13. Payroll Tax

Hi, I am Greg and I want to grumble about tax, and payroll tax in particular. Taxes are never popular, but payroll tax is particularly unpopular, being labelled as a tax on employment. However, given that it helps pay for vital state government services, the Productivity Commission speculated that it might be better accepted if it was called a hospital or schools levy.

But in any tax debate, we have to remember that Australia is not a high taxing country by world standards – the 4th lowest in the OECD, and South Australia is not a high taxing state. As a share of the economy, state taxes are about the same as the national average, and per head of population state taxes in South Australia are $300 a year less than the national average.

However, state taxes – especially payroll tax – have long been a bugbear of business and this week the Liberal Party promised a big cut in payroll tax from 2015 if they are elected in March.

I think payroll tax does need an overhaul, but I am not sure I would have done it the way the Liberals have proposed. They are not promising to cut the rate of tax, just to raise the threshold for when businesses start paying the tax. 8,000 more businesses will be exempt from the tax, but any threshold creates a tax disincentive for businesses expanding over the arbitrary threshold. I would have preferred a broader based tax with a lower tax rate for all businesses.

But I also think that simply playing with rates and thresholds is a missed opportunity for tax reform. One of the biggest problems facing workers today is insecure work. Far too many people are struggling on short term contracts or in casual employment. This creates uncertainty and stress for staff, and limits their ability to access loans, housing and to plan and build a secure life. If payroll tax relief is called for, wouldn’t it be better to offer it to employers who offer more secure forms of employment than to employers who maintain workers at the margins but who sneak in under an arbitrary threshold?

Obviously this proposal needs discussion and modelling of its effects – not least because many low paid casuals rely on the loading in their pay to make ends meet. But if we are going to have an election based just on cutting taxes, then I am going to grumble.

And looking at the opening pitches of the election campaign, I am Greg, and I am grumbling.

This Grumble can be heard online or by podcast at https://radio.adelaide.edu.au/gregs-grumbles-13/

First Broadcast: 29 October 2013