Payroll Tax in Australia

Payroll tax is a levy on the value of certain types of income paid within a particular state or territory by employers to, or on behalf of, their employees. Although, it is a state tax different jurisdictions have different rates and deduction thresholds.

The total approximate savings from abolishing the payroll tax would be $22,240 million for all the States and Territories, based on 2015-16 figures. Payroll tax is the largest source of state own-source revenue accounting for about a quarter of such revenues.

It is not just the financial cost amounting, it also costs businesses invaluable amounts of time, energy and resources. The increased compliance costs then distort employer and employee behaviour.

Tax and transfer systems need to be focused on supporting sustainable economic growth and not just financing the budget deficit. While, at the same time a system that is not just a redistribution of income but can promote the growth of incomes at all levels.

To provide Australian workers with more income that can be redirected into their own businesses rather than into more government spending. This would significantly increase the employer’s incentives to hire additional workers and increase worker participation and business innovation.

Five recommendations for the payroll tax that should be implemented across all Australian States and Territories if it is to compensate for the dead-weight loss.

  • (1) Change pay roll tax requirements to allow a business to be profitable before becoming liable;
  • (2) Compensate for variance across States and Territories causing such distortion of behaviour and increased compliance costs;
  • (3) Change the current payroll tax grouping provisions that double compliance costs and/or pushed into higher thresholds between states, for related companies, including common ownership to overseas holding companies and common use of employees;
  • (4) Rule out possibility for broadening the payroll tax base and/or levying it on a comprehensive national tax base, possibly with Commonwealth PAYG wage withholding system;
  • and (5) Abolish the payroll tax to increase employment, funded by a spending restraint.

In conclusion, the proposed changes would promote productivity with more efficient tax bases. Leading to increased skill acquisition for workers. Prevention of any misdirection of resources and allows for an efficient and timely supply of infrastructure. Investment and international competitive would also be further supported by lower company income tax rates. Ultimately, the resulting economic growth would fuel higher wage growth and provide the needed revenue growth that could fund community services. Following that of other countries that have strong social support policies adapted to the pro-growth tax structures.

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