Bills

Payroll Tax (Exemption for Small Business) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 2 August 2018.)

The Hon. K.J. MAHER (Leader of the Opposition) (15:24): I rise in support of this bill and indicate that I am the lead speaker on behalf of the opposition in the Legislative Council. The regime contained in this bill extends the previous work of the former Labor government in reducing payroll tax. Payroll tax is a large revenue stream for government. I think in the 2017-18 Mid-Year Budget Review the revenue was estimated at $1.170 billion. Payroll tax, I am informed, is approximately one-quarter of state taxation revenue, and along with other revenue sources in the state, like GST, it forms a major revenue source for the programs that any government implements.

But payroll tax has often been a contentious tax. Payroll tax commenced being levied by state governments from the 1940s. In a deal during the Second World War, income tax revenues went to the commonwealth and other taxes, like payroll tax, went to the state. Taxes such as payroll tax have been contentious ever since.

Labor, when in government, had a strong record of cutting payroll tax and reducing the liability on business in SA in this regard. The former Labor government were champions of cutting payroll tax. Way back in 2004-05, payroll tax was reduced from 5.67 per cent to 5.5 per cent. It should be noted that it stood at 6 per cent under the previous Liberal government. The cut benefited about 5,500 businesses in SA and amounted to a $74 million reduction on businesses over three years.

A few years later, in the financial year 2007-08, the payroll tax rate was again reduced from 5.5 to 5.25 per cent, benefiting some 6,500 employers, resulting in a $40 million reduction on businesses for that financial year. Further reform was undertaken in 2008-09, which reduced payroll tax from 5.25 per cent to 5 per cent, increased the payroll tax threshold from $504,000 to $552,000 and implemented harmonised payroll tax with other jurisdictions; for example, vehicle and accommodation allowances, fringe benefits and super for non-employee directors. This benefited a further approximately 6,500 businesses, employing some 380,000 Australians, and equated to a $61 million reduction for businesses for that financial year.

In 2010, the payroll tax threshold was increased from $552,000 to $600,000 and the rate was cut from 5 per cent to 4.95 per cent, benefiting approximately 6,700 employers, resulting in an $84 million reduction for businesses over the forward estimates from that reform. A further reform in 2010-11 introduced an exemption from payroll tax for apprentices and trainees—a $44 million reduction for businesses over two years.

In 2013-14, there was the introduction of a concessional payroll tax rate of 2.5 per cent to employers with annual taxable payrolls of $600,000 up to $1 million, effectively halving the payroll tax rate for those businesses and providing relief of up to $9,800 to more than 2,200 businesses—a $21.6 million reduction for small businesses over two years.

In 2015-16, that small business payroll tax rebate was extended, which meant over 130,000 South Australian businesses were not liable to pay payroll tax and an $11.3 million reduction for small businesses. In 2016-17, that payroll tax rebate was again extended for four years, up to 2019-20, providing up to $9,800 each year for employers with taxable profits of less than or equal to $1.2 million, benefiting some 2,300 businesses. There was a $40 million reduction for small business over four years from this measure.

Finally, in the 2017-18 budget, the payroll tax cut for small businesses was extended, with a small business rate of 2.5 per cent, down from the 4.95 per cent, for firms with a payroll between $600,000 and $1 million, phasing up from 2.5 per cent for businesses with payroll from $1 million to $1.5 million, with an estimated additional 1,300 employers to benefit and a $45.1 million reduction for small businesses over four years.

The cumulative values of these payroll tax cuts and changes were in excess of $220 million of payroll tax relief per year and every year now. Over the life of the former government, the Labor government delivered over $2 billion of net payroll tax relief to businesses in South Australia. This reduction and the benefits have been embraced largely in a bipartisan manner in the past.

However, in 2015-16, there was confusion from the now Premier, the member for Dunstan, about whether he and the Liberal Party supported the last measure that I referred to: the rebate for small businesses. First, it was not supported, and then it was, and then there was emphatic support with a request to extend it. It is pleasing to see more reductions being proposed in the bill, standing on the shoulders of what the former Labor government had instituted.

