Payroll Tax (Exemption for Small Business) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 20 June 2018.)

Mr MULLIGHAN (Lee) (16:09): It gives me great pleasure to rise and speak on the Payroll Tax (Exemption for Small Business) Amendment Bill. I indicate that I am the lead speaker on behalf of the opposition. I indicate up-front that we look forward to supporting the bill. It is an important bill and one that is a further step in addition to the leaps and bounds that this state has taken in decreasing the payroll tax burden on South Australian businesses, particularly over the last 15 years.

Payroll tax is, of course, always topical for the business community in South Australia, as it is in the other jurisdictions and their business communities. That has been the case since nigh on 70 years ago when, in some arrangements entered into between the states and the commonwealth, the states were left with an arrangement to levy payroll taxes and the revenues from income taxes were to be levied by the commonwealth. These were put in place during the early years of the Second World War in order to better align the revenue-raising efforts and capabilities of the Commonwealth of Australia, which needed to raise significant funds for the war effort in that global war.

Ever since, there has been—how can I put it euphemistically—a general discomfort in the business community about the fact that there is a payroll tax, let alone the level of payroll tax. I am not sure that members of this place would go quite as far as some people in talking about payroll tax, particularly some members of the business community, who describe it as unreasonable double taxation given that employers are obliged to pay a payroll tax on the taxable element of wages and individuals are then required to pay income tax on those wages they receive from their employers. So it is two doses of taxation paid by two different parties in that transaction between an employer and an employee.

In South Australia, as in other states around the country, we have seen a continued pressure from the business community to lessen the burden of payroll tax, and I am very pleased to say that substantial progress was made in that regard over the course of the previous Labor government. In fact, very substantial relief from payroll tax liabilities was provided to the business community—not just the small business community but also medium and larger sized businesses and employers—in South Australia during the term of that government.

It is sometimes difficult for governments to contemplate providing payroll tax relief because it is such a significant component of state revenue; in fact, it constitutes nearly a quarter of state taxation revenues. In the most recent financial year, the 2017-18 financial year, my understanding is that the Mid-Year Budget Review forecast receipts of $1.17 billion in payroll tax, although we did hear from the Under Treasurer, very close to the end of the financial year, that they seemed to be tracking about $10 million above those estimated receipts as further months' receipts came into RevenueSA. No doubt that is a reflection of the improved employment conditions and the movement in forecast hours worked here in the state economy.

Of course, members would expect me to argue that that is a direct correlation to some of the policies that the former Labor government had in place during the course of the last financial year, only very recently ended, and it is perhaps worth reflecting on the journey of payroll tax policy settings from the time the former state Labor government came into office. The period of the 1990s, in South Australia and in other states around the country, was one of sustained low economic growth. Indeed, South Australia and the nation experienced a recession in the early years of the 1990s. While some of the Eastern States' economies were recovering their economic performance quite quickly towards the end of the 1990s and the early years of the 2000s, it was not really until the years of 2002, 2003, 2004 and 2005 onwards that we started to see that stronger performance here in South Australia.

With that increased amount of economic activity, we saw increased revenues coming into the state government. A very legitimate conversation started amongst the community at that point in time about whether the government should be banking those additional revenues and paying off state government sector debt, whether it should be providing tax relief to the business community or households or whether it should be investing in infrastructure. I am pleased to say that the former Labor government did all three of those things.

In the years between 2002 and 2006 or 2007, I think it was, it paid off general government sector debt of approximately $1.6 billion or $1.7 billion, slightly more than the amount of net lending deficits that had been run in the last four years of the former Liberal government under Treasurer Rob Lucas of the other place. It paid off that debt and, as I am sure you will hear in further contributions to the other bill that occupied the house this morning, it invested very significantly in a very large number of very worthy infrastructure projects.

Aside from those two elements, I want to focus on some of the tax relief that was provided in those years by the former Labor government. Payroll tax was one area where significant relief was provided going back to 2004-05. The payroll tax rate levied in South Australia at the change of government in 2002 was 5.67 per cent. In the 2004-05 budget, that was reduced to 5.5 per cent, which was a significant reduction in the payroll tax rate.

It delivered a substantial amount of relief, $22 million, not only in that financial year but, given the strength of the economy and the strength of small businesses—the number of workers they were taking onto their books, remunerating and increasing their payroll tax liabilities—that level of relief grew very quickly from that one measure, from $22 million to $30 million within four years. Of course, before that four-year period was up, further payroll tax relief was provided. In the 2007-08 budget, the payroll tax rate was further reduced from 5.5 per cent down to 5.25 per cent, providing a $40 million a year reduction to taxable payrolls for South Australian businesses.

In 2008-09, the very next financial year, a further 0.25 percentage point reduction was provided in the payroll tax rate. It went from 5.25 per cent down to 5 per cent, providing a further very substantial decrease in payroll tax liabilities of over $43 million in that financial year. Of course, the benefits of that grew more substantially as time went on. From those three measures, by the time the third, the reduction down to 5 per cent, had been introduced, $100 million worth of payroll tax relief was already being provided at that point in time some 10 years ago.

You can imagine what the value of those payroll tax cuts is in today's dollars. I see the member for Stuart looking at me intently, curious as to what the value of those payroll tax cuts could possibly be in today's dollars. It behoves me to inform him that it is over $140 million, and that is terrific. Of course, it is even more terrific that the amount of payroll tax relief provided by the former Labor government did not stop there. During the course of that period of time—2007, 2008 and 2009—the payroll tax system itself was being reviewed.

Substantial efforts were undertaken at that time between the states to harmonise their payroll tax regimes in the growing recognition that a number of national businesses operated their businesses across borders. They were in repeated contact with state treasurers in those three jurisdictions, including South Australia, seeking an alignment of how payroll tax was levied upon their business. This was in order to simplify, at the very least, their efforts in meeting their payroll tax liabilities and, perhaps more pertinently for this place, ensure free movement of labour across the state borders.

They felt that a state like South Australia could take advantage of some of the economic opportunities and some of the workers who were keen to work in our state. Of course, there is another issue that is correlated to that: the very strong performance in population growth under that period during the former Labor government. There was extremely strong population growth comparative to nowadays—2.1 per cent per annum nationally, if I remember correctly; and, if I get the figure right, I think it was 1.6 per cent per annum in South Australia.

Pleasingly, the government had a policy designed to take advantage of what former South Australian senator the Hon. Amanda Vanstone had put in place as the then immigration minister: a recognition of Adelaide and the rest of the state as a regional place for migration purposes. This entitled migrants of certain visa classes to gain additional points to contribute towards their successful visa application. That saw a large number of workers who may be arriving in Australia given a further and better opportunity to make Adelaide and South Australia a destination in which to live and work. I mention that as a corollary because that particular issue is getting some ventilation in the South Australian community at the moment.

Those harmonisation measures which were undertaken between South Australia, Victoria and New South Wales sought to place various forms of remuneration on the same footing for payroll taxation purposes. In harmonising those, efforts were made by the states to perhaps harmonise, in as many cases as possible, to the lowest common denominator, if I can put it like that, so that there were more classes or types of wages that may be considered liable—or, more to the point, not liable—for payroll tax. That provided further relief to the payroll tax burden for businesses in South Australia who were employing South Australian labour.

A payroll tax harmonisation measures bill was brought before the parliament in 2008 and enacted some of those changes. Indeed, at the time the bill came before the parliament, there was a foreshadowing of further legislative reform in a rewrite of the Payroll Tax Act. As you can imagine, that became necessary given that the original Payroll Tax Act harked back to that period I referred to earlier in the 1940s. It was high time that the parliament at the very least tidied up its legislation, but better aligned it towards the type of work and the type of wages paid to workers in the current day.

With different allowances and different forms of remuneration, superannuation arrangements, assessments of fringe benefits, motor vehicle allowances, accommodation allowances and so on, there needed to be a better alignment of the legislative framework to what was actually going on out in the community. That was an opportunity in that act to provide further relief. I mention that because a significant exemption was provided in the Payroll Tax Act 2009, which we are now seeking to amend. That was the exemption from payroll tax for wages paid to eligible workers of charitable entities.

There is one particular organisation that has been pursuing an exemption in that aspect for some time: Business SA. I understand they have recently had some difficultly gaining a favourable ruling from the Supreme Court, not being deemed a charitable entity for the purposes of payroll tax. However, putting Business SA to one side, you can imagine the sorts of entities which are providing goods and services into the South Australian community and which are able to avail themselves of that payroll tax exemption. My understanding is that that measure alone is worth a further $10 million per year, or at least it was at the time when it was introduced.

I am pleased also to report that further payroll tax relief was provided with a further rate reduction to 4.95 per cent and a payroll tax threshold increase from $504,000 a year up to $600,000—that $504,000 figure being a particular quirk about how payroll tax is levied on a monthly basis. My understanding is that it was desirably able to be divisible by 12—that is, the number of months in a year—so as to make it a little easier on a business meeting its payroll tax liabilities.

It was these changes, particularly those very significant rate reductions from 5.67 per cent to 4.95 per cent and the increase in the payroll tax tax-free threshold, that were made during the time when there were significant reductions to payroll tax regimes in those other states that we had been undertaking that harmonisation effort with. It was of great concern to the then Labor government that South Australia would not be seen as an expensive place to do business for a business which had operations and which, perhaps, could be conducted not just in South Australia but, perhaps, elsewhere.

I am pleased to say that, along with some of the other taxation reforms that I have mentioned in my previous contributions on some other bills that have come before this place, in addition to the payroll tax relief there was also very, very significant land tax relief that was provided with an annual value year after year of well over $100 million for residential, for commercial and industrial properties; and, of course, the more recent taxation reforms which were the phasing out and the abolition of stamp duty, principally on non-realty property transfers and then on real property transfers in the commercial sector.

It also involved some of those other elements of business conveyances, whether it is property, plant and equipment, whether it is business goodwill, as well as some of the other taxes which now seem but a distant memory to most South Australians, such as the bank account debits tax and the cheque duty that had to be paid on issuing a cheque; and perhaps in these days, if it still was levied, only unreasonably targeting members of parliament who seek to make contributions to their community groups by cheque. I say this in memory of one recently retired Speaker who made a point of putting cheques into collection efforts rather than in cash just to make it clear who had made that particular contribution.

Mr Rau: Who could that possibly be?

Mr MULLIGHAN: 'Who could that possibly be?' says the member for Enfield. Of course, cheque duty is now but a distant memory. Rental duty is but a distant memory. Imagine having to rock up to Kennards to hire that piece of gardening equipment, which you are no doubt unskilled to wield but which you feel confident enough to take on in the backyard, and having to pay a duty to the state government for that privilege of rental duty. Of course there were other arrangements, such as the transfer of shares, for example, for unlisted securities attracting stamp duties.

All these taxes were abolished by the former Labor government and, in conjunction with those payroll tax reforms year after year, between the years of 2014 and 2018, South Australia was consistently regarded by KPMG (one of the other professional services firms) as the most competitive place to do business during those years thanks to things like its taxation burden on the business community.

In total, those payroll tax reforms in the most recent financial year are saving South Australian businesses $220 million each and every year. Of course, as the economy grows, as the number of businesses grow and as the total employed number continues to grow, particularly in those companies that have taxable payrolls, the value of that payroll tax relief provided by the former Labor government will also continue to grow.

So in this bill we see the government seeking to build on those previous tax cuts that were provided by the former Labor government and introduce further relief, principally targeted at small to medium enterprises here in South Australia through a change to the tax-free threshold from $600,000 up to $1.5 million. Of course, it is not quite as simple as introducing a new, much higher tax-free threshold.

When the Liberal Party announced its policy in the lead-up to the last state election, the then Labor government made it very clear that there was one flaw in its policy—that is, for businesses with taxable payrolls that jumped above the $1.5 million tax-free threshold, the payroll tax liability would not start from zero; it would have jumped back to a payroll tax liability as if the tax-free threshold had been $600,000. Left unaddressed, that would create a very significant hurdle for the clutch of businesses finding themselves in that exact situation, and with a total taxable payroll of perhaps just under the $1.5 million threshold, making a decision about whether they take on a further employee and, by virtue of those additional wages, lifting their total taxable payroll above the $1.5 million threshold.

Or, just as concerning, if not more concerning, perhaps in reviewing their remuneration for their employees if they were looking at providing one of the regular pay rises, which so many employers do, they might think twice about passing on such a pay rise because their total taxable payroll would see it over the $1.5 million threshold. Of course, that would have meant a very significant increase in a payroll tax liability. It would have meant that a taxable payroll at the $1.5 million threshold would have gone from zero, just under that threshold, up to nearly $45,000 as soon as that the threshold was breached.

It was early on in the term of this new Liberal government that the Treasurer had to concede that there needed to be some sort of smoothing-in of the threshold so that it was not such a hard threshold. Hence, the bill we have here attempts to achieve that smoothing-in so that if payrolls do start to reach a point over $1.5 million there is a more gradual and more stepped approach. Of course, if you speak to industry groups and employer representatives, they would say that even the stepped approach encapsulated in this bill is not sufficient, that they would like to see a more gradual implementation of a return to the full payroll tax rate of 4.95 per cent. However, I have to say that it would not be unusual for an employer group or industry group to make an argument on whether there is more work that should be done in payroll tax.

The point the Labor opposition would make about this bill, though, is that we warned the then South Australian Liberal Party, while they were in opposition, of the unintended consequence of having a policy structured in the way that they did—that it would create a disincentive for people to grow their businesses via the number of remunerated employees and grow the taxable payroll in doing so beyond the $1.5 million threshold.

