Motions

Financial Hardship

The Hon. J.S. LEE (12:06): I move:

That this council—

1. Recognises the growing financial pressure on small and medium-sized businesses, due to compounding statutory costs including payroll tax and WorkCover insurance.

2. Notes that these costs are calculated on total payroll, including superannuation, and are significantly impacted by federally mandated wage increases such as those recently handed down by the Fair Work Commission.

3. Acknowledges that many small businesses are now facing substantial increases in weekly payroll costs, forcing difficult decisions around pricing, staffing, and service delivery.

4. Observes that the current payroll tax framework does not adequately account for the cumulative effect of national wage policy on small business operations.

5. Calls on the government to urgently review the state's payroll tax system, with a view to:

(a) raising the payroll tax threshold for small businesses;

(b) introducing temporary relief or exemptions during periods of mandated wage increases.

6. Affirms the need for a fairer, more responsive system that supports both decent wages for workers and the sustainability of small businesses across South Australia.

It was reported recently that more than 650 businesses became insolvent in South Australia last year. Of those, the hospitality sector was among the hardest hit, with 148 cafes, restaurants and takeaway services going into liquidation, administration or being restructured. In addition, in the construction industry 102 companies are facing the same scenario. Therefore, I rise today to speak on behalf of thousands of small and medium-sized businesses across South Australia that are doing it tough, not because they do not want to pay fair wages but because the system they operate in is no longer fair to them.

On 3 June 2025, the Fair Work Commission handed down its annual wage review decision. It awarded a 3.5 per cent increase in the national minimum wage and all modern wages, alongside a legislated 0.5 per cent increase to the superannuation guarantee. This decision will benefit around 2.6 million Australian workers, a long overdue real-wage increase after years of inflationary pressure.

It is a win for workers. I support the principle behind it and I support those increases. For small businesses, however, especially those in hospitality, retail, health care and community services, this increase is not just a wage adjustment, it is a trigger for a cascade of additional costs that many simply cannot afford or absorb.

Let me be clear: this is not just about a 3.5 per cent wage rise. Every dollar added to base wages also increases payroll tax at 4.95 per cent in South Australia; WorkCover insurance premiums of around 2.4 per cent; and superannuation contributions, currently 11.5 per cent, rising to 12 per cent from 1 July. These are statutory obligations, with tax and insurance calculated on total payroll, not just base wages. When wages go up, so too does the tax on those wages. It is a compounding effect that hits small businesses the hardest.

Let me share a real-world example. A small hospitality group operating two venues in Adelaide recently calculated the weekly impact of the wage and superannuation increases, incorporating the statutory obligations of payroll tax and WorkCover. One venue saw its weekly payroll rise by over $1,700, the other by more than $1,200. To maintain margins, they will need to raise the price of the standard pub schnitzel from $27.70 to $28.81.

This is not to increase profits or pad the till, just to stand still. But for this operator a latte will go from $5 to $5.20 and a pint of beer from $10.50 to $10.92. This may be seen as small increases, but they all add up, and in a cost-of-living crisis they risk driving their customers away or reducing the frequency of patronage to those venues.

This is not just a hospitality issue. According to recent reporting, the industries most affected by the wage increase are accommodation and food services, retail trade, the healthcare and social assistance services industry, and administrative and support services. These sectors are highly award dependent, meaning they are directly impacted by the Fair Work Commission's decision. They also tend to operate on thin margins, with limited capacity to pass on costs.

In health care and aged care, for example, providers are already grappling with workforce shortages and rising compliance costs. In retail, businesses are competing with online giants and struggling to maintain foot traffic. In every case the payroll tax burden is making a difficult situation worse.

I have been contacted by professionals who work closely with small businesses, including accountants, who have highlighted a critical flaw in the current payroll tax system. They have pointed out that two businesses with the same annual turnover can pay vastly different amounts in payroll tax simply because of the nature of their operations. Service-based businesses, which are inherently more labour intensive, carry higher payroll costs. As a result, they are taxed more heavily than capital intensive businesses even when their revenue is identical. This creates a structural disadvantage for industries like hospitality, health care and education, sectors that rely on people—the human capital—not machines to deliver value. Payroll tax is a tax on employment, and it penalises the very businesses that are doing the most to create local jobs in our state.

The Fair Work Commission's decision is a federal one—I acknowledge that—but the payroll tax system is within the control of this state government, and it is time we ask the question: is it fair to tax small businesses more every time they pay their staff more? Is it fair for the businesses doing the right thing—by paying award wages, contributing to super, insuring their workers, investing in their workers through training and providing job security—to be hit with a higher tax bill simply for being compliant?

It is not a new conversation that we are having in this chamber. In fact, concerns about the structure and impact of payroll tax have been raised in parliament for many years. According to the most recent budget papers, payroll tax revenue is projected to rise from an estimated $1.95 billion in 2024-25 to over $2 billion in 2025-26. That is more than $5.6 million a day in payroll tax collected from South Australian businesses.

Speeches delivered in this chamber in 2024 from both the crossbench and the opposition highlighted the lack of indexation in the payroll tax threshold. While the threshold was increased from $600,000 to $1.5 million under the previous government, it has remained unchanged for six years. During that time the minimum wage has risen by over 28 per cent and superannuation has increased from 9.5 per cent to 11.5 per cent, with a further rise to 12 per cent. This stagnation means more businesses are being dragged into paying payroll tax. It has a net effect each year. It is not because they are expanding but because the system is failing to keep pace with economic reality.

The voices of businesses are clear. The South Australian Business Chamber has collected testimonials from across the state. Some of the sentiments expressed include:

Payroll tax inhibits our ability to pay higher wages to low-income earners.

It is the single largest factor limiting our ability to invest, to employ, and to grow.

We are always just above the threshold—it's a constant penalty for success.

We are now looking to downsize just to avoid the tax.

These are not just isolated complaints. There is a chorus of concerns from every sector, from hospitality to health care and from mining to real estate. We have already seen this government acknowledge the unintended consequences of payroll tax policy, most notably in the case of general practitioners.

In 2024, following a controversial reinterpretation of payroll tax law stemming from a New South Wales tribunal decision, GP clinics across South Australia were suddenly deemed liable for payroll tax on payments made to doctors, even when those doctors were engaged as independent contractors. This change sent shockwaves through the healthcare sector. Clinics warned that they would be forced to pass the cost on to patients, threatening the viability of bulk-billing and putting further pressure on our already very stretched hospital system.

In response, the government rightly acted. It introduced a permanent payroll tax exemption for wages earned by GPs providing bulk-billed services. This was a welcome and necessary step, one that protected access to primary care and acknowledged the unique pressures facing medical practices, but it does not seem to have gone far enough. It also set a precedent.

If the government can recognise the disproportionate impact of payroll tax on one sector and act to mitigate it, then surely it can do the same for others, because the pressures facing GPs are not unique. Small businesses in hospitality, retail, aged care and community services are facing the same compounding costs, the same viability issues and the same risk of passing those costs on to the public.

The principle is the same: when a tax undermines the delivery of essential services or