Legislative Council: Wednesday, February 07, 2024



Payroll Tax

The Hon. C. BONAROS (16:03): I move:

1. That a select committee of the Legislative Council be established to inquire into and report on matters concerning payroll tax in South Australia, with particular reference to:

(a) the effectiveness of the current payroll tax system in promoting economic growth and job creation and its alignment with the overall economic goals of the state;

(b) evaluation of the payroll tax threshold and rates, including consideration of an annual review;

(c) incentives to promote regional employment and investment;

(d) opportunities for industry-specific incentives to support the growth and sustainability of key sectors;

(e) the impact of recent payroll tax decisions on independent general practitioners and the general practice sector, including the exacerbation of workforce challenges and reduced access to health care;

(f) the effect of grouping provisions on independently operated but co-branded businesses across various industry sectors;

(g) retrospective payroll tax liability determinations;

(h) compliance challenges faced by businesses;

(i) payroll tax systems in other jurisdictions to identify best practices and potential areas for reform and alignment;

(j) any other related matters.

2. That this council permits the select committee to authorise the disclosure or publication, as it sees fit, of any evidence or documents presented to the committee prior to such evidence being presented to the council.

I am moving for consideration of a select committee of the Legislative Council to establish and inquire into matters concerning payroll tax in South Australia. The proposed inquiry underscores SA-Best's commitment to advocating for a fair and conducive business environment in South Australia but, more than that, it is something that I think absolutely every business and business association, business advocacy group, in the state wants to see happen.

In 2022-23, the state government collected an additional $101 million in payroll tax revenue from businesses in South Australia. If we are going to talk about windfall gains, in total we collected $1.7 billion in payroll tax. That is about $5 million a day that the government is collecting in payroll tax from businesses across the state.

The Premier has previously referred to payroll tax as a tax on jobs, and he has been absolutely right in doing so. It is a tax on jobs that is delivering his government almost $5 million a day, and let's not forget when we consider those jaw-dropping figures that a business is liable for payroll tax regardless of whether they have made a profit in the year, regardless of whether they have just broken even, and regardless of whether they have made losses. It is extraordinary that a business could be operating at a loss and still be lumped with a huge payroll tax bill.

We know, as a result of these windfall gains, it has become a cash cow for the government. That is the bottom line. It is a revenue stream that they have resisted changing and resisted reviewing because they are reliant on the income that it is generating and could not have foreseen, did not foresee in fact, those extra gains that would be made as a result.

The purpose of the committee is to examine the effectiveness of the current payroll tax system in fostering economic growth and job creation in line, of course, with the overarching economic objectives of the state, something that we know the Premier at the moment has us believe is a top priority for his government.

As I said, payroll tax has been described by the Premier himself in the past as a tax on jobs. In conversations with business owners and industry groups, issues have surfaced concerning all manner of issues around payroll tax, including grouping provisions, retrospective liability rulings and compliance hurdles, and they are things that this committee ought to delve into.

I have tried really hard to turn my mind to this, but I cannot think of any other space where we allow retrospective determinations to be made outside of any legislative scrutiny that would enable the Commissioner of State Taxation to make a determination and apply it to a group within the business world retrospectively. That is precisely what happens in this space, but I cannot think of one other instance where we would allow legislation that would enable someone to make that sort of unilateral decision that then applies to businesses across the state.

We have heard from the medical profession on this front, who are facing the prospect of grouping for payroll tax purposes, and we know that it is not limited to that profession either. We know that there are a number of other businesses in the state that the government has its eyes set on as a result of that determination who will also bear the brunt of being grouped, potentially, and seeing their payroll tax liabilities skyrocket.

I will give credit where credit is due. The Marshall Liberal government, prior to the last election that they won, had a commitment to increase the threshold that applies for payroll tax from $600,000 to $1.5 million, and they did do that, and that came as some relief for businesses at the time.

But costs have skyrocketed since. We have not had any changes in the last six years. The payroll tax rate of 4.95 per cent has been in place since 2009. Wages have escalated significantly, and in that time we have not seen the threshold move, so that has been constant for five years. Since 2019, the minimum wage has gone up 18.2 per cent via five annual increases. Nobody is arguing about the increase in minimum wage, but of course businesses are looking at those five annual increases and the impact it is having on their payroll tax debt and how they are going to keep a lid on their payroll tax liability. Inevitably, the only way to do that is to simply not hire more people.

