growth, on small and medium sized businesses and entrepreneurship. It's a tax that big business is routinely offered concessions on in an effort to encourage them to invest in Victoria. It's an unfair tax that punishes small successful companies that are often major contributors to the economy and to the community.

My apologies for using the cliche, but payroll tax is a tax on jobs. It's time for it to be abolished.