In its pre-budget submission, the Tax Institute said sweeping measures are required to “further harmonise the payroll tax base across the states and territories”.
It noted that this would require co-operation between the state and territory governments and, importantly, support from the federal government.
“Particularly in this time of economic crisis, it is not feasible for the states to repeal their payroll taxes without recourse to alternative revenue sources,” the Tax Institute said.
“One alternative recourse would arise with the broadening of the GST base and increase of the GST rate. This would simplify the overall tax system.”
The Tax Institute said that, like the federal government, the states and territories are experiencing significant budget deficits due to the impact of the COVID-19 pandemic, and that payroll tax is a significant source of revenue for the states and territories, accounting for approximately one-third of revenues each year.
However, the accounting body also said payroll tax was one of Australia’s most inefficient taxes, largely due to the discrepancies between the jurisdictions in the relevant thresholds and exemptions available.
As a result, this invariably imposes a heavy compliance burden on employers and the state and territory revenue authorities alike.
“Australian businesses that operate across several states and territories are faced with different reporting and payment obligations and are required to deal with different revenue authorities in each jurisdiction,” the Tax Institute said.
“Consistency in the payroll tax base across the states reduces the compliance burden for such taxpayers. Further, lockdown and social distancing measures which have disrupted the way businesses have traditionally operated have meant that consistency across state taxes such as payroll tax is more important than ever before.”
The federal government will hand down its budget for 2020–21 on 6 October.