As all governments join business and union leaders in Canberra to come up with a plan to bolster our falling productivity, I hope someone asks: “Why not get rid of the job- and innovation-killer called payroll tax?”

Payroll tax is like the weather — everyone complains about it, but no one ever does anything about it! Correction, state governments that collect this despised tax don’t complain about it! However, as all governments around the country join business and union leaders in Canberra to come up with a plan to bolster our falling productivity, I hope someone asks: “Why not get rid of the job- and innovation-killer called payroll tax?”

Before you return fire with old world defences that it’s an easy tax to collect for the states, remember it’s probably old world thoughts that have got Australia into its productivity pickle that our leaders are trying to ‘de-pickle-ize’ at this Economic Reform Roundtable tomorrow and Wednesday.

Before putting forward my plan to kill payroll tax to unleash both job creation and innovative new businesses that the tax discourages, let me give you a bit of history about the tax.

It used to be administered by the Federal Government when introduced in World War II Australia. It was 1941 when the tax was levied on wages and was paid by all employers in all businesses in Australia from 1 July 1941 at the rate of 2.5% on wages paid by employers. It was introduced to finance the Federal Government’s obligations to pay child endowment at the rate of five shillings per week to the carer of more than one child under the age of 16 years.

Law firm Gilbert + Tobin tells us that “in 1971 the power to tax payrolls was transferred from the Australian Government to the States and Territories. Queensland introduced its own Pay-roll Tax Act in 1971. Each of the other States and Territories introduced their own Pay-roll Tax Acts about the same time.”

Once the states had their hands on this tax, they introduced a thing called grouping. “Before the grouping provisions were introduced, it was easy for sophisticated businesses to get around paying payroll tax by setting up various companies to employ their workforce,” the lawyers explained. “The trick was to keep the payroll of each of the companies under the threshold amounts, so no tax was payable.”

The states also ganged up on businesses that set up in different states with lower payroll tax to make sure they got these ‘so-called tax dodgers’, who incidentally are also job creators, though I’m not sure public servants charged with collecting taxes ever care about that.

The key question is: what’s more important — tax collection or job and production creation that ultimately creates profits and wages that get taxed?

Sure, you can see smarty businesses taking steps to avoid payroll tax by having different names of companies, but what about the small business owner who tries to diversify to avoid going broke? What about the business owner that has a good business but his or her spouse or partner decides to go into a different star-up business? She will learn that her wage bill will be added to her partner’s wage bill and therefore she pays a surprise tax on her fledgling business, thanks to grouping.

This is an enormous disincentive to innovate and it’s at the heart of changes that bring productivity, which this country needs. This chart shows how current government thinking and taxes, as well as labour market practices, have cruelled out productivity performance.

OK, let’s admit our productivity looks like crap, so here’s a big ‘outside the square’ idea from yours truly.

Last week I did some research and found that the combined payroll tax take by the states added up to around $22.5 billion. So, I wondered how much we would raise if the country took the advice of our greatest tax experts, which includes economist and former Opposition leader Dr John Hewson, former Treasury Secretary Dr Ken Henry and just about every credible economist in Australia, who all think we should have a 15% GST. What if we actually did increase the GST to 15%?

The experts above also think the tax should be on just about all goods and services, just like our Kiwi cousins across the ditch, who’ve had a 15% GST since 2010!

And what else did I discover with my research? By raising the GST on existing goods and services that cop the tax, we’d raise $23.8 billion. Yep, killing a payroll tax that kills jobs and innovation with a 15% GST would more than make up for the state’s losses. And guess who cops the GST revenue? That’s right — the states!

By broadening the tax, you could raise extra tax dollars to bankroll tax cuts for lower income Australians hurt by a higher GST. The rest of us will have to hope that the extra growth, income and productivity will flow through to higher wages via higher business profits.

When I interviewed Edward DeBono, the legendary thinker who coined the term lateral thinking (or thinking outside the square), he argued the high achievers of business, sport, the arts and even politics, are more competitive and win more often because they go for innovations that have their origins in uniquely distinctive thinking.

Treasurer Jim Chalmers has indicated all ideas to boost productivity will be considered. However, his boss  Prime Minister Anthony Albanese has ruled out changes to the GST. This is a worry if our leader looks entrenched ‘inside the square’ or box.

‘Outside the square’ thinking ideas like my killing of payroll taxes, could lead to other ideas such as setting the threshold for paying payroll tax so it captures bigger, successful, profitable businesses. This might make it possible for smaller businesses to diversify and pursue profits in other industrial sectors without handicapping them with a draconian tax until they really are successful and profitable.

If you think I’m barking up the wrong tree, just consider this. Let’s go back to my earlier example. Say a husband and wife team have an electrical trades business. The wife decides to open a hairdressing business, which both partners own. The new business mightn’t be profitable for a year or two but because the owners have employed three hairdressers, which add to the electricians they already employ, they’re being slugged via grouping with a payroll tax.

Grouping businesses in different industries is a disgraceful attempt for big spending state governments to bankroll their wasteful spending. It’s a punishment for industrious, productivity-pursuing small businesses, who governments pre-election praise as being the backbone of the economy as the biggest employers.

And here’s an ‘outside the square’ thought. If a new business isn’t yet profitable, then they should be exempt from payroll tax.

If productivity is important, governments must make it easier for those risk-takers who start a business and employ both young and older Australians to help make their material dreams come true.

And here’s one thought/warning. If governments keep punishing businesses for employing people with payroll taxes, then there’s a new ‘kid’ in town who might rescue those embattled entrepreneurs and punish the tyrannical tax collectors. And the name of this saviour? Artificial Intelligence!

I’m not saying my 15% GST to kill payroll tax is thoroughly thought through, but it’s a hell of a good idea worth testing and may end up being part of a better tax system that gives us what we need — productivity.

If no one runs with an idea like this next week, then the Albanese Government has invited the wrong people, and this roundtable will be just another talkfest. We need heroic decisions and a PM who really believes in the old saying that his beloved Rabbitohs have believed, namely, “no guts no glory”. Without the kind of gutsy decisions that previous leaders like Hawke, Keating, Howard and Costello made, no big productivity boosts will show up from this roundtable get together for our beloved country!