Payroll tax is the levy that penalises a business owner for growing and hiring. Now NSW opposition leader Kellie Sloane is betting that voters (even those who’ve never run a business) can be convinced the tax is everyone’s problem.
The New South Wales ‘wannabe’ premier, Kellie Sloane, has hit upon a policy pitch for next year’s election. And unlike the Albanese Government’s “business comes second” approach that curries favour with non-business-owning voters, the state’s opposition leader has promised to make her state’s payroll tax the lowest in the country.
This is a pro-business policy and if adopted nationally, ultimately could produce a better economic life for not just business owners, but for the vast majority of Australians.
However, while this is a great policy idea, which will be applauded by business owners, it might not be appreciated by those who’ve never owned a business that gets slugged with one of the worst taxes imaginable. Yep, this is nothing more than a tax on someone who creates enough jobs to be ‘rewarded’ with a payroll tax.
Here are Sloane’s proposed changes if her team wins the 2027 election:
- The payroll tax threshold for paying the tax goes from $1.2 million to $1.5 million;
- The tax rate would fall from 5.45% to 4.75% for businesses with a total Australian payroll below $10 million;
- The payroll tax threshold would be indexed to inflation.
- 4,000 businesses would escape the tax.
- 25,000 businesses would face the lowest payroll tax of any state.
Sloane is thinking that if you make business success less tax-punishing, it might give incentives for entrepreneurial business owners to take risks with their money, meaning they invest more and create more jobs.
Sloane should also have a look at how the Offices of State Revenue around the country use something called “grouping” to increase the payroll tax paid by employers. It can mean if a family has multiple businesses, run by different members of the family, but say the capital provided for the business comes from the parents, all of the payrolls from the different businesses can be added together to ensure more payroll tax is paid.
This is a disincentive for business growth and diversification, which can be a great way to protect a business from going broke.
The problem for Sloane is that her rival, Premier Chris Minns is a formidable politician, but his government’s payroll tax regime is quite aggressive towards the state’s employers. However, getting non-business owners, which of course includes employees, to understand the pain and pressure on bosses of payroll tax bills isn’t an easy sell.
And the problem with this tax is that it’s an easy tax for states to impose and it’s why no state government or opposition leader can ever consider killing this job-destroying tax. To do that, it would require an enlightened federal government to coax state premiers to accept a massive tax reform package, which might include, wait for it, a 15% GST on most goods and services!
Clearly, payroll tax will never disappear but there’s no good reason to have low thresholds that capture too many small businesses, which might never grow because of it, or to avoid it.
By the way, the New South Wales government of 1927 dreamt up the tax, as Business NSW has revealed in a piece written by Elizabeth Greenwood. “In 1927, the New South Wales government was becoming increasingly concerned with the fact that the minimum wage wasn’t enough to feed the average family,” Greenwood explained. “Single men and married men without a family were being paid the same as men who had a wife and large family to support.
“So, a Family Endowment Fund (for the maintenance, training and advancement of children under the age of 14) was established and funded via a tax on wages.”
Payments from this fund were made to the mother of each means-tested family and it was such a winner of a policy that during World War II, after the federal government took over the states’ taxing powers, it then used the NSW model to create a national Child Endowment Scheme.
Then in 1971 the federal government gave the payroll tax option back to the states and the rest is tax collecting and job-killing history.
