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Payroll tax here to stay, at least for now

Payroll tax here to stay, at least for now

Speculation the federal government could step in to remove the much-despised payroll tax has been scotched by a former ATO official, despite Treasury recently weighing in on its impact on employment growth.

Last month, Treasury released an analysis of payroll tax data which it claimed proved that the tax is no disincentive on employment growth.

SMEs angrily refuted these claims, with one stating that “We limit our employment in our SME to avoid the extremely unfair payroll tax,” and another suggesting that the use of contractors is a useful means of avoiding the payroll tax thresholds.

However, the fact that federal Treasury became embroiled in debate around a state-based tax, and did so in the lead-up to the federal budget, raised questions about whether the government would seek to push for the abolition of payroll taxes.

But H&R Block tax expert and former ATO director Mark Chapman told My Business there is little chance of this happening, at least in the short term.

“I think it’s possible to produce models that tell you anything you want to hear, but I think the anecdotal evidence is certainly that payroll taxes don’t help employment. That seems like common sense, really, that if employers have to pay more tax for taking on more people, then they will think twice,” Mr Chapman said in response to Treasury’s modelling.

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He suggested the government “could” become involved, but suggested that doing so would be “a wasted effort” given the different make-up of the state governments.

And using the GST to leverage support for the abolition of payroll taxes is also off the cards, Mr Chapman said, at least in the foreseeable future.

“GST is a tax that ultimately goes to the states, so the federal government has a fair amount of say in how that GST pot is divvied up between the state governments. So that is something they could do,” he said.

“But again, they’d be setting themselves up for a very complicated and long-running fight, and with an election due within the year, I can’t see that the government would have the appetite to do that, it would be too diverting of their attention.”

In a March straw poll of My Business readers, a quarter (24.6 per cent) ranked payroll tax as the most cumbersome tax to deal with in business.

Payroll tax here to stay, at least for now
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