The bill increases the tax-free threshold from $600,000 of taxable payroll to $1.5 million, at a cost to the state budget of $44½ million a year. The government is seeking to provide this relief via these amendments to the Payroll Tax Act. However, this new threshold will not be introduced until 1 January 2019, midway through the 2018 financial year, halving the full-year cost, instead of $44½ million to $22¼ million dollars of relief. The Labor opposition has questioned the reason for this delay. In our view, if this is being proposed, there is no excuse for not bringing payroll tax cuts forward in the 2018-19 budget, particularly given the federal budget is estimating South Australia will receive an additional $271 million of GST revenue in the 2018-19 year.

The additional one-off impact of bringing forward what was a Liberal election commitment to 1 July 2018 instead of 1 January 2019 is the equivalent of only 8.2 per cent of the additional, and originally unforecast, GST revenue. The Premier asserts in his second reading explanation regarding these payroll tax cuts:

The changes will remove a major disincentive to business, create more jobs and employ more people, as well as making South Australia a much more attractive place to invest and grow businesses.

If that statement the Premier made was indeed true, then there can be no reason to argue against bringing forward these changes to create more jobs and employ more people here. Indeed, Business SA supports bringing them forward. Whilst some in the government may assert that the 2018-19 financial year has begun, and thus time has run out to implement these changes, they can still be easily implemented administratively through ex gratia relief by the Treasurer. Indeed, that is how the current rebate scheme is already being administered.

We note that the New South Wales and Victorian governments, in their recent 2018-19 budgets, announced changes to their tax-free threshold for payroll tax and had the changes implemented at the start of the 2018-19 financial year. It is odd that the Liberal government and the Liberal Party, a party that calls itself the party of business, would not introduce a payroll tax measure at the start of the year but only halfway through the year, thus denying significant benefit to businesses in this state.

The Hon. D.G.E. Hood: You had 12 years.

The Hon. K.J. MAHER: Over the life of the Labor government, there was over $2 billion of payroll tax relief initiated—a massive amount—and I thank the Hon. Dennis Hood for complimenting the former government on their great track record with payroll tax, as he interjected. I think that is a wonderful display of bipartisanship. Despite indications that this policy was not particularly well thought out, as indicated by the proposed start date midway through a financial year, it has failed to develop a phase in or graduated tax schedule for businesses with payroll tax between $1.5 million and $1.7 million, again showing a lack of thought about how this would work.

The Premier, in a press release on 20 June 2018, attempted to deflect attention and said that there would be a phase-in of the payroll tax scheme as a big win for business. Rather, it was just a sloppy administration of an election policy. The Labor opposition supports further relief for payroll tax and notes that it is building on the tremendous work that Labor did in government with over $2 billion of payroll tax relief during its time in government, and looks forward to the committee stage of the bill.

The Hon. J.A. DARLEY (15:34): I rise in support of this bill. The bill will increase the payroll tax threshold from $600,000 to $1.5 million, with businesses with wages between $1.5 million and $1.7 million benefiting from a reduced rate. It is expected that payroll tax receipts will reduce by approximately $44.5 million to the benefit of approximately 3,600 businesses.

Payroll tax was a platform Advance SA ran with at the last election, as we believed it was a disincentive for South Australian businesses to grow. I have spoken to small businesses in South Australia who expressed their frustration over payroll tax and how they perceived it as a handbrake on expanding their businesses. They saw no point in increasing the size of their business as the increase in payroll taxes would have negated any benefit that was derived from the expansion. I am very happy to support this bill and commend the government for taking this step to reduce payroll tax for South Australian businesses.

The Hon. D.G.E. HOOD (15:35): I am very pleased to rise in support of this bill, which introduces changes to the payroll tax system that I have long advocated for and many business owners in South Australia have long awaited. I am confident the relief that will be provided to small businesses as a result of this proposed legislation will prove to be key in transforming our state into a far more attractive place in which to live, work and invest, and conduct and expand business operations.