You can easily see that if you were to take somebody on at or about the average wage here in South Australia, and include the taxable on-costs with that in things like superannuation, even for an additional $75,000 or $80,000 of taxable payroll above the $1.5 million there would have been a payroll tax liability of more than half that amount. So this smoothing effort is an attempt to try and lessen that burden.

I will say, though, that in that example I have given—let's say a taxable payroll of $1.575 million, $75,000 above that $1.5 million threshold—the payroll tax liability on that additional $75,000 will be in the order of just over $18,000, so nearly a 25 per cent effective payroll tax rate just on those wages. It goes to show why further thought needed to be put into this policy by the Treasurer and by the Liberal government—that they needed to perhaps provide a better smoothing.

However, of course, the resources of government, the resources of Treasury and the detailed modelling they are able to do are in the hands of the government and unfortunately not in the hands of the Labor opposition, so it is very difficult for us to credibly devise an alternative to that particular problem with these payroll tax changes. However, I have flagged that we do support this bill and that we do support seeing a reduction in the payroll tax burden on South Australian businesses.

Our further quibble would be that there is more than sufficient opportunity to bring these payroll tax cuts forward. Indeed, the Premier, in updating this house on this measure before the bill was introduced, said that he cannot wait to provide this payroll tax relief to South Australian businesses, and the Labor opposition shares that sentiment. These payroll tax cuts should be provided much earlier. Indeed, the government is in the luxurious position of being able to afford to provide these payroll tax cuts earlier than they are anticipating.

I would say that they have opened up this opportunity themselves. They had gone to the election and said that these payroll tax cuts would be implemented from 1 January 2019. I think a reasonable bystander would think, 'Well, fair enough. You've said that you want to have a late budget, that you want to run the ruler over the finances of the state more finely and take your time doing that.' That would mean that the Appropriation Bill and the Budget Measures Bill would not come before this place until that time in September when the budget is presented to the house, of course even necessitating some time for the estimates examination process of the budget, let alone what happens in the member for Enfield's favourite place, the other place on the other side of this building.

Regardless of how long it takes to get through there, we had a supply bill that provided supply up until the end of November. So, provided that the Governor would assent to and proclaim those parts of the Appropriation Bill and the Budget Measures Bill that are necessary to give effect to payroll tax changes, there was sufficient time for the budget to provide that opportunity for an implementation date from 1 January.

The government has not, however, chosen to do that. It has taken the opportunity to introduce this taxation measure earlier than that, despite not bringing forward the time that the relief is to be provided, which is curious. It is curious. I think I have just demonstrated a time line for considering the budget in this place and in the other place that would have provided more than enough time to implement these changes before 1 January. Nonetheless, a separate bill has been drafted and it has been brought before this place.

We embrace that because, as I said, we think that this measure should be introduced as soon as possible. Indeed, amendments have been filed by the opposition to introduce these benefits to South Australian businesses—to provide this payroll tax relief—earlier from 1 July. You may say, 'Well, hang on, member for Lee. Here we are, at 3 July; how can that possibly be the case?' Quite simply, we have a payroll tax rebate regime, which has been in operation for a number of years now, providing further payroll tax relief, targeted at small businesses, which was introduced by the member for West Torrens in his role in the former Labor government as treasurer to increase the payroll tax threshold and decrease the payroll tax rate for small businesses. That is being administered via ex gratia relief by the Treasurer.

Relief from payroll tax burdens and from other taxation burdens in providing additional relief is a mechanism that has been used before. I mentioned the land tax relief provided by the former Labor government. The early stages of that were provided by ex gratia relief. There is the capacity for the government to accept these amendments that merely seek to change the schedule of the bill and give an earlier effect to the same changes to the payroll tax threshold and payroll tax rates contained in this bill. Instead of implementation at 1 January 2019, implementation would be from 1 July 2018.

It would only take quick consideration by the government and to provide advice to this place, and an acceptance of the amendments, as well as advice to Revenue SA to administer the payroll tax regime accordingly for those payroll tax returns, which will be made in the second half of July for the first month of the 2018-19 financial year, and South Australian businesses could be reaping the benefits of this payroll tax cut much earlier.

I strongly encourage members opposite, who I know will spend the greater part of the rest of today and tonight's sitting time talking about how important payroll tax relief is for businesses. They may even discuss which businesses in their communities in the electorates they represent in this place and how it will benefit those businesses, and the quantum of relief that businesses with certain taxable payrolls will enjoy from these payroll tax cuts when they are implemented.

My message to those members is that you can be a hero to the businesses in your communities. You can tell them that you voted the right way to accept an amendment to this bill to provide that payroll tax relief. You can provide the thousands of dollars of relief to their businesses much earlier. You can help them meet the costs of running a business in this day and age by reducing the payroll tax burden on their businesses, and do it for a further six months.

Of course, the government luxuriates in their capacity to do this because they have been in receipt in the current 2018-19 financial year of a windfall in GST revenues: an extra $270-odd million above and beyond what was in the Mid-Year Budget Review. By the government's own admission, the full year's cost of these measures is about $45 million, so it stands to reason that a six-month cost would be somewhere in the order of half of that. Less than one-tenth of unbudgeted windfall revenues are coming in via the GST in this current financial year.

What a great message that would send to the community of South Australia, that the government is not only happy to talk the talk but, when given the opportunity, they are happy to walk the walk on tax reform, that they will seize the opportunity that has been provided to them by the Labor opposition to deliver tens of millions of dollars of additional payroll tax relief in addition to the hundreds of millions of dollars in payroll tax relief previously provided by the former Labor government—

Mr Pederick: What about the health hole of $250 million?

Mr MULLIGHAN: —that will ensure that these businesses will take advantage of it. The member for Hammond says, 'What about cost pressures in health?' We heard the evidence of the Under Treasurer in June this year before the parliament's Budget and Finance Committee that not only are payroll tax receipts tracking higher for the financial year just finished, some $10 million at his recent estimate, but the projections for health and child protection department expenditures were nowhere near as overblown as the Treasurer claimed on federal budget day in mid-May of this year.

Given that the government left the Liberal government a budget surplus, as well as provided over $100 million in extra expenditure in the Mid-Year Budget Review for the Health portfolio and tens of millions of dollars per year in extra expenditure for the Department for Child Protection, on top of all that there is an opportunity to use some of the unbudgeted windfall revenues from the GST and put that money straight into the pockets of eligible South Australian businesses.

The briefing material that has been provided to me by the Treasurer's office—and I thank them for not only providing me with a briefing but also following up on some of the queries that I had—shows that there are nearly 4,000 businesses within the currently legislated tax-free thresholds of $600,000 up to $1.5 million. There are 3,600 businesses with taxable payrolls that fall within that $600,000 to $1.5 million bracket, 400 of which have taxable payrolls estimated to be between $1.5 million and $1.7 million.

There are thousands of businesses that stand to gain from these changes. In particular, for those 1,900 businesses with taxable payrolls between $600,000 and $1 million and the 1,300 further businesses with taxable payrolls between $1 million and $1.5 million, those 3,200 businesses will, by virtue of these changes, have the Payroll Tax Act to increase that tax-free threshold.

The numbers that have been provided to me show that, of the approximately 140,000 small businesses—a figure that is regularly quoted both in this place and also in the media—making $600,000 and above, there are fewer than 10,000 businesses paying payroll tax. This bill seeks to remove that burden from well over one-third of that number.

That is a very strong argument to bring these payroll tax cuts forward and do so in a way that does not do violence to the government's budget position, which seeks only to put less than one-tenth of that unbudgeted GST revenue windfall back into the pockets of South Australian small to medium enterprises. I encourage all members, particularly those opposite on the government benches, to think very carefully about the role they can play in bringing that forward and providing the businesses in their communities that stand to benefit from these changes after 1 January with an extra six months' worth of relief.

I will say one final thing. In addition to the substantial payroll tax relief that has been provided by the former Labor government, there was very extensive reform made to the WorkCover regime, led by the member for Enfield. At the time those changes were made, it was estimated that it would alleviate the tax burden from WorkCover levies by over $180 million that year. Of course, that figure grows as the number of businesses and employees in those industries grow.

So, in addition to the $220 million of payroll tax relief provided by the former Labor government, the more than $180 million provided in relief from WorkCover levies, the more than $100 million a year in relief provided from land tax and the more than $250 million a year provided in relief from various duties each and every year, including stamp duty on commercial property conveyances, have massively lifted the taxation burden to the tune of more than three-quarters of a billion dollars each and every year. That has been achieved through those successive changes to taxation and charge arrangements for South Australian businesses, as well as some households liable for land tax, for example.

I am very glad that the Liberal government is following in the footsteps that were trodden before it by the former Labor government in providing tax relief. While $40 million in the scheme of three-quarters of a billion dollars a year might seem trifling, it is not to a business that stands to save many thousands of dollars, if not tens of thousands of dollars, from payroll tax changes.

I know that when those first payroll tax rebate mechanisms were introduced in the 2015-16 state budget by the member for West Torrens, the then leader of the opposition (the member for Dunstan, now Premier) mocked those changes and very quickly, the next day, he completely changed his tune on those changes and said that it was not enough. Indeed, in the lead-up to the next year's budget, he said that they should be extended. He was, no doubt, pleased that the Labor government did extend them and they continue to be in place to date. Not only do those changes continue but they were expanded before the last election.

I am, however, a little disappointed that we are seeing the end to two other job-building programs that were provided by the former state Labor government. One is the future jobs fund. We had a promise from the Premier on the day that he was sworn in that all contracts would be honoured by the new Liberal government. Then, later in that week, we had the Treasurer come out and say that he was going to seek every opportunity to extricate the government from any commercial arrangements that were being entered into by the government.

Of course, we have not heard anything more. It seems that common sense might have prevailed with the Treasurer. No doubt the department that superintended the future jobs fund program, the Department of Treasury and Finance, has advised him about what are feasible and what are infeasible changes to that program. I am pleased to say that, at least in my electorate, those companies that were committed to receive funds by the former Labor government feel confident that they will receive those funds. It is a disappointment that that scheme, which had not been fully expended, is not being used still to provide job-growing opportunities for South Australian businesses.

It is also a shame that we did not see much support from those opposite for the job accelerator grants, which were directly responsible for encouraging businesses to take on thousands of extra South Australian workers and grow their businesses. It is programs like that, as well as the tax cuts that had been provided by the former Labor government, that go to show just how effective the various policy settings under Labor were in contributing towards the current state of the employment market in South Australia. That is good news for people in South Australia who are seeking work.

Of course, we had the March figures, which were released in April. The member for Unley was very quick to run out into the media and say that they were a strong endorsement of confidence in the new government, perhaps not realising that that survey period commenced in February and ran through into the early part of March. I am sure that, given the member for Unley's audible silence, if such a term exists, on making comment about the employment rate in South Australia, he has learnt from his mistakes in shooting off his mouth about the state of the South Australian employment market.

It is by reason of a government that was prepared to back South Australian businesses and help them through one of the most difficult economic transitions this state economy has gone through in many decades with the closure of the automotive manufacturing industry and the wind-down of the defence platform builds at Techport, where thousands and thousands of jobs were shed. Helping other businesses take on workers seeking work at that same time has meant that we have avoided the worst of those transition effects in our economy insofar as employment goes.

Of course there is still a lot more work to do. Conceivably, there are still many employees from automotive component manufacturers, let alone from Holden itself, who would still be thinking through their options. I know, very generally speaking, that when the Mitsubishi Motors manufacturing facility was closed in 2008, in what you could argue were some of the strongest economic conditions in South Australia, at that time those employees had an experience of approximately a third choosing to retire with the benefit of the retrenchment entitlements, about a third of them transitioning reasonably readily into other paid employment, and about another third struggling.

If those ratios were to be transplanted from that point in time 10 years ago to this point in time, with that different workforce in the northern suburbs and across those other component manufacturers in South Australia, what would they look like? Would they be the same? Given that we have an indication from this government that there will not necessarily be the same support coming from government-controlled further education providers like TAFE for transitional assistance for affected workers in these sorts of structural changes, we may see further reverberations in the employment market from the structural changes.

That is why these payroll tax changes are so strongly supported by this Labor opposition and so strongly supported to the point that, again, we urge all members to get behind the amendments that have been filed which, collectively, give the effect of seeing these payroll tax reforms become effective six months earlier. With that I draw my remarks to a close and look forward to the contributions of other members.

Mr COWDREY (Colton) (16:57): I rise today, as I am sure many of my colleagues will, to support the Payroll Tax (Exemption for Small Business) Amendment Bill 2018, and I note the opposition's support for the bill as well. The impact of this bill, with its safe passage through this house and the other, will be positive for both the businesses and the people of Colton.

Statistics say that approximately 98 per cent of businesses in South Australia are considered to be either small or SME businesses, and I note that the member for Lee outlined a number of those businesses. Some of those quoted are certainly sole traders or people with a single FTE, and certainly a large number of small businesses here in South Australia and a high proportion of our business community are in that category. The definition of SME varies. I think the strongest and most regularly used definition of an SME business is an employer that employs fewer than 19 FTE (full-time equivalent) staff.

As Liberals, what we want to see are these small businesses in South Australia growing to medium-sized businesses, and once they reach medium-sized businesses to then grow into large businesses. From an economic sustainability perspective, we know that growing these businesses in our state, in South Australia, is incredibly important. We also know that businesses are more likely to stay where they are created; often they have close connections to local communities and staff who live locally, but there are also business risks involved in relocation. Sometimes the cost of doing business in a particular jurisdiction just gets too great.