In 2019, the superannuation rate was 9.5 per cent. After staged rises it is now 11 per cent and due to reach 12 per cent from 1 July next year. Business owners cannot expand their workforces or offer salary increases because of those thresholds. Yes, it is great that we increased it, and that comes with some catches, obviously, depending on where you fall on those thresholds, but there is absolutely no question, none whatsoever, that payroll tax is the single biggest factor holding businesses back from employing more people and expanding their business operations. It is doing nothing to secure business confidence in this state, and something has to give.

Business SA has collated many of the quotes from it's members in recent times. I do not think members ought to listen to what I have to say about payroll tax, but it is worth hearing some of those quotes, quotes like:

Payroll tax inhibits our business to provide a higher hourly rate to our low wage earners.

It is the single largest factor which will decrease our employment, investment into our business and staff and turnover as we plan to downsize in an attempt to return to profit.

This will make us vulnerable long term to our competitors, meaning that we lose our depth of skill and must decrease the services provided.

However, if we do not do this we will not survive the market long enough to see the long term effects.

Others say:

Get rid of it!

It's a terrible tax that discourages businesses from employing local South Australians.

Combined with all the other difficulties that employers have to contend with post COVID.

Employing Australian workers is only becoming harder and more expensive forcing [small-to-medium-sized businesses] to shift to exploring alternatives.

We have quotes like:

Our business is always 'just above the threshold'.

Strongly support the discount for regional SA—it will encourage regional business to recruit higher skilled staff.

We have quotes from electricity, gas, water and waste services that say:

There hasn't really been anything too positive.

Revenue has stagnated, employment costs have increased, taxes have increased, employee availability is low, profitability hit the wall when we qualified for payroll tax.

But due to a massive skills shortage and wage increases we have a disproportionate wage bill to revenue and only that qualified us for the tax, irrespective of profitability.

People in the mining sector, with 20 to 49 employees are saying:

Payroll tax is now the equivalent of 1.5 people in our business.

Not only are we now not employing more people we are looking to downsize our business because of payroll tax.

Rental, hiring and real estate services, 20 to 49 employees, say:

Payroll Tax restricts your enthusiasm for expanding your business as you are penalised for employing more people.

Wages are increasing but the threshold does not and has only marginally increased.

People in wholesale trade say:

My industry would benefit from a change in payroll tax so we can keep growing our businesses instead of capping our staff capacity.

That is what is ultimately happening as a result of payroll tax. We are not providing or not expanding our jobs. People are having to stop employing people because they simply cannot afford the payroll tax liability that will come with employing extra staff members. That does nothing to boost economic growth, it does nothing to boost business confidence, and it absolutely does nothing to boost employment in this state. Again, we have people in the rental, hiring and real estate services saying that a concession to decrease or remove payroll tax for regional businesses already incurring large costs would be terrific.

I do not think it matters what size the business is, but across the board if you walked out onto the street now and asked any business owner what the single biggest issue confronting them as a business is, hands down they will tell you that it is payroll tax. It is not just because they are thinking of payroll tax in isolation, even though it is a tax on wages and inevitably a tax on jobs, it is the multilayered effect that those businesses are confronted with.

It is not just payroll tax that they are dealing with. They are dealing with bureaucratic red tape in other areas as well. They are probably dealing with regulatory requirements and all manner of requirements, depending on the industry that they are in, but this is the one that hits their hip pocket the most. There is only so much in today's market that these businesses can take, and something absolutely has to give.

The government never anticipated reaping the rewards that it has reaped from payroll tax, and it is only warranted that they now reconsider some of the provisions of our regulatory framework around payroll tax. There are other states that are doing that. They are leveraging targeted measures to bolster regional employment and investment. Regional Victoria offers a 50 per cent discount in payroll tax. So if you are operating a business in regional Victoria, compared with regional South Australia—even though the rate is not that different—you are getting a 50 per cent discount on your payroll tax bill. That is a huge leg-up for those businesses in Victoria.

If I were living on the border of South Australia and Victoria and I had to set up a business, I could tell you where I would not be setting it up. I certainly would not be setting it up on this side of the border, because a 50 per cent reduction in payroll tax can be the difference between a business keeping their doors open or keeping them closed.

An integral part of the inquiry that I am proposing will be exploring how incentives like the one that has been implemented in Victoria could serve as a catalyst to stimulate regional investment and employment. As I said, that is something that has already been deployed across the border in Victoria and, indeed, up in Queensland. It is a strategy that needs and warrants serious consideration if we are to remain competitive while ensuring business services in our regions.