As you would be aware, Mr President, I am a firm believer in limited government and the reduction or removal of unnecessary red tape where possible, which often only serve as impediments to growth and progress. I am proud that the Marshall Liberal team is in a position to demonstrate leadership in the area of tax reform that will stimulate and revitalise our economy.

Under the existing act, payroll tax is levied on taxable wages at the rate of 4.95 per cent above an initial tax-free threshold of $600,000. The provisions in this bill increase this threshold to $1.5 million as of 1 January next year, which means the estimated 3,200 businesses in South Australia with payrolls below this figure will be entirely exempt from payroll tax.

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 with the existing tax-free threshold. Those with payrolls between $1.5 million and $1.7 million will pay a tax rate that increases proportionally from zero per cent to 4.95 per cent. Overall, the changes are expected to benefit around 3,600 businesses in South Australia, reducing the payroll tax they would otherwise be liable to pay by approximately $44 million per annum, with individual businesses saving up to, I think, a very substantial $44,550 each and every year.

There are well over 140,000 small businesses in South Australia that employ fewer than 20 people, comprising no less then 98 per cent of all businesses operating in our state. Given they provide employment to a third of our workforce, I am sure members would agree we cannot afford to have any of these enterprises at risk of closure or make life harder for them simply because payroll tax encumbrances have rendered their operations no longer viable. We cannot afford to disincentivise owners in any way from expanding their teams and offering the employment opportunities South Australians so desperately need.

I note the previous government had a growth rate target for small businesses in South Australia of 5 per cent. It is a commendable target, but the figure for the last financial year reveals it achieved well short of this, with an actual growth rate of just 1.6 per cent. This is not at all surprising, given we have unfortunately had the lowest payroll tax threshold in Australia of almost every state and territory. Increasing our employment rate is certainly a priority for our new government, and a greater focus on ensuring the success of our small business is a vital part of that process.

In an effort to achieving and maintaining a low unemployment rate, this Liberal government recognises the need to address the barriers to the creation of job opportunities that we have experienced for far too many years under the previous government. Small to medium-sized businesses, which should be given the most incentive to prosper, particularly in SA given our heavy reliance on their success, have experienced the most strain under the current payroll tax system.

By relying on this specific stream of revenue for a quarter of its tax income, the previous state government has arguably prevented our state from reaching its economic potential. Fewer jobs inevitably leads to greater reliance on government handouts and consequently less money being injected back into our South Australian economy.

Undoubtedly, excessive payroll tax rates in South Australia have not only been a detriment for business owners to expand their operations but would have made entrepreneurs consider whether this encumbrance has been worth the risk of undertaking a new venture in South Australia at all. Our state government is now intent on creating an environment where both existing businesses can thrive and start-ups are attracted.

This is an issue that will contribute significantly to the growth and success of business enterprise in almost every industry and will be welcomed by many small business owners who I know and have spoken to personally since my election to this place over 12 years ago. Indeed, they have all, to some extent, expressed their frustration at the regulatory burdens that have hindered their businesses from flourishing, with payroll tax being a consistent point of contention often raised with me. In contrast to the former Labor government, this Liberal government will not be reliant on ever-increasing taxes and new levies to counter incessant spending. This government recognises that that is not sustainable, nor desirable or beneficial in the long term.

Being part of a fiscally conservative government sits well with me, and this is a government that has an innovative vision that spans beyond its current term in office. It will not be limiting its policies and actions to those that simply obtain short-term gain at the expense of South Australia's future economic vibrancy and competitiveness but will seek to fuel investment and stimulate growth at each opportunity.

The passage of this bill will enable the fulfilment of one of the Marshall Liberal government's most important election commitments to the business sector, and I look forward to its swift passage through this place in the best interests of all South Australians. I commend the bill to the council.

Debate adjourned on motion of Hon. E.S. Bourke.