I certainly believe it is incumbent on this government, and any government in South Australia, to create a business environment that facilitates growth in our SME sector. It is something that I believe the previous government unfortunately did not support to the full extent that many South Australians expected, which is why we on this side of the house are focused on bringing down the cost of doing business in South Australia. We want to make South Australia an attractive place to start and grow a business. If we have a thriving small business sector, more jobs are created here in South Australia, more young people have opportunities here in South Australia and we will grow our economy and drive investment.

One of the biggest constraints on job creation and business growth is, of course, payroll tax, often described as a tax on jobs and a handbrake on employment. Releasing the burden fundamentally changes the outlook and approach of the small business sector in South Australia, shifting the perverse principle that small businesses employing more South Australians is somehow a bad approach—something that brings disincentives—towards a system that will promote growth and enable our small businesses right across the state to invest in the future of South Australia.

Approximately 3,200 businesses with a taxable payroll of up to $1.5 million will benefit from scrapping payroll tax for small businesses. As was touched on by the member for Lee, a graduated tax scheme will be introduced for businesses with payrolls between $1.5 million and $1.7 million. Businesses of this nature to be captured by the scheme are estimated to number 400, so approximately 3,600 businesses in total will be affected by this change. It is certainly a substantial boost for the economy in South Australia.

As has been communicated on numerous occasions by the Premier, these changes are due to take effect on 1 January 2019. The measure will provide a saving of up to $44,500 a year that can be invested by those businesses in growing their business and in jobs. As a result of this bill, approximately 39 per cent of businesses that currently pay payroll tax will be exempt. It also means that these small businesses will avoid the potentially significant administrative costs and compliance activities that often come with meeting payroll tax requirements. This policy has had significant support from the business sector, from peak bodies such as Business SA and others, and individual small businesses alike. One survey conducted by Business SA highlighted the opinion of a small business owner:

…that payroll tax is a significant disincentive to [increased employment] in South Australia, particularly for small businesses just under the…$600,000 wage threshold, which is the lowest in Australia…

The last part of that sentence struck me—that the tax-free threshold in South Australia is the lowest in the country. The member for Lee gave us a quite in-depth history of changes to tax arrangements in South Australia over the last 16 years under the Labor government. There are a few facts we would refer to on this side that may have been missing from that review of activities over the last 16 years and certainly some that I would like to share with members today.

A couple of years ago, the Department of Treasury undertook a state taxation review. I believe it was a positive step forward in taxation reform in South Australia, as I am sure many other members and the general community alike believe as well. It was a review of the taxation system particularly around payroll tax, which has often been described as one of the most inefficient taxes in our economy. This taxation review went out to the broader community, to businesses both small and large, and to a range of different service providers, government agencies, peak bodies and others, asking for submissions on how or to what extent different state-based taxations could be changed, altered or reviewed to deliver a more efficient outcome and to boost the economy here in South Australia.

Many of the submissions that were submitted as part of that review looked at changing payroll tax arrangements. It was often the biggest issue that came back, in fact, in those submissions to the state taxation review. Interestingly, many of the submissions focused on the tax-free threshold as opposed to the rate of payroll tax paid on taxable payrolls. It is interesting to look at the economy more broadly and how it is changing, and I will come back to this in more detail later.

As the member for Lee also touched on, our economy is in the midst of a substantial change from traditional industries, goods-based industries and businesses that sold commodities and goods, often with low FTEs or low staff numbers and smaller thresholds, towards a service-based economy. This leans on the very many bright people we have in our state who, instead of selling goods and other similar things, are selling wherewithal—selling our smarts.

Many businesses that take part in this sort of activity are reliant on a large number of people being part of their organisation, whether that be educational services, engineering or other sectors of service-based industries. The vast majority have high taxable payrolls based on the fact that they require a large number of FTE to operate effectively. As part of this transition, what we saw is the foresight of many other states. Again, I am certainly not going to knock the former government for their ability to lower the rate, as lowering the payroll tax rate in South Australia was a positive step, but the real issue is the threshold, particularly, as I have just outlined, in the shift in our economy towards a more service-based industry and economy.

The threshold and payrolls were increasing for those businesses. So, in a perverse way, we have been disencentivising those service-based businesses to grow based on the fact that our threshold, as outlined by the member for Lee, grew from $504,000 to $600,000 in around 2008-09. But if you look at the changes nationally on the payroll tax threshold, or tax-free threshold, that threshold has risen in every other jurisdiction outside South Australia between 2009 and 2018.

New South Wales increased from $638,000 to $750,000; Victoria, $550,000 to $650,000; Queensland, $1 million to $1.1 million; Western Australia, $750,000 to $850,000; Tasmania, $1.01 million to $1.25 million; ACT, $1.5 million to $2 million; and Northern Territory, $1.25 million to $1.5 million. So there has been a clear case, not just taking into account the changes in economy, but also of course the expected result of wage increases continuing to affect those businesses that were close to the $600,000 threshold.

I am certainly of the hope that businesses did not go out of their way not to pass on wage increases based on their relatively to the $600,000 tax-free threshold. However, it is clear from the changes that have been made in other jurisdictions that the tax-free threshold was the key driver for economic growth and jobs in this area. We talked about harmonisation across different jurisdictions as well, in terms of the approach 10 or so years ago to try to make things easier for businesses that operated across multiple jurisdictions. Certainly there is an argument to that. However, being the least competitive place to do business with the least competitive business tax arrangements in the country certainly has an impact, and that impact has been seen over the last 12 to 16 years.

Discouraging growth is something that we do not want to see on this side of the house. We want to see businesses encouraged to grow, to employ more South Australians and to do as best they can to be competitive in the Australian marketplace.

The draft bill has taken a range of consultation. It has consulted with RevenueSA and the State Taxes Liaison Group, which includes representatives from the Law Society of South Australia, the Institute of Public Affairs, the Institute of Public Accountants, the Law Council of Australia, the Tax Institute, the Australian Institute of Conveyancers, the Property Council of Australia, Business SA, the Real Estate Institute of South Australia, the Institute of Chartered Accountants of Australia and CPA Australia.

I mentioned earlier that the Marshall Liberal government is focused on creating an environment that encourages business growth. Our approach and reform agenda to this end, communicated to and endorsed by the South Australian community through the most recent election campaign, is a package that has been designed to stimulate growth and investment here in South Australia.

While this bill, and the important change that it brings to our taxation system, is central to that package, other measures are also important: the significant reduction in the emergency services levy, which took place on 1 July, just two days ago, that reduction applying across businesses and households of course; the creation of a substantial number of new apprenticeships and traineeships over the next four years; and a range of other measures.

But often I find the easiest way to communicate change and to communicate the impact of the policy is to give a small example, so I will take the liberty of just outlining a small practical example and what would change. Consider a small business that employs around six people—say, an accounting or engineering business—has a taxable payroll of somewhere between $450,000 and $550,000 and does currently not pay any payroll tax, and say that small business owner wants to employ another six South Australians.

Let us assume that those who are newly into the business accrue the same remuneration of those already there. Increasing the payroll to approximately $900,000 to $1.1 million, under the new arrangements that business would no longer pay any payroll tax. However, the small business owner would have been liable for tax under the previous system—a declared benefit for the business wanting to expand, to grow and to employ more South Australians and a benefit for many real-world South Australian businesses and those in Colton as well who want to do the same.

The Reserve Bank of Australia (RBA) noted in its March quarter bulletin in 2017 that, since 2012, wage increases have been less frequent. I quote:

In this period of stagnant wage growth there would be no better way for governments to boost wages and employment prospects for workers than to begin the gradual removal of payroll tax.

As has been said, this inefficient tax has become a burden on jobs and small businesses. I certainly believe that adjusting the threshold will have a much greater impact for businesses in South Australia. I certainly believe that the change in threshold is, in fact, in line with what other states have achieved and what they are trying to address, noting that those threshold changes had been made prior to touching the change in the taxable rate of their payroll tax arrangements in those jurisdictions.

The introduction of this bill supports the Marshall Liberal government's mantra during the 2018 election, where we talked about creating jobs and supporting small businesses. We want to remove inhibitors to business growth and to jobs, and importantly something that has been noted in the media and through reports and commission surveys, we want to provide confidence to South Australian businesses. Business confidence is on the rise already, but we want to ensure that they understand that their government is supportive of them succeeding and growing.

A business sector that is thriving is good for all South Australians. Creating a competitive tax regime for small business is essential to a prosperous future for all South Australians. I commend the bill to the house, and I thank members for their work in preparing this policy and bill.

Ms BETTISON (Ramsay) (17:14): I rise in support of this bill because it extends the work of the previous Labor government. We have always had a focus on reducing payroll tax, and we urge the government to bring these payroll tax cuts forward. We have had a strong commitment to increasing employment opportunities in South Australia and reducing the cost to South Australian businesses of employing workers. This is one of the ways in which we have gone about that. The previous Labor government cut payroll tax significantly, and we intend to continue our focus.

Let me reflect on some of the areas we have looked at since I entered parliament. In 2013-14, we introduced a concessional payroll tax rate of 2.5 per cent to employers with annual taxable payrolls of $600,000 to $1 million. That effectively halved the payroll tax, providing relief of up to $9,800 to more than 2,200 businesses. That was a $21.6 million reduction for small business over two years. In 2015-16, we extended the small business payroll tax rebate, which meant that more than 130,000 SA businesses were not liable to pay payroll tax. This was an $11.3 million reduction for small business.

In 2016-17, we again extended the payroll tax rebate for four years, to 2019-20, providing up to $9,800 each year for employers with taxable profits less than or equal to $1.2 million. Once again, this benefited 2,300 businesses and meant a $40 million reduction for small businesses over four years.

In the 2017-18 budget, we extended the payroll tax cut for small businesses with a small business rate of 2.5 per cent, down from 4.95 per cent for firms with payrolls between $600,000 and $1 million, phasing up from 2.5 per cent to 4.95 per cent for businesses with payrolls of $1 million to $1.5 million, with an estimated additional 1,300 employers to benefit when compared to the temporary rebate scheme. Once again, that was a significant reduction of $45.1 million for small businesses over four years.

Over the life of the former Labor government, the 16 years that we were elected by the people of South Australia, we delivered more than $2 billion of net payroll tax relief to businesses here in South Australia. This bill increases the tax-free threshold from $600,000 of taxable payrolls to $1.5 million at a cost to the state budget of $44.5 million a year. However, we have to wait because, even though this was a discussion point, this government is not prepared to bring it forward. It is very disappointing because we know we want to grow our economy. We want to have a focus on jobs, and this, we all know, is a way to do it. To quote the Premier in his second reading speech:

These changes will remove a major disincentive to businesses, creating more jobs and employing more people, as well as making South Australia a much more attractive place to invest in and grow businesses.

Why will he not bring forward these changes, create more jobs and employ more people? In fact, Business SA supports bringing them forward.

I am always going to have an interest in small business. I am the daughter of a small business owner. It was a very difficult day in our family when I had to tell my mum and dad that I did not want to continue in the family business. They do not do it because of the money. When you own a small business or you own a farm, you put in seven days a week and your concern is there 24 hours a day. My dad was a local funeral director in my small town of Kapunda. There was a little bit of consolidation around the industry at the time, and one of his colleagues in the Barossa offered to buy the business. I remember his disappointment that neither my brother nor I decided to continue.

While here we are talking about payroll tax, I want to talk about other areas that are also important to small business. Let us remind ourselves that we are very much a small business state: 98 per cent of our businesses are small to medium, and there are about 140,000 who are employing zero to 19 full-time equivalents. They employ 34 per cent of our workforce.

I want to reflect on not just what the Labor government did in reducing payroll tax—and I have outlined that quite clearly, as has my colleague, the shadow Treasurer—as there are three other things we did that I am quite proud of. The first was the introduction of the Small Business Commissioner, and that has been operating since March of 2012. John Chapman is in that role as our commissioner, and we know he has had a focus on dispute resolution, mediation and representation, franchise leases, and just last week in this house we were talking about his role in farm debt mediation. We know that that role, which we introduced in 2012, has been very supportive for small business, so I am very proud of our record in the introduction of the Small Business Commissioner.

The other area where we introduced change was through the introduction of the Industry Advocate. Ian Nightingale is in that role at the moment. Of course, he has been out there making sure that we employ as many South Australians as possible in government projects. There is work for people in small, medium-sized and large companies, but sometimes there are barriers to accessing this, and he is able to walk alongside people and advocate. One of the events that I remember quite clearly that he held in my own electorate was the meet-the-buyer session. It was incredibly well attended. People were interested to understand how they could tender for this work.

I notice on his website that he is talking about Building Better Schools, through which we are planning to upgrade 91 schools. It was a very exciting day when we introduced that, because we know that education is the clearest tool for making differences in people's lives. Finishing school is incredibly important. Only today we talked about numeracy and literacy and a commitment to that as a focus for us.

So that Building Better Schools and those 91 opportunities are there, and he, as Industry Advocate, will be clear with people about what those opportunities are. I am very proud of that Industry Advocate role and very pleased that that is going to be continuing. He has a focus around procurement and tendering. It is for some of those more practical things that small business needs those of us in government—the government of the day—to be out and fighting for them.

One of the other areas that comes to mind is our Simplify Day. It was, of course, the then assistant minister to the treasurer, the now shadow minister for health and wellbeing, who took that role, for two years in a row, to bring Simplify Day here. It represents a focus upon reforms to fees, licences and permits and a focus on duplication and compliance.

