Payroll tax should be scrapped, not increased

“It’s a penalty for employing people”, “it’s a scourge” these were the reactions I got on the topic of payroll tax when I spoke to a group of SME owners and founders this week at a meeting of the Entrepreneurs’ Organization.

There’s not much love lost in the business community for payroll tax, so that’s why I was surprised to hear Australia’s top Treasury official call on state governments to plug budget deficits by increasing payroll tax.

Treasury secretary Martin Parkinson said state and federal government revenue bases had been “dramatically hollowed” and there was too much political opposition to raise the GST. He suggested hiking payroll tax as an alternative.

At a time when job losses and business collapses continue to attract attention in Australia it is worrying that Treasury is even considering increasing what is already an insidious tax on jobs.

Australia’s payroll tax system already does enough damage by hitting businesses with a hefty financial whack once the wages they pay their employees hits the threshold.

It’s a historical anomaly anyway, introduced back in 1941 by the Commonwealth Government to raise money to pay for child endowment and it was transferred to the states in 1971.

Now payroll tax is one of the few sources of income for state governments, particularly in light of dwindling GST revenue as Australian consumers shop more and more online and offshore.

It’s a vicious cycle, as payroll tax only penalises businesses for growth and encourages them to move jobs offshore or outsource rather than actually employ staff.

Instead of looking to get more revenue from payroll tax, Treasury needs to find some way to phase this tax out around the country.

It would take a coordinated effort by state and federal governments – a big ask, I know – but that’s what’s needed so that Australia’s SMEs can keep growing and keep employing, safe in the knowledge that they won’t be financially stung if they do so.

A few years ago SmartCompany ran a campaign to get rid of payroll tax, it seems like another campaign is well overdue.