As I said, the rate in Victoria is not that different: it is 4.85 per cent, but in their regions the rate is 2.02 per cent and 1.2125 per cent for bushfire-affected regional businesses, which is another concession that they have applied in Victoria. The principal place of business must be regional and 85 per cent of wages paid to regional staff. Queensland has the same criteria for a 1 per cent discount.

Business SA is advocating for a 50 per cent discount for regional businesses. I am sure everybody in this place is familiar with that advocacy, and I commend Business SA for doing that. It is the sort of option that this government ought to be considering. It has been proven to work in other jurisdictions: the sky has not fallen in, revenue has not plummeted and they have still been able to maintain their profits and their revenue base for government. But, like I said, it has provided a difference to businesses, namely, of keeping their doors open or shutting them for good. So it is an option that deserves to be fleshed out here in South Australia.

It may also have a real impact on decisions made, like I said, in cross-border communities, such as in a community like Mount Gambier, for instance, where you could pay three times more payroll tax than a competitor who is operating 20 kilometres over the Victorian border.

The committee will also contemplate incentives to bolster key sectors within the South Australian economy. I should say that these terms of reference have been the subject of consultation with advocacy groups. We have not plucked them out of thin air. We have gone to those groups and asked them, 'What would you like to see if there were to be an inquiry?' They are made up from the feedback we have received from industry groups and advocacy groups.

One might be the health sector, for example, because as I said previously, of significant concern is the inclusion of independent general practitioners and the general practice sector within the purview of payroll tax following recent interstate rulings that determined that contractors in medical practices can be considered employees for payroll tax purposes retrospectively. It is threatening to exacerbate workforce challenges and impede access to health care.

Why on earth we would be considering this in the middle of a health and ramping crisis is absolutely beyond me. Why on earth we are considering this in the face of record low numbers of GPs working in South Australia and a GP shortage across the state is absolutely beyond me, because what we know is that the last thing we need is a reduction in the number of GPs. The last thing we need is any measure that will further impact the health crisis and the ramping crisis in this state.

The establishment of the committee will be a valuable opportunity to draw insights from those other jurisdictions, from Victoria, from Queensland, to look at what they are doing in New South Wales, to look at what they are doing across the country and best identify practices and potential avenues for reform and alignment. The prevailing sentiment from businesses is crystal clear: the existing payroll tax framework is impeding job growth and investment; in fact, it is doing more than just impeding job growth and investment, it is absolutely crippling it.

There has been crickets from this government in terms of offering those businesses any form of relief. Like I said, I talk to businesses every single day of the week, just like everyone else in here does, and the number one issue that is raised with me on each and every occasion is: 'When are you going to do something about payroll tax? We can't afford to hire new people. We can't afford our payroll tax liability. What is going to be done to alleviate that pressure for businesses?'

Like I said, to date, despite spruiking economic growth, employment opportunities and investment in this state, despite spruiking all of those messages, the message from this government to those businesses has been absolute crickets. They are the same economic drivers this government is telling us it is committed to strengthening, but when you speak to businesses on the ground, when you speak to those groups, it is very clear that that is absolutely at odds with the experience of those businesses.

Nobody in here needs to take my word for that because it is printed for us all to see in black and white in those budget papers. The average increase that is anticipated by the government for payroll tax over the next four years is 5.2 per cent. That will take us over the $1.9 billion mark when it comes to payroll tax. That is tax. We are charging businesses for employing people—nothing else. If you offer somebody a job and you go over the threshold, you start paying payroll tax. You get the luxury of the government taxing you for that to the point where it becomes unaffordable and those businesses stop investing in this state.

That is not a good outcome for the South Australian economy, and I am urging the government to give serious consideration to listening to those business groups, to business associations and, indeed, to individual businesses.

A lot of these businesses are mum-and-dad businesses across the state as well and they do an extraordinary job offering jobs to South Australians. We want them to keep their doors open, we want them to have confidence in the businesses they are running, we want to see them grow and we want them to invest in South Australia—all of the things that the Malinauskas Labor government spruiks, absolutely every one of them. We want those businesses to do that, but we need to provide them with the ability to be able to do so and right now the number one thing standing in their way of doing that is payroll tax.

I think the establishment of this committee will provide a really important opportunity for all members in this place to understand the true extent of payroll tax on businesses. I know that this is something the opposition has spent some time working on as well and I do acknowledge that and I hope they will be supportive of the establishment of the inquiry, but I really urge the government to come on board and have a real conversation with the businesses and business groups of South Australia about the impacts of payroll tax on their businesses and on the South Australian economy as a whole and on investment in this state.

With those words, I commend the motion to honourable members in this chamber.

Debate adjourned on motion of Hon. I.K. Hunter.