I had the opportunity to host an event in my electorate where we had a very diverse group of small business owners come along and talk about the things that frustrated them, the red tape that they encountered. We had mechanics, and we had coffee shop owners. We had a cleaning contracting company come along as well. Some of the things that came out of that time when we went through this in 2016 included looking at digital licensing, for example, which has now been implemented.

One of the things I want to say today is that while we support this bill, it is not everything. What we need to do is to continue to support small business. Small businesses are incredibly important to our state. What I will be looking at and what I will continue to focus upon is: what else is this government doing? Sure, you are continuing payroll tax relief, which is what we did as a Labor government, but what else are you going to do?

The introduction of the Small Business Commissioner, the introduction of the Industry Advocate and the yearly focus around Simplify Day are just three areas that we also support in small business. I rise today to support the bill, and I look forward to us continuing to support small business in South Australia.

Mr ELLIS (Narungga) (17:25): I rise today to support this very important bill. In fact, it might be my favourite policy that the Marshall Liberal announced in the lead-up to the election. It is certainly the one that will have the biggest and most profound effect on the business community in South Australia, which is in dire need of some support finally.

Right now in South Australia, we need more jobs. We need greater investment, stronger growth and an uncompetitive payroll tax regime. The most uncompetitive payroll tax regime does not help any of those causes at all. All it does is serve to make the situation harder for businesses to create jobs and employ more South Australians. It is a counterintuitive tax and an absolutely perplexing one at that.

As I said, I rise to support this important bill, which is in keeping with the Marshall Liberal government's mantra to reduce, simplify and make fairer tax systems in order to champion small business efforts, stimulate jobs growth and drive investment. The legislation to exempt the state's 3,200 businesses with taxable payrolls of up to $1.5 million from paying any payroll tax provides a major economic boost for small business, representing a saving of up to $44,500 a year and is one of many other measures—including the slashing of ESL bills, which will have a tremendous impact on small business, and the reforms to land tax, which will have a wonderful benefit for businesses—that will come into this place in due course. The three key points to the payroll tax cut are:

1. Businesses with a taxable income of up to $1.5 million will be exempt from paying payroll tax from 1 January.

2. A further 400 businesses with payrolls between $1.5 million and $1.7 million will receive a welcome reduction in the amount of payroll tax they are required to pay through a phased-in approach.

3. We are delivering on our promise to help businesses grow and employ more people.

The issue of cutting red tape to allow for business growth is one that is very close to me, having come from a small business family in Kadina. I have seen far too often local businesses seemingly penalised for jobs they create and the efforts they make to grow their local economy. Indeed, we often had the conversation in our family business that but for payroll tax we would be in a position to employ one to two more people in our firm. Without divulging too much information, I am sure this measure will be well supported within the wider Kadina business community.

The efforts of local business owners to grow the local economy have to be swung around so that they are driven to create more jobs and to hire more people. Our team on this side is driven to implement the policies we took to the election as soon as possible with the emphasis on lowering costs of living and doing business, and getting rid of red tape to allow for business growth.

In my maiden speech in this place in the Address in Reply, and also in my speech on the Supply Bill, I made much of having one of the most uncompetitive payroll tax regimes in the country. It continues to hinder business and does not encourage growing businesses to hire more employees. It just makes that bottom line all the more difficult to keep in the black. In my opinion, it is the most perplexing of tax regimes that one could possibly imagine.

In a state with a declining population growth and, at least under the former government, increasing unemployment, we have an onerous tax on jobs. Make no mistake about it, payroll tax is a tax on jobs. I find it absolutely bewildering that small to medium business operators should have to pay tax when they hire people. Not only that, the more people they hire the more tax they have to pay.

I am thus proud to stand in support of the Marshall Liberal government's Payroll Tax (Exemption for Small Business) Amendment Bill, which will apply from January 2019 and exempt all businesses with annual payrolls of less than $1.5 million. It makes very good sense to me, and the majority of people who voted in the state election endorsed our plan to fix this state's economy. Similarly, in my maiden speech I spoke of easing the burden on small to medium business by making the land tax regime more palatable for people who own more than one property. The current tax regime, which is also one of the most uncompetitive in the nation, is stifling business and investment.

We have also set about reducing the emergency services levy to reduce tax burdens and introduced legislation to cap council rates to protect households and businesses from unjustified rate hikes and further ease the cost-of-living pressures, as pledged. Similarly, we have introduced legislation to establish a South Australian productivity commission tasked with helping drive economic reform to grow South Australia's economy. It will have the critical role of getting the state government's finances and the South Australian economy back on track, focusing on reducing regulations and improving service delivery.

This is all in keeping with the intent of the Payroll Tax (Exemption for Small Business) Amendment Bill. The new commission will provide advice about issues, including further cutting red tape, improving government service delivery and general economic reform for outcomes, such as increased public and private sector productivity, boosts in employment and alleviating cost-of-living pressures and imposts on the cost of doing business.

The new Marshall Liberal government is in the business of delivering on our promises, and that has been bleedingly obvious to all in South Australia throughout the first 100 days of our time in government. We are also in the business of reducing payroll tax, which is another of the promises designed to help businesses grow and employ more people. This support is needed now more than ever in regional areas. Small businesses are the engine room of country towns, keeping them alive and attractive for families to live in and for retirees to retire to.

Success for the state is underpinned by the success of small business owners, who spend money with each other, employ local people and generate wealth. The success of South Australia's small businesses means success for all of us, so any measures governments can implement to bolster their sustainment and growth must be provided. Well-known demographer Bernard Salt spoke recently at a forum hosted by Regional Development Australia Yorke and Mid North, where he made the point that a community with an entrepreneurial spirit was vital for success and to realise maximum potential regional growth. He said that growing population is one thing but that a targeted approach will yield better results.

To achieve this, communities need to cultivate a culture of entrepreneurship. He spoke about the right skills being needed as well as attracting and retaining young people in country areas, all of which are topics close to my heart and which I spoke of in my maiden speech. The role of government must be to foster and support such a culture of entrepreneurship and to reduce the cost of doing business for our lynchpin small business. Reducing the burden of payroll tax is a part of that. Reducing power costs and transport costs are other facets of this, and the government is working hard on these areas, too.

It gave me great pleasure in question time to hear the Minister for Energy and Mining reply to my question about the benefits that the interconnector to New South Wales will have and the report that has validated our pre-election commitment to provide that interconnection and more base load power generation to South Australia. This will be well appreciated by the small business community, which has been absolutely crippled by the high and rising cost of energy in our state.

There are exciting things happening in the electorate of Narungga. Population growth in Wallaroo is at 26 per cent since 2011. Moonta is at 14 per cent, and the main street has never looked more full of business and there is not an empty shop to be seen. Bernard Salt recognised what he described as hotspots of small businesses across the Yorke and Mid North regions, namely, in construction, rental hiring and real estate, finance and insurance, wholesale trade, accommodation and food.

There are positive regional small business stories, and we must promote them and support them. A small business owner from Kadina came to visit me recently expressing concern about the payroll tax. He asked about what would happen in the scenario that he was just over the $1.5 million threshold and whether that meant he should be encouraged to lay off workers to fall below the threshold. I said, 'No, we have thought of that. Do not worry.' Businesses between $1.5 million and $1.7 million will pay a tax rate that increases proportionally from zero per cent at $1.5 million to 4.95 per cent at $1.7 million in taxable wages.

This will ensure that businesses are not unfairly penalised if their payroll is just in excess of $1.5 million, or the new threshold, and they will continue to employ more people and pay less payroll tax than they would have done otherwise. For example, a payroll of $1.6 million would be at 2.475 per cent applied to the amount in excess of the former $600,000 threshold. Businesses with annual taxable wages above $1.7 million will continue to pay at a rate of 4.95 per cent.

These changes are expected to benefit around 3,600 businesses in reducing the payroll tax they pay by an estimated $44 million per year, with individual businesses saving up to $44,500 per annum. That is $44 million in our economy, circulating through and multiplying throughout the economy, being spent in ways that consumers want to spend it and supporting businesses that need our support and providing a valuable service for good.

The phased-in program is an important one. We do not want to leave high and dry small businesses with a payroll just in excess of the new threshold. They will have a schedule which will allow them to continue to hire people and which will continue to benefit them with a smaller payroll tax than they had before. Around 39 per cent of current payroll tax payers will no longer have to pay payroll tax or will pay a lower tax rate. These are all businesses at the lower end of the spectrum. These are small to medium businesses that need our support after the cost imposts imposed on them by the previous government (and I have referred to them before, but I will do so again), be it higher electricity prices or the onerous red tape.

I found it bemusing to hear the member for Ramsay talk about the efforts they had gone to to remove red tape. When considered in the real world, the imposts are still out there, but nonetheless there are significant imposts on businesses. They need our support, and this is one step the Marshall Liberal government will take to ease that burden on business. There will no longer be a significant disincentive for business to create more jobs and employ more people. This will make South Australia a far more attractive place to invest and grow business in and, hopefully, will cultivate that spirit of entrepreneurship amongst our young people that will result in more businesses being started in our state with a long-term future and a viability going into the future.

In conclusion, I reiterate that this policy is one of my favourites made by the Marshall Liberal government prior to the election. To me, it signifies that this Liberal government will be a true Liberal government and govern for the people of South Australia and create jobs. This is a major tenet of what we are trying to do and a real reversal that needed to happen within South Australia, which has been struggling with unemployment for some time.

I am sure that this policy will benefit a great number of businesses, and we have already heard that $44 million will be left in our economy for people to spend as they wish, on what they wish, and that can only be a good thing. The individual freedom to choose how you spend your money is a prize worth giving. I commend the bill to the house and congratulate all who did work on developing it. I look forward to seeing its implementation on 1 January, which will be the perfect time to implement such a bill.

Mr CREGAN (Kavel) (17:38): I rise to support the second reading of the Payroll Tax (Exemption for Small Business) Amendment Bill. Payroll tax is a tax on jobs. It represents a drag on the state's tax competitiveness and a real barrier to employment growth. There has never been a more important time to unshackle small business and to generate new jobs in our state.

I come from a generation that knows the real cost of low employment growth. Nearly all my peers left South Australia in search of employment elsewhere, not because they wanted to but because it was necessary for them to survive in the early days of their career. I left for a time, and I remember very well that experience. Nobody happily leaves South Australia. We left because the economy was weak and could not support us.

The previous government had 10 economic priorities for small business. I listened carefully to the member for Lee, and I cannot see in his remarks, or from the record of the previous government, how it was that those economic priorities were vindicated. In particular, I cannot see how they were vindicated for small business in this state.

They became a big taxing government. It was necessary, if you wanted to survive in this state, to get a grant from the previous government; that was nearly the only way. That is not a way to run the state, it is not a way to run an economy, it is not a way to treat small business, and it is not the way to give young South Australians the hope that their dreams can be realised in their home state without the need to leave.

We know that there are nearly 140,000 small businesses in South Australia—of course, that is an approximate number—and many of those are family businesses. They are on every street, in every community and in every industry sector. Small business is not only the backbone of the state economy but also the backbone of the Hills economy, and I recognise and thank every small business in my community for supplying the taxation revenue to this new government, and for going out every day—and it is a sad joke that some small businesses work a couple of days for the government before they can work for themselves because the taxation burden they face in this state is so significant.

We are doing something about that. Under the present Payroll Tax Act, payroll tax is applied on wages paid to employees at the rate of 4.95 per cent above a threshold of $600,000. I have listened carefully to other speakers who have remarked on the technical way in which taxation is levied under the act, but the fact remains that it is a substantial burden on small business in this state. This bill will lift the threshold to $1.5 million, with the result that around 39 per cent of current payroll tax payers will no longer need to pay payroll tax or will pay a lower tax rate.

In dollar terms our reforms will return about $44 million to the real economy. This was money that belonged to small business before the state had in mind taking it off them, and I am sure they can do a great deal with it when it comes back to them. It is their money coming back to them. It is money that these small businesses were paying to the government just for the right to employ people, just for the right to go to the employment market and say, 'We need somebody to do a job for us and we would be grateful if you did it.' For that they pay us some tax. Individual businesses will save up to $44,550 per annum under the reforms we are now bringing to the house.

There is no doubt that small business in South Australia pulls its weight, if you will allow me to put it in those terms, Mr Deputy Speaker. Small businesses contribute about 36 per cent of gross state product, and this is no small contribution. On this side of the house we understand small business. As a solicitor before coming to this place, I advised many businesses, large and small, sometimes at times of crisis, sometimes at times when they were looking to manage their legal and on occasions taxation affairs. At all times I recognised that if they were small businesses these were mum and dad businesses working incredibly hard to put a roof over their head and facing risks that, respectfully, we do not face.

It is hard in small business. When you turn up to work in the morning you are responsible for everything; absolutely every bill is met by you and every cost you incur are dollars you cannot divert to building your own business, employing people and ensuring that after you have paid all your outgoings you have sufficient money to put bread on your own table and put your own children through school. These are considerable worries that every person in small business faces every day.

The regulatory burden they face in this state is considerable, not just as a consequence of state taxation but also as a consequence of years of government failing to recognise that it is the real economy that supplies taxation, that when small businesses are doing well we all benefit. It is worth remembering that without wealth creation there is no money to redistribute to those who need it, and we believe in a fair and just society. We believe in it absolutely.

We know that when you run out of other people's money to spend—as the previous government did—when you are entirely dependent on borrowings, your interest rate blows out. What happens is that you cannot build roads and hospitals or employ teachers, police officers, nurses or doctors and meet other community expectations because the crushing interest bill you face sucks up all that money and all that hope, and all you can do is continue to bleat in this place about how you have a social justice mantra but you have no money to acquit for that purpose.

