In a sign that payroll tax is open to scrutiny from the states, the NSW Government has pledged to increase the tax threshold in a move that will benefit an estimated 40,000 businesses.
In a pre-budget announcement, the government said it will raise the raise the payroll tax threshold from the current $750,000 level to $1 million.
The move will be done progressively over the next four years, starting with an increase to $850,000 from the impending 2018-19 financial year.
“Businesses that consistently have payrolls over $1 million will save more than $120,000 over the next decade from the lifting of the payroll tax threshold, which is money that can be reinvested back into businesses,” the state’s treasurer, Dominic Perrottet, said.
Under the proposal, close to 40,000 businesses will benefit with savings of up to $5,450 next financial year and up to $13,625 by the 2022 financial year, while some 5,000 businesses will ultimately be freed from paying the unpopular tax altogether.
John Barilaro, Minister for Small Business, said the move will take pressure off smaller businesses that are seeking to add jobs and grow their operations.
“As a former small business operator myself, I know how tough it can be to run a small business, and so now as Minister responsible for the sector, I want to make life as easy as possible for those people who take on the responsibility of running a business and creating work opportunities for others,” Mr Barilaro said.
“The lifting of the payroll tax threshold will not only save business owners money, it will save them time and give them the opportunity to take on that extra staff member or pursue new ideas to grow their business.”
NSW Business Chamber chief executive Stephen Cartwright welcomed the change as a “very positive step” for the state’s business community.
“Payroll tax, and the very low threshold in NSW, has discouraged small businesses from hiring additional staff, and worse still[,] it costs many small businesses thousands of dollars each year in administration costs for relatively little additional state revenue,” Mr Cartwright said.
“An increase from $750,000 to $850,000 in the first year, and then by $50,000 per year for the next three years means a business with an annual payroll of around $750,000 can hire two extra young job seekers without being slugged by a tax penalty and extra administrative costs.”
However, Mr Cartwright expressed continued opposition to the tax overall, claiming it is “a tax on jobs and job creation and serves as a dis-incentive to employ more people”.
“Being penalised for creating new jobs is just ridiculous,” he said.
His comments run contrary to federal Treasury, which earlier this year suggested payroll tax does not have a material impact on the hiring intentions of businesses.
Some business owners reacted strongly to this suggestion, providing firsthand insights into how they avoid breaching the tax threshold by capping staff numbers or employing contractors instead of increasing their headcount.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.