Payroll tax is from a species of opportunistic state taxes that have a very narrow base. If you were to design a tax that hurt real small businesses, this would be it. I am deeply proud to be a member of a new government that is giving South Australian small business real and immediate tax relief in the first days of our new government. As a government, we are focused on reducing costs not just for small businesses but for all South Australians.

We are reducing the ESL levy and have done so from 1 July, just a few days ago. We are capping council rates. We are focused on delivering more affordable and more reliable energy, and I note that power prices have already moderated just a little. There is a great deal more to do, and we are doing it. We are reducing land tax. We are offering free screening checks for volunteers. We are capping NRM levies. There will be no state bank tax. We are establishing an inquiry into water pricing.

We are addressing cost-of-living pressures head on, not just for small business but for everybody in our state, because we recognise that there was a crushing burden that faced people and still faces people after 16 years of a failed administration. There is an overwhelming need for real reform in this state, and we are a government committed to real reform. I commend the bill to the house, I commend the Treasurer and I commend the new government.

Mr DULUK (Waite) (17:47): I also rise to make a contribution ahead of the dinner break to this very important piece of legislation, the Payroll Tax (Exemption for Small Business) Amendment Bill 2018. I thought I might go through the main points of the bill first. It is a very important bill. It sets out our long-term agenda to reform business taxation in South Australia, which is so important and will always be the mantra of a Liberal government.

I have been a member of the Liberal Party for quite a few years. At almost every meeting I have ever been involved with or any policy discussion I have participated in, whether it be at a branch level, in the community or talking to small business, there is a desire for small business operators in South Australia not to be burdened by payroll tax. It does not matter which business it is.

The Hon. V.A. Chapman: And get rid of the Labor government.

Mr DULUK: Indeed. It does not matter where the business is, who the business operator is or what field of commerce they undertake, every single one of them, every man and woman lets us know that payroll tax is a burden on their business, a burden on employment, a burden on reinvestment and a burden on their ability to reinject capital into their business, which is so important for them to stay viable. Through this legislation, this government will ensure that from 1 January 2019 businesses in South Australia with annual taxable payrolls below $1.5 million will no longer be liable for payroll tax.

Businesses with annual taxable wages over $1.5 million will continue to receive a deduction of up to $600,000 from their taxable wages, consistent with the existing tax-free threshold. This allows a bit of scoping and movement in that scale. To smooth the transition to a standard rate of payroll tax, businesses with taxable wages between $1.5 million and $1.7 million will pay a tax rate that increases proportionately from zero per cent to at $1.5 million to 4.95 per cent at $1.7 million in taxable wages.

The benefit of this change is expected to see some 3,600 South Australian businesses reducing their payroll tax, which is so important, with individual businesses saving around $44,000 per annum. It is estimated that 3,200 of these businesses will be exempt from payroll tax, and 400 will receive a reduction in their payroll tax responsibility. We believe that these changes will remove a major disincentive for businesses and will create more jobs, employing more people. It is so important that this government is bringing on this legislation.

I am heartened that it is being supported by members opposite. It is good to see that in opposition, on their road to Damascus, the Leader of the Opposition is doing his listening post tour around South Australia. I am not sure if he has been to the Deputy Premier's electorate yet; he certainly has not been to mine. When he comes to my electorate—

Ms Bettison: He's been to mine.

Mr DULUK: He has gone to the member for Ramsay's electorate—no surprises there. But, when he does come to my electorate to meet with my small business operators—and I am really looking forward to when he does—they will actually say, 'Thank you, Leader of the Opposition, for getting on board with the government's changes in relation to payroll tax,' and quite a lot of our other initiatives.

South Australia is a transitioning economy, and one that is reliant on small and medium-sized businesses. There is no doubt about it: we are a small business state. We do not have the large corporations, we do not have large—

The Hon. V.A. Chapman: We used to until Labor got in.

Mr DULUK: Up until 2002, we had quite a lot more ASX listed companies than we do today, but it is the reality that we live in. You can only play the cards that you have been dealt, and we want to increase our hand. We want to ensure that the cards South Australians are dealt are full houses and royal flushes, not a seven of spades—

The Hon. V.A. Chapman: Or jokers.

Mr DULUK: Not jokers. That is why we are bringing in this legislation. It does not matter if you are the IGA in Cleve or Jacobs Tyres and More in Blackwood, which is one of my very good local small business operators. South Australians like supporting locals, and that is why it is important that the government supports local businesses, just as South Australians do. This payroll tax reform is our measure to ensure that we do not hold back economic growth.

As I said, the government's plan to increase the existing threshold from $600,000 to $1.5 million is an important reform to ensure employing people is not a burden to those who create so much of our economy. We want more South Australians employed and more small businesses in our economy. Reform is vital to ensure we change the direction of this state. Labor repeatedly used state taxation to grow the size of government and pursue, in my view, an agenda which does not sit well with me.

When you are a high-taxing, high-spending government, you squeeze out private capital and private investment. By squeezing out private capital and private investment, you are actually squeezing out new opportunities for jobs, growth, and that investment that is so often driven by private enterprise. It is not government that drives innovation: it is private enterprise. However, these days are no more, and I am looking forward to living in a state where private industry can come to South Australia, and South Australia can be known as a low-cost jurisdiction.

South Australia was historically a low-cost jurisdiction. During the Playford era of government in South Australia, we were a low-cost jurisdiction with low energy costs, low input and affordable housing. That was a huge opportunity for businesses to come, as did the businesses of that generation and of the heavy manufacturing industry of the fifties and sixties. Companies like Westinghouse, Holden and Kelvinator and others that used to line Port Road saw South Australia as a low-cost jurisdiction.

There is an opportunity in a new, modern era for South Australia to once again become a low-cost jurisdiction. Our reform of payroll tax makes us one of the most competitive payroll tax jurisdictions in the nation. This can only be a good thing in creating competitive tension within the federation. We have seen the Queensland example where, 20 or 30 years ago, governments made decisions to make Queensland an attractive place to invest. I read in the Weekend Australian that by 2050 Brisbane is going to become a mega city on the eastern seaboard as Australia continues to grow.

Thirty years ago, South Australia was bigger than Brisbane. So, in the 60 years to 2050, they will become a mega city on the eastern seaboard, with the investment that that will attract, while we will still be playing catch-up. We have had 16 years of hard Labor and now we are going to have 16 years of fantastic Liberal government, but that still will not be enough to get to where we should be, namely, at parity.

By providing this exemption in terms of payroll tax, the Marshall Liberal government will be removing a major disincentive to businesses, creating more jobs and employing more people, as well as making South Australia a much more attractive place to invest in and grow businesses. With this important reform, sole traders and small businesses will have the confidence to grow and reinvest in their businesses. Why should we tax a small business operator for employing honest, hardworking South Australians?

We need to stop kicking our small businesses in the guts. I am really happy that one of these reforms will actually remove the payroll tax payable on apprentices, which the Labor government refused to remove at any time when they were in charge of the treasury bench. In that instance, we had a proprietor taking on an apprentice whose wage was subject to a payroll tax. What a disincentive that is to bring on a young person to create a skill in a workshop: 'Come on board, but we are going to tax you. We are going to tax you for taking on an apprentice.'

We know how hard apprenticeships are at the moment, so this is a very good benefit. This measure and our reform measures will benefit thousands of small businesses with payrolls of up to $1.5 million, as I said, as well as giving confidence to more than 130,000 microbusinesses and sole traders to create more jobs, knowing that they will not be hit with extra tax as soon as they employ additional South Australians. I think that is really important to note.

These reforms are not just about existing businesses that pay payroll tax, those between the $600,000 and $1.5 million threshold; they are about the tens of thousands of microbusinesses—the mum-and-dad businesses—that are maybe only turning over under $1 million. Maybe their payroll tax threshold is $100,000 this year because they are employing a couple of people, and then, as the business grows, they get up to $0.5 million in the payroll tax threshold. That means you have mum and dad and maybe an admin person doing the books for three days a week.

You might bring on another sales rep, and all of a sudden you are creeping over the $600,000 payroll threshold and saying, 'How do I make sure that I can continue to provide a good service to my client base without all of a sudden being kicked into that threshold where I need to start paying tax back to the government?' This happens for no other reason than that you have been a successful small business operator.

So the microbusinesses are actually the ones that will really benefit from this change in policy setting. This reform will remove the payroll tax burden for businesses employing an average of 25 employees, unleashing the growth potential of many of the fastest growing enterprises in our economy. It is businesses with under 25 employees that are, statistically, in the fastest growing segment.

South Australia's $1.2 billion annual payroll tax take remains one of the most uncompetitive in the nation. The tax-free threshold on payroll was the lowest in the nation under Labor, and it came along with a complex regime for calculating liabilities. In budget after budget, groups like Business SA, of course the then Liberal opposition and other industry groups would come to the government and say, 'Can you reform the payroll tax?' and at no point was there any desire by the former Labor government to amend and reform.

The member for Ramsay sat there in cabinet, and I would be keen to see if she ever put up a submission to the treasurer to reform payroll tax, because I know she is a big supporter of small business. I know she would have been one of the champions, but the ideologues opposite saw no reason to amend the most uncompetitive and complex regime of penalising employers in this state. The Liberal reform will reduce the payroll tax paid by small and some medium businesses by an estimated $44.5 million per year, incentivising them to create thousands of extra jobs for South Australians.

Importantly, this reform will deliver broad-based changes to the state's economic settings by improving our competitiveness and investment attractiveness, rather than attempting to pick winners amongst individual businesses. After 16 years of a stagnant economy, reform in how South Australians employ and do business is critical to ensuring that our state can move forward to a lower unemployment rate and to being a more prosperous state.

Sitting suspended from 18:00 to 19:30.

Mr DULUK: Picking up from where I was, these reforms are so important because we are continuing the legacy of what we said we would do in opposition and delivering on our promises. We are fixing up 16 years of Labor mess, incompetence and a lack of understanding of small business, and that is what we want. The people of South Australia want a government that understands them and understands their needs, and they know they will not get that from those opposite; they will only get that from us on this side because we understand small business. The Liberal Party will always be the party of small business and we will always look after those who employ and those who want to create a more prosperous state.

In a state full of agriculture and small business, the flow-on effects can be huge. With low prices for primary produce such as cereal crops and milk, payroll tax places a huge burden on the ability to generate a sustainable income for so many people. Being at the beck and call of nature is one thing; this government wants to ensure that all South Australian small businesses can flourish and focus on their output rather than on countless taxes. The Rann and Weatherill Labor governments spent the best part of the last 16 years crafting a stifling state tax regime that rips $4.5 billion from South Australian employers and consumers every single year.

In an economy that is reliant on small and medium businesses, we cannot expect employers to grow and create more jobs if government is constantly adding to their cost base, and especially to the cost of employing South Australians. I always keep coming back to this same theme: we understand that taxes such as payroll tax add to the cost base of doing business. We understand and believe that to help small businesses we need to do all that we can to remove that negative cost base.

Many small businesses are discouraged from employing an extra person if it means incurring extra tax liability and enduring the additional compliance costs that go along with it. In this period of stagnant wage growth, there would be no better way for government to boost wages and employment prospects for workers than to begin the gradual removal of payroll tax. On the one hand, this government is looking at removing gradually that burden of payroll tax and, on the other hand, we have legislation and we have a commitment to creating a productivity commission.

If we can increase the productivity of the people of South Australia through new policy initiatives from the productivity commission, as well as directly, from 1 January 2019, removing a payroll tax burden, on top of the fantastic achievements by the federal Coalition government in their personal taxation reform, I think we have a great opportunity in the coming months and years to really see a structural change in the nature of our business and taxation environment in South Australia, one that is generated towards growth.

When we see growth in the economy, we will see a growth in wages for ordinary mum-and-dad South Australians and Australians, and that can only be a good thing. A sensible way to do this would be to progressively increase the payroll tax threshold, and this is underway in South Australia. As I said before, this will create competition within the federation and stimulate hiring and growth across Australia. It will simplify a tax system that is far too complicated and has been far too complicated for too many years.

I remember the days when I worked in accounting and then in banking for a big bank. In accounting, one of the big issues was payroll tax reconciliation at the end of each financial year and the compliance costs that went with that, and then the return to be lodged a couple of months after you worked out what your wage and compliance costs were going to be for any rebate as well. Going forward, that is a compliance cost that South Australian businesses will not have to endure any more. That is a compliance cost that bookkeepers on a Friday leading up to 30 June will not have to do anymore, and they can spend their time adding value to their clients in a more efficient way, which is really important.

It is not just about a dollar figure that is the actual payroll tax levy but it is about the ability to remove red tape and regulation across the private sector. At a time when South Australia needs more jobs, greater investment and stronger growth, an uncompetitive payroll tax regime only serves to undermine confidence and make the situation harder for businesses to create jobs and employ more South Australians. South Australians need a simple tax system that is easy to understand and enticing for business. We need to tell Australia that we are open for business and that our economy has the ability to grow and thrive.

I was talking to the manager of the Torrens Arms Hotel on Friday at an electorate drinks with the member for Elder where we were talking to small businesses about what removing payroll tax is going to do. Sam McInnes was telling me that removing payroll tax on his business is going to go a long, long way to their employing more people, especially young people, in the hospitality sector. It is so important for young people to have jobs in the hospitality sector.

South Australia is a state abundant in smart and innovative businesses. We need to keep them here for others to learn from. How can we grow our state if small businesses have to leave due to high costs? We have certainly seen that over the preceding 16 years where jurisdictions, businesses and capital have been moving to lower cost jurisdictions across the federation.

In the strong plan that we brought to the 2018 state election, the Liberal Party highlighted the need to keep young people here to build our future. Our future cannot be built from Sydney, Melbourne or Perth; it can only be built here in our streets, in our suburbs and in our towns. By letting businesses flourish, so can our state. We need to get out of the way of business and let them grow and build. The previous Labor government failed to look after small business and failed to understand just how rising taxes affect them and, in turn, affect the whole state.

This government is passionate about creating a better environment in which to live, work and play. Relieving the stress of payroll tax is just one way that this Liberal government can help our struggling small business sector prosper. After 100 days of solid governance, the Marshall Liberal government is committed to continuing to lower costs for all South Australians. Of course, from 1 July, several days ago, we saw a reduction in ESL bills and, in time, we are hopefully going to see councils come to the party, through our council rate-capping regime, and pass on savings to households in South Australia.

As the Minister for Energy and Mining reminded us in question time today, reforms to the energy market and our policy setting are also going to bring a saving of approximately $301 per year for the average South Australian energy bill. Together with savings on the ESL, savings on energy, savings on council rates through rate capping and savings for South Australians through payroll tax regime, we are listening and, more importantly, we are delivering. We are going to deliver a growth regime in South Australia that will see us become one of the best and most competitive places to live in the federation.

Ms LUETHEN (King) (19:37): I rise to support the Payroll Tax (Exemption for Small Business) Amendment Bill 2018. I am proud that the Marshall Liberal government is taking this action to drive real change in our South Australian economy. South Australians living in my electorate are giving me feedback that, after many years of not believing politicians can be trusted, they are so pleased to see us delivering on our promises.

With the bill, we propose that small businesses in South Australia with taxable payrolls of up to $1.5 million will no longer be subject to payroll tax. This was an election promise and this is what we propose to deliver. We are focused on people. We are focused on small business and we are making this change to deliver more jobs and lower costs for all South Australians. The legislation exempts the state's 3,200 businesses with taxable payrolls of up to $1.5 million from payroll tax. As our Premier, Steven Marshall, said, 'At long last the economic handbrake is coming off for small businesses'—

The SPEAKER: It is 'member for Dunstan', member for King. Please refer to members by their electorate name, thank you. Continue.

Ms LUETHEN: —the member for Dunstan, thank you—'so that small business people in this state, who will soon have more money in their pockets, can reinvest in their operations to drive growth'.

Businesses with payrolls between $1.5 million and $1.7 million are also set to benefit with a proposed reduction to the current regime. Under the new plan, businesses with a payroll of $1.6 million would pay $24,750, as opposed to the current $49,500. It is a further tax concession for small businesses in SA, the people we want reinvesting in their business, creating further investment and, most importantly, employing more young people, who have been leaving this state.

The proposed changes, which lift the current payroll exemption from $600,000 to $1.5 million, will come into effect on 1 January 2019. A Marshall Liberal government has been elected on a platform of business-friendly reforms, promising to cut the emergency services levy, cap council rates, deregulate shop trading hours and reduce tax for small business. It has been reported that about 98 per cent of businesses in South Australia are considered small, employing fewer than 19 full-time equivalent staff. This government wants small businesses to grow into medium businesses and medium businesses to grow into large businesses. One of the biggest constraints to this growth is payroll tax—a tax on jobs and a handbrake on employment.

I have many small businesses in King, and I spoke to them about their challenges. They told me that they were finding it too difficult for many reasons to hire more staff. One of these reasons was the unnecessary and outdated regulation and taxes. This legislation, which will provide payroll tax exemptions for small businesses with a payroll of up to $1.5 million, will be welcomed by thousands of businesses and will benefit all South Australians. It will fuel investment, employment and growth.

It is no secret that payroll tax is a handbrake on employment. South Australian businesses have consistently stated that this tax discourages them from hiring additional workers. For businesses close to the payroll tax threshold, the decision to hire a new employee or increase employee wages exposes the business to a new tax liability—a significant disincentive. South Australia's unemployment and youth unemployment rate has been too high for too long. These changes will directly decrease the cost of hiring additional workers and make it easier for employers to offer pay rises.

This government has been listening to local businesses. I have been listening to local businesses for many years. My background is in the banking and finance industry, supporting small business and South Australians. I started my career in this state in commercial banking, helping small businesses to start up, to grow and to thrive. Payroll tax is charged to businesses on the total wages of their employees. This effectively penalises businesses from hiring workers. It penalises businesses for raising wages. It is important to understand that payroll tax is a tax on employment. It is an impediment to wage growth.

Since the tax is directly linked to the wages of employees, businesses need to take it from the budget that would otherwise be allocated to employee wages. We need to do all we can to make South Australian businesses competitive and to drive employment opportunities in South Australia. A tax on wages means fewer jobs and lower wages for employees. We are not happy with lower wages for employees in South Australia. We are not happy with struggling South Australians who are working hard. I met many people when doorknocking who told me they have good jobs but are still struggling to pay their bills.

I met people, too, who were not happy in their jobs but who were too scared to leave just because there are not enough jobs in South Australia. That is why this change is good for businesses and hardworking South Australians. We are introducing this change to stimulate hiring and growth across all South Australia. Unlike company tax, which is charged on profit, payroll tax is charged on a business's largest expense: payroll. Payroll tax actually works against workers' interests.

The RBA has noted that less frequent wage increases have been occurring since 2012. In this period of stagnant wage growth, there would be no better way for government to boost wages and employment prospects for workers than to begin with the removal of payroll tax. We are introducing this change to stimulate hiring and growth across South Australia. Businesses in King told me that they are too regulated and that we are too regulated in South Australia. They told me that they are weighed down by unnecessary rules. King businesses have asked us to simplify a tax system that is far too complicated, and that is what we have promised to do and that is what we are delivering.

In summary, this bill amends the Payroll Tax Act 2009 to exempt small businesses from payroll tax. The changes in this bill will mean that businesses with an annual taxable payroll below $1.5 million will no longer be liable for payroll tax from 1 January 2019. Businesses with annual taxable wages above $1.5 million will continue to receive a deduction of up to $600,000 from their taxable wages consistent to the existing tax-free threshold.

To smooth the transition from standard rates of payroll tax, businesses with taxable wages between $1.5 million and $1.7 million will pay a tax rate that increases proportionately from 0 per cent at $1.5 million to 4.95 per cent at $1.7 million in taxable wages. For example, at a payroll of $1.6 million, the tax rate will be 2.475 per cent applied to the amount in excess of the $600,000 threshold. Businesses with annual taxable wages of $1.7 million will continue to pay a rate of 4.95 per cent. The good news is that these changes are expected to benefit around 3,600 businesses, reducing the payroll tax they pay by an estimated $44 million each year, with individual businesses saving up to $44,550 per annum.

It is estimated that 3,200 of these businesses will be exempt from payroll tax and that 400 will receive a reduction in their payroll tax liability. This represents around 39 per cent of current payroll taxpayers who will no longer need to pay payroll tax or who will pay a lower tax rate. These changes will remove a major disincentive to businesses, creating more jobs and employing more people as well as making South Australia a much more attractive place to invest in and grow business.

To provide certainty for business, the government will continue to implement the small business payroll tax measure introduced by the former government administratively until 31 December 2018. The measure reduces the effective tax rate payable to 2.5 per cent for businesses with taxable wages up to $1 million per annum. I encourage all small businesses to inquire about how these new savings will benefit their business to decide how best to reinvest their savings in South Australia.

I look forward to continuing to work hard in this new government that keeps delivering what it has promised. We have been listening to small businesses in South Australia. We are focused on delivering sustainable change. We will create jobs for South Australians as well as for those young people who have been leaving South Australia for work. I thank the members who have worked on this bill and I commend the bill to members.

Mr McBRIDE (MacKillop) (19:49): I rise today to speak on the Payroll Tax (Exemption for Small Businesses) Amendment Bill 2018, an exciting and significant move that will benefit many individuals and their businesses across South Australia. As we all know, this bill amends the Payroll Tax Act 2009 to exempt small businesses from payroll tax, providing them with the opportunity for their businesses to grow and flourish in a state that is notoriously unfruitful for family and smaller businesses.

According to the existing act, payroll tax is levied on taxable wages at the rate of 4.95 per cent above an annual tax-free threshold of $600,000. If the changes outlined in the bill are put forward, businesses with annual taxable payrolls below $1.5 million will no longer be liable for payroll tax from 1 January 2019.

Only businesses with annual taxable wages above $1.5 million will continue to receive a deduction of up to $600,000 from their taxable wages, which is consistent with the current tax-free threshold. Further to this, the changes will be implemented slowly and methodically, introducing measured increases in the standard rates of payroll tax for businesses with taxable wages between $1.5 million and $1.7 million. The rates will increase proportionately from 0 per cent at $1.5 million to 4.95 per cent at $1.7 million.

I realise I am throwing around a lot of numbers here, so I will put it plainly. The changes that this bill will introduce will benefit around 3,600 businesses across South Australia. That is an estimated $44 million saved overall on payroll tax paid by small business and roughly $44,550 saved by each of those businesses per annum. That is a savings value higher than many South Australians earn in a year. That is not even accounting for the estimated 3,200 businesses that will be exempt from payroll tax and the subsequent 400 that will receive a reduction in their payroll tax liability. This equates to a whopping 39 per cent of current payroll tax payers who will no longer need to pay payroll tax or will see deductions in the rate that they will need to pay.

At its core, this bill will enact incredible changes that will eliminate a major disincentive to South Australian businesses and will potentially create more jobs as these business owners will be able to afford to employ more staff. Essentially, this bill makes South Australia a much more attractive state in which to invest and grow business. It would be an injustice to all those dedicated citizens not to help them grow and develop in the state they call home, a place they have stood by despite the growing financial pressures that small business owners face every day under the current measures of this act.

I was absolutely delighted to hear a few aspects from the other side of the chamber when they got to speak on this bill. The greatest thing for me is that they are actually going to support this bill. I have not heard any reason to suggest that they would do otherwise. What I think is most important is that they have helped in the sense that, while they were in government, they did not make the situation worse but they recognised that they had to move. From this side of the chamber, and from the perspective of the small business sector of South Australia, I think we would say that they probably did not move fast enough.

We have heard from a number of members on the other side who have spoken in favour of this bill that some of them have experience in small business and have turned down the small business opportunities that they could be working on today to be in parliament and go into a political career. If they have the small business element and know the way small businesses have to strive and thrive, compete with other small businesses, not only in South Australia but all around the country, and then on a world market in some cases, they would know that everything we can do to help these businesses thrive is about taking away the costs, taxes, impositions and regulations.

Although I can see that it is wonderful they have made some inroads, I think that one of the things that moves into a government—and I will do my damnedest to make sure that we are never part of this—is to become complacent. I think complacency brings about laziness and a rationale where you end up thinking everything becomes too hard. In the end, for the people we represent out there beyond the walls of this chamber it is hard every day, competing against each other, other competitors in the state and other competitors around Australia and, if they are fortunate enough on a world basis, with world competitors.

It is a competitive industry and I liken it to one of the sayings I learnt in my teachings in business management through TAFE. We had an Olympic hero called Kieran Perkins and he won the first gold medals for Australia in the 1,500 metres and did it very well. If he were to swim in the Olympics today, he would not even make the finals if he swam the same times as he swam back then.

That analogy was used in business. The bar is always set higher year to year. It always keeps changing and we always have to keep innovating. We have to become more and more competitive in business if we are going to thrive and survive in the changing world we work in. This is one of the reasons why I think that if we are in government we must not allow ourselves to become complacent, which I could nearly accuse members on the other side of the chamber of. All credit to them in the sense that they do move, but to move with haste and understanding is different from saying we are doing something. Something can be very small and minor and really does not help much at all, and you leave the hurdles in place and you leave the hurt in place and you make it harder than it need be and then you are still part of the problem.

I absolutely give great credit to this government. One of the things we are trying to do is implement this 100-day plan. We have not been lazy about it. We have been methodical and we have tried to do as much as we can in the first 100 days. Here we are, about 102 or 103 days into our time, and we are moving bills such as this to help small business, and we are implementing it in 2019. Some in this chamber would say, 'Why aren't you doing it straightaway?' I think we need to be methodical and rational. We still have to make sure that we manage the state and be responsible, and we have to do it in a timely fashion.

It is not taking us 16 years to make these moves: it is taking us less than 12 months to put these processes in place. Another thing that we are very wary of is that we are really not sure what our financial situation will be and we have to be responsible in these areas as well, making sure that we can afford to make the changes and implement what we need to do.

To bring it back, one of the things I note is how we now see ourselves when we compare ourselves with Victoria. Before we bring in our changes today, Victoria has a rate of 4.85 per cent and a threshold of $650,000. So they are about 0.05 per cent cheaper, but you have to turn over above $650,000 before any tax is paid. So it is more competitive to do business in Victoria today. Another thing I learned was that, in Victoria, if you have a business that is 85 per cent rurally based you get a 50 per cent discount on top of that.

You would then ask yourself, 'Why would the government make it easier to do business in rural/regional Victoria and give them a 50 per cent discount over $650,000 if it is a level playing field right across the state?' The fact is that it is not. It is actually harder to do business out in regional areas of Australia. You suffer the pitfalls of travel. You suffer the pitfalls of time. Sometimes infrastructure and technology are not as good out in the regions. You find it hard to find the people to work for you in business. You might have to pay more to get those people to move out into the regions. There are usually fewer services. People usually have to hone their expertise towards city centres.

In one of the speeches I heard from the member for Kavel, who was speaking about the bill, he said that he had to go interstate, like many of our fellow South Australians who had to move interstate, to seek jobs of the expertise they were looking for. This suggests that if a state is floundering, if we do not have the job creation that we want—like regional areas across Australia—people have to go to where the jobs are. These city centres do have it. City centres like Sydney and Melbourne are thriving. I believe Melbourne is growing at nearly 10,000 head per month, yet this state and some of our regions have been shrinking in population for the lack of opportunity.

One of the things that the bill does is give South Australia a more competitive edge to compete with other Australian businesses, other state jurisdictions, and makes sure that South Australia and the current government, representing South Australian business, can compete with other national businesses and be profitable so that they can stand the test of time.

Another thing that I would like to touch on that has just been alluded to is the cost of business. They talk about a rack rate for WorkCover. In South Australia, we find ourselves being a 1.4 per cent dearer than Victoria again. I am not saying that we have to emulate everything across other states, but we have to be competitive. I think the steps we are taking with the amendment bill to the payroll tax is a step in the right direction, recognising that we want to look after small businesses and make it as cheap and affordable as possible for these businesses to operate and function within South Australia.

There are a lot of regional small businesses in my seat of MacKillop. I have recently phoned a couple of local businesses that will benefit from this amendment to the Payroll Tax Act. One is owned by the Tidy family, a second-generation family business in seed sales and marketing. They started a business called Naracoorte Seeds. It has grown over its entire life but exponentially in the last two or three years. It has expanded into Mount Gambier as well.

The current manager is Jamie Tidy, and I know him very well. He is a very good community supporter of the business sector. He is growing his business. He has children. He looks to the long haul, and he would hope that his children will follow suit and he will pass the business down to the next generation, which would be a third generation Tidy running a small seeds business in Naracoorte. He personally told me that this bill will help him. This bill will make him more profitable. It will help him be more competitive around Australia with seed sales. He is not just a South Australian rural seed trader; he trades seeds interstate and overseas on international markets.

The changes we implement, such as the payroll tax, will make it a little bit easier. It will make small businesses more profitable. It will mean they will have more confidence. They can reinvest and grow their businesses, like Jamie Tidy has over the last two or three years by building storage sheds and creating more holding capacity for seed production and seed purchases, and then all in all it flourishes. Businesses like this flourish in towns like Naracoorte and Mount Gambier, and it has a snowball effect. The towns become wealthier and richer for it.

Another business I will touch on is an earthmoving business that is a great supporter of mine and the Liberal Party, owned by the Bull family. It is a third-generation business and is run by David and Robert Bull now. David Bull has children coming through and already working through the business. They are the fourth generation. They are into earthmoving, they have already told me, too, that this bill is going to benefit their business. Their costs are going to be less, they are going to be more profitable, and they are going to be more competitive.

One thing I would like to see happen with earthmoving businesses in my region, and not just with the Bull's business, is for them to have the opportunity to be able to compete and do government-type jobs on roadways, building new roads and infrastructure. If these small businesses are not allowed to grow and they remain small, then they seem to miss out on government contracts such as large shoulder reconstructions, kerb building and all those maintenance jobs that you would think small businesses in local towns would be allowed to be part of. But if they do not have the size to start out with, they can never come out and put in a contract or a quote for a government job if they are not allowed to grow or if they are not allowed to participate.

We might not have changed the act yet, but we heard about a job under the previous government where a new school building was to be built in Bordertown. They had a $700,000 quote to build a new technology studies building. The principal said, 'Just check to see if local business could do this.' So they went out to the local builders and got a quote, and it was going to cost $400,000. However, the builder did not meet the stipulated building criteria, so it had to be quoted and built by a city-based business.

Of course, what did the city-based building contractor charge? $700,000. There was going to be a $300,000 saving if that local builder in Bordertown could have fulfilled that education building construction. But the red tape was so thick: the paperwork was two inches thick. There were so many rules and regulations in place that they never got the opportunity to partake in that quote, and it was never given consideration. The school principal had to do the right thing and go through the right channels.

I also have a local school at Kingston that has been given the opportunity to construct more infrastructure and buildings. The cost of the design and the planners was absolutely fascinating. Again, local businesses cannot participate in the building and construction of these buildings and developments. They have to come from Adelaide. They charge massive, exorbitant fees. They have to move down and build in my local area, and our small businesses do not get the opportunity to do that.

Coming back to the bill, it is so important to be able to support small businesses, to help them grow and be able to be substantial enough so they can compete and get those sorts of government contracts that come by our way, and are all up to speed with as minimal cost as possible, growing in a fashion they can cope with. It is so important to make business as easy as possible.

If this bill is later passed through the house and we have a clear way to introduce it, this saving between the $600,000 and $1.5 million threshold amounts to about 20 extra staff, as it is anticipated that 20 staff at the average wage of $73,000 would total $1.5 million. Really, any business with 20 staff is a small business; it is not considered to be huge.

This incremental step from $600,000 to $1.5 million is a good move by the state government. It is a starting point and I know this state government will not sit on its hands. We will not just stop at this but will consider all the other factors that come into operating small businesses around this state, to make sure that they can flourish.

I would also like to mention that the state government will continue to implement small business payroll tax rate measures introduced by the former government administratively until 31 December 2018 so as to ease businesses smoothly into the new measures that the bill puts forward. This is not a kneejerk response or quick fix that will fall apart in due course. This bill is methodical and allows for businesses to progress with ease into these new measures that will ultimately mean a better and more productive small business sector for South Australia with fewer financial pressures on some of the hardest-working individuals. It has been my pleasure to introduce the bill and, on that note, I commend it to the house.

Dr HARVEY (Newland) (20:05): I am very pleased to rise today in support of this bill to scrap payroll tax for small business. Our plan to scrap payroll tax for small business is a very important part of our economic reform agenda, which is about creating more jobs and opportunities for the people of South Australia by reducing the cost of doing business. It is also an important part of our plan for our first 100 days in government, which is an important plan that demonstrates to the people of this state how serious we are about delivering on the commitments that we took to the election.

Payroll tax is unequivocally a tax on jobs. It is a tax paid on money that is paid on wages even before a single dollar is earned by the business. It is very much a disincentive to employ people. Not only that, it also contributes to reduced wages and can impact on consumer prices by increasing them. In a perfect world, such a tax would not exist at all. Unfortunately, that is not practical, given revenue streams available to state governments.

More broadly, unemployment in South Australia has been a problem for a while now. Particularly over the last term or two of government, we have consistently seen some of the highest rates of unemployment in the country. These are very much lost opportunities for so many people. Youth unemployment, in particular, is a very big problem. In the state at the moment, it is around 15.9 per cent but increasing to almost 20 per cent in some parts of our state.

Small businesses often employ people in their very first job. Those first opportunities are so important to getting a start in the workforce, getting that first experience in working for someone and setting people up for the rest of their working life. Small businesses are very often family businesses, also often taking people in almost as if they were part of the family. These people often work incredible hours.

I can remember, back in a previous life, that I used to teach piano on the side while I was studying. There was one particular student whom I would go and visit once a week and do about a 45 minute lesson with them. They had a small business; it was a small shop. We would have the piano lesson at about 7.30 at night, running through until almost 8.30. What used to always strike me, particularly as I was quite young at that point, was that she would come straight from the shop to have her lesson. We might have had a chat for another 10 or 15 minutes, and then she would go back to the shop to do all the reporting for the rest of that day—incredible hours just to keep the show going.

Small business owners also take on so much risk. All the bills that come in are theirs. Their future and their retirement are often completely wrapped up in their business. What we want to do is empower these small business owners to enable them to put people on. In a previous government, those people might be described as the employer class. We would see them as opportunity creators, people who are actually out there giving people a go. We want to make that as easy as possible for them.

Small business is also very important to the economy of South Australia. There are estimated to be more than 140,000 small businesses—that is, a business with 19 or fewer full-time equivalents—and that is roughly 34 per cent of the South Australian workforce. A rough calculation is that if every small business in South Australia put on one extra person for one extra day, that would be the equivalent of almost 30,000 additional full-time jobs. This highlights that even small changes in business conditions and business confidence can have a dramatic impact on the state's economy. Ultimately, success in the small business sector means success for the South Australian economy.

When the former government were not disparaging small business owners, they would often talk about them as being important, and there were quite a lot of pledges and promises about how they were going to do so much to make things better for them. The reality, of course, was that growth in the small business sector in South Australia in 2016-17 was about 1.6 per cent, which compared with the previous government's target of 5 per cent and which again is an example of rhetoric over actual action. That 1.6 per cent of actual growth is compared with 3.1 per cent across the nation.

Moreover, the Sensis Business Index, a national survey of small business owners looking at individual states, showed that, of all the states, South Australian small business owners had the worst opinion of state government policy and the impact it would have on their business. The two main reasons that were raised were too much bureaucracy and the cost of business being too high.

Of course, too much bureaucracy is very much an issue that has been raised with me a number of times by many constituents. In fact, just last week I was in a room of people who were essentially saying that out of a seven-day working week, as often they have, they may spend what would seem like two to three days on paperwork, not actually contributing to the productivity of the business but just complying with things in a very inefficient way. Of course, we have other plans to reduce that red tape and reduce that unnecessary regulation that really bog them down and prevent them from doing their job. Another issue was the cost of doing business, and that is very much what the bill is about.

As I said, we are going to abolish payroll tax for small businesses. South Australia currently collects $1.2 billion in payroll tax and is amongst the lowest tax-free thresholds on payrolls in the nation—$600,000. Under the current arrangements, payroll tax is levied at a rate of 4.95 per cent on taxable wages above that $600,000 tax-free threshold. Employers with taxable payrolls up to $1 million pay an effective rate of 2.5 per cent on wages above $600,000 that incrementally increases to the legislated 4.95 per cent on wages up to $1.5 million.

The bill abolishes payroll tax on businesses with an annual taxable wage up to $1.5 million. Importantly, we are also phasing out that exemption for businesses with a payroll of $1.5 million up to $1.7 million. That is important to ensure that those businesses, when they grow, as we want them to, and grow beyond that $1.5 million threshold, are not suddenly hit with a brick wall and that we gradually scale up that rate between the threshold and up to $1.7 million. The last thing we want to do is provide a disincentive to grow even further and to employ even more people.

As I mentioned before, the cost of doing business in South Australia is a major complaint that is frequently raised with me by businesses in Newland. Abolishing payroll tax for small business will benefit many local businesses. In particular, in the last day or so I have spoken to an important local business owner, Peter Howell of the Inglewood Inn up at Inglewood, a beautiful establishment as you are going up through the Hills—with very nice food, by the way—and one that is very active in the community. He, amongst many others, was very pleased that they will no longer be required to pay payroll tax. That is a very important aspect in being able to put on more employees.

This is a very important step, but of course there is a lot more work to do. This is not the end, and we are going to continue to work to improve business conditions in this state, to continue to reduce the cost of doing business. Coupled with this are those other measures we have talked a lot about, such as cutting the emergency services levy back down to a rate similar to what it was before the previous government jacked it up straight after the 2014 election—without any warning before the election. We will also be capping the NRM levy, capping council rates and implementing our plans to reduce the cost of power, as well as having an important inquiry into water pricing in this state.

Another very important thing we have been doing on the business front at the skills end is the enormous investment we will be putting into ensuring we have enough people with the skills required in our state, investing in additional apprenticeships and traineeships—more than 20,000—and really ensuring that we have the people here to take up the jobs that will be coming in the future. Ultimately, this bill will take the brakes off the engine room of our economy that is the small business sector, allowing it to grow and create more jobs and more opportunities for South Australians. I commend the bill to the house.

Mr BASHAM (Finniss) (20:16): I also rise to speak on the bill that amends the Payroll Tax Act 2009. I am very excited by this bill and by the opportunity it gives businesses across South Australia, particularly those in Finniss.

Payroll tax has been a very negative tax to employment, and I have seen that firsthand in Finniss in the past with some very close colleagues in the dairy industry personally affected. They decided they wanted to grow their business and bought a third dairy farm, but suddenly that required another four staff who were previously in another business to be in their business. It took their whole business over the threshold, and that was something they were not anticipating in the process. This occurred back in about 2009, and at the time the dairy industry was going through very tough period. To have a penalty on employment hit them as it did was something they were not expecting. It put enormous pressure on their business and actually led to them laying off a staff member to try to manage the cost their business.

I think this is a great thing that the government is putting in place by bringing this bill forward. Increasing the tax-free threshold to $1.5 million, rather than the $600,000 it has been, will make a big difference to businesses and we will see a huge change. Currently, we are talking about probably 10 to 12 employees to hit that threshold, and we are effectively going up to over 20 to 25 employees—and at reasonably low wage rates as well. We are not talking about high salaries being paid to people to get over that level at that number.

These are small businesses, and they are often businesses that are very much service businesses putting a lot of things into the economy and delivering for the community, so it is certainly something we need to encourage. I think it is a great initiative that we are also looking at having the phase-in between $1½ million and $1.7 million, which will allow people to transition as they reach that limit. I think that will also allow the businesses to grow rather than hitting that threshold suddenly and being impacted.

One of the interesting experiences I have had in the last couple of days is that I had an opportunity last night to meet with a group of businesses in Victor Harbor at the Business Victor Harbor forum, which they held at one of the real estate agent's properties where they have annual meetings and where they get together and network, etc. This was one of the things that was very much discussed in the room last night. It is intriguing how many businesses fit into this category. The real estate agents themselves, under their structure of having four or five offices spread across the Fleurieu, most of them in Finniss but some over in Normanville, outside the electorate, were also going to benefit due to this payroll tax change.

Probably the most pleasing was when I was talking to one of the local builders. He is certainly a big employer. He is very much local; he has based his business on the South Coast but is a big employer, and his instant reaction was, 'That will allow me to employ one more person.' So he was seeing the immediate benefit—that he could put another staff member on just as a result of the savings due to not having the payroll tax up to that $1½ million. I am sure that business is hitting that threshold, so he will be in that sort of range. I think it is fantastic that we are able to see that benefit to our community.

The interesting thing is how many businesses are affected. When you look at it across the South Coast, we estimate that there are probably about 100 businesses that are smack bang in this category. If only half of them decide to do what the building company said it was going to do, we are going to see 50 new jobs created just like that out of this. I think that is a fantastic outcome. Those people are going to feed that money back into the system, and it will flow round and we will see the benefits for the whole community, not just for those businesses and the people who are employed. It is very much something that the Business Victor Harbor group were very pleased to be hearing about, and I think that is a great outcome.

Small businesses are very much the backbone of our regional economies. Down along the South Coast and through Finniss there are not many businesses that would be described as large businesses, if any. We have a few medium-sized businesses, but small business is what drives our economy down there. We certainly have many retailers, we have many builders and tradespeople, and all these people are going to benefit from this sort of change in the legislation. For us to go there is, I think, a fantastic outcome.

To see a large part of the income coming into a business having a tax charged on it for employing people is a very negative sort of tax. It does stop companies wanting to take that next step and employ and get themselves into that threshold of having to pay, so I certainly think this is a great thing. I think the opportunity to save up to $44,550 per annum is a great benefit to industry and encourages us to see great investment in our community.

With this, I feel that the community is gaining in confidence, not just around this change but generally. The small business community is certainly seeing a change in attitude in how they are operating. The vibrant feel around the meeting last night in that small business community was a pleasure to be a part of.

To see their confidence going forward and that they see opportunities for their businesses is fantastic. So these sorts of changes we are making in removing that red tape, removing that cost to business, allowing those businesses to operate in an effective and vibrant way, means we are giving an opportunity to see great growth in this state over the next few years. I commend this bill to the house and I am very pleased to see these changes.

Mr TEAGUE (Heysen) (20:25): I also rise to commend this bill to the house. It is a sensible and measured reform in the right direction, and if I may say without entering into too florid terms, it moves further away from a number of businesses a tax burden which strikes at the heart of enterprise and in an ideal world would be gone altogether. As other speakers in the debate so far have indicated, a payroll tax strikes at the very heart of enterprise in that it taxes the very employment that employers would otherwise seek to do to grow their business and provide opportunities for people to participate in the workforce.

We on this side of the house are all delighted that this is a reform that we are able to bring as a matter of priority. It is consistent with our principles and it is a measured and responsible step in line with budget constraints. I would hope that over time we can progress it further, but importantly it has been brought before the house at an early stage in the new government, and I think we can all be very pleased about that. I welcome the opposition's support, as it should.

Payroll tax is a problem for at least three key reasons. Firstly, and perhaps most importantly, as the Henry review found, payroll tax, in the long run at least, is a tax burden that is borne by workers. The Henry review indicated that in the short term possibly an argument might be made that the burden of a payroll tax might be borne by the owners of capital in terms of reduced profits, but in the long term it is a tax that is borne by workers and ultimately employment, full stop. That is the number one problem that a payroll tax causes.

Secondly, the problem of a payroll tax is that it unduly shifts the burden, irrationally shifts the emphasis away from employment of workers and in favour of automation, so the existence of a payroll tax tends to shift an enterprise away from the deployment of employed workers towards automation—again, an anti-employment, anti-worker tax. Thirdly, and importantly, a payroll tax has the effect of skewing the economic environment around employment by tending to shift workers from a taxed environment into a non-taxed environment in circumstances where that may well be less than the optimal deployment of that worker's skills.

While a worker might be most usefully and productively employed in a taxed environment, because of the existence of the payroll tax the employment available to the worker may be, paradoxically and surprisingly, found in a non-taxed yet less productive environment. Those are at least three key reasons why it has been observed over time, including in the course of the Henry tax review, that payroll tax is a problem.

In my view, to the extent that we can, we ought to take practical steps where possible to relieve the burden of payroll tax. That is particularly the case in respect of this bill, which focuses on exempting small business from liability for that tax. Clause 9 of the bill fundamentally and quite simply amends schedule 1 of the Payroll Tax Act 2009 to change the threshold amount (TA) from $600,000, as it presently stands, to $1.5 million. It then brings about a smoothing process to ensure that there is relief up to that new threshold of $1.5 million.

As I have said, in my view it would be a good thing if that could be extended further over time. This is a good start. It is not just me saying it, and it is not just the Henry tax review that has found that a payroll tax is generally a burden on enterprises that we ought to find ways to relieve. I want to refer to and note observations made recently by David van Gogh, who in March this year commended the South Australian government for this very move. It is a pleasant change, if I may say so, to see commentators in a national space inviting a business audience to look to South Australia for economic leadership. It is a welcome change and one that I read with interest.

It is an analysis that stands up to reason. In remarks published in the ABC news recently, Mr van Gogh observes, as I have been saying, that a payroll tax is fundamentally a tax on employment and it is effectively penalising enterprises for hiring workers. For those observing the debate who may have been unaffected by payroll tax directly in their business but who are otherwise curious about the nature of the tax regime, this is not any more complicated or deeply principled than I have just stated. It is unfortunately a means by which revenue is obtained at the expense of employment, so in my view we ought to continue to take steps to reduce that burden.

In this context, I briefly observe that by comparison around Australia there are varying thresholds at which the payroll tax liabilities commence and varying rates that apply once payroll tax is payable. Suffice to say, with the reform that is the subject of the bill, South Australia will move from the back of the pack, where, unfortunately, over the better part of the last 16 years we have progressively found ourselves. It moves us relatively towards the front of the pack, towards leadership in relation to the introduction to the threshold and the introduction of the liability.

It is far from completely ideal. It is far from a leap into a utopian payroll tax environment in which we banish this source of revenue once and for all, but it is a measured and responsible step and it takes us towards leadership nationally. In that sense, we can now once again start to feel in South Australia as though we have some concrete reasons to be proud of the steps that we are taking and the position that we are occupying in relation to our economic structures here in this state relative to other parts of the country.

Company tax is a topic of debate presently in the federal sphere, as we are all aware, and the rate of tax might be open to debate vis-a-vis a global trading environment, and views will differ about the appropriate rate. As I have observed earlier, the fundamental difference is that company tax is charged on profit, whereas payroll tax is charged on the business's largest expense, being its payroll.

So even an unprofitable company is going to be finding itself hindered by a payroll tax, if it is employing sufficient numbers of people. As I have already observed, one of the three key problems caused by a payroll tax is that such businesses are likely to skew their deployment of capital in favour of automation, rather than the employment of workers, if it is going to avoid this pernicious tax liability, and in other ways workers are going to find themselves in less than fully productive environments.

It is a good reform. It will have positive effects on small business statewide. This is the sort of reform that, as we see time passing, will pay dividends year on year on year as enterprise is freed of tax burdens and feels able and empowered to employ more people doing more productive work, creating more income and productivity in our state, and that very much includes businesses in my electorate of Heysen, the greatest parts of this great state. It takes in any number of the most exquisite locations anywhere in the state, and this evening I highlight just one: in particular, the very good work of its local business association.

The Stirling Business Association has more than 150 members, all of which are small businesses of varying kinds and various shapes and sizes. These businesses are excellent examples of the kind of mixed enterprise that is going to benefit from the new pro-business, pro-enterprise culture of this new Marshall government. Not all those businesses will be immediately impacted by this reform or other specific reforms. What is clear, however, is that they will all collectively benefit from a culture that relieves cost from business. I encourage all honourable members to visit these businesses when they visit Heysen, and Stirling in particular.

Among the over 150 members of the Stirling Business Association, within the confines of Stirling there can be found businesses as diverse as the local Bakers Delight, run by the President of the Stirling Business Association, David Clarke; Cleveland Nursery, which is one of the great nurseries of our state; and Matilda Bookshop, which I have had the pleasure to speak of, on not only its wonderful selection of published material but also its wonderful capacity to bring literature closer to us all.

Stirling is also home to financial and business services, professionals such as architects and legal practitioners, and a business that I am very proud to frequent: Stirling Hire. Stirling Hire provides access to some of the best machinery that can be deployed for those who are doing their own work in their garden and around their home, especially some of those machines that one would not quite get away with purchasing and keeping in the shed full time.

Stirling Hire has also provided me with one of the best line trimmers that I have ever had the good fortune to use, as well as some of the best advice that you ever might want to come across. That is just a picture of the diversity of local businesses in my area, and in particular I wanted to shine a light on the good work of the Stirling Business Association. Those businesses, one and all, are going to benefit from this new enterprise environment—a new dawn that has commenced with the advent of this new government. This bill is key among those reforms.

In the short time that is still available to me, I wish to note that while we are presently in the middle of winter, and at times one dwells upon the cold and the need to stay indoors, it will not be long before the season of Stirling Laneways will commence once again. All the businesses I have just described will be on full show at the commencement of spring and all the way through until April. The regular program of laneways in Stirling will be back in full swing, so I encourage all honourable members to visit, particularly the laneways, and support local businesses. I commend the bill to the house.

The Hon. R. SANDERSON (Adelaide—Minister for Child Protection) (20:45): I rise to speak on the Payroll Tax (Exemption for Small Business) Amendment Bill. It is with great pleasure that we were elected on a platform of more jobs, lower costs and better services for South Australians, and this is part of our key platform. It is wonderful to be delivering on that in our first 100 days. South Australia is a small business state, with 98 per cent of businesses in 2016 being considered small businesses; that is, they employed fewer than 20 people. This amendment will directly help those small businesses to move on to build bigger businesses.

South Australia's current unemployment rate of 5.7 per cent is trending down with the new government. This will further benefit businesses in South Australia as, from 1 January 2019, businesses will have extra money and room in their payroll to hopefully either put on extra employees or buy more services or goods for their businesses, such as computers, or even just spend the money in our economy. No matter where they spend the money, it is money available that can be spent to grow other businesses and the economic wealth of our state.

Under the existing act, payroll tax is levied on taxable wages at a rate of 4.95 per cent above the annual tax-free threshold of $600,000. The changes in this bill will mean that businesses with annual taxable payrolls below $1.5 million will no longer be liable for payroll tax from 1 January 2019. These changes are expected to benefit around 3,600 businesses, reducing the payroll tax they pay by an estimated $44 million each year, with individual businesses saving up to $44,550 per annum. It is estimated that 3,200 of these businesses will be exempt from payroll tax, and 400 will receive a reduction in their payroll tax liability. This represents around 39 per cent of our current payroll tax payers who will no longer need to pay payroll tax or will pay a lower tax rate.

These changes will remove a major disincentive to businesses, creating more jobs and employing more people, as well as making South Australia a much more attractive place to invest in and grow a business. To provide certainty for businesses, the government will continue to administratively implement until 31 December 2018 the small business payroll tax rate measure introduced by the former government. The measure reduces the effective tax rate payable to 2.5 per cent for businesses with taxable wages of up to $1 million per annum. The rate then progressively increases to 4.95 per cent for businesses with taxable wages above $1.5 million.

I had my own business for 18½ years. In many small businesses, you always need that extra staff member before you can actually afford them, so people do overtime or they work back. You work extra hard, and you might work weekends or evenings as the business owner because you just cannot quite afford the next staff member when you really need them to expand your business. So this is a wonderful opportunity that will save up to $44,550 for some businesses. It is a great opportunity to take on even a part-time staff member and really relieve the pressure and allow the business to continue to flourish. There are pinch points in a business, and often that is employing extra staff. Reducing the payroll tax burden will go a long way to helping small businesses expand and take on extra staff.

Small business is incredibly important in South Australia. They really are the backbone and the major employer. We know that although we have a lot of people employed in the Public Service, it is businesses paying the tax that allows us to pay for all the people who are in the Public Service, so we need to support small businesses and help them grow so that they pay more taxes and employ more people who pay taxes and it all gets spent back in our economy.

This really is a wonderful step and I am very proud to be part of a Liberal government, led by Steven Marshall, that is implementing such a positive policy that will help businesses. This is a step in the right direction, and it shows the Liberals' commitment to more jobs, lower costs and better services. As the member for Heysen also pointed out, this is a tax that was paid whether you made a profit or not, so there are businesses that could be paying thousands in payroll tax that actually make a loss that year, or make a very small profit. This legislation is a great way to help businesses and it can only be seen as good news. I commend the bill to the house.

The Hon. V.A. CHAPMAN (Bragg—Deputy Premier, Attorney-General) (20:50): I rise to speak on the Payroll Tax (Exemption for Small Business) Amendment Bill 2018. I, too, am proud that Premier Marshall and the team of the government of South Australia have presented this initiative for consideration. I welcome the opposition's indication that they will support it. I thank and congratulate members in the whole of the parliament on their contribution to this debate and the helpful addition of material to support it.

I am particularly keen to ensure that the value of work and employment endures, as that will have the effect of ensuring that many more young people in South Australia will stay in South Australia and undertake the enterprise necessary for the recovery of our state and our restoration as a serious player in the national team. I commend the bill and indicate I will support the same.

Debate adjourned on motion of Mr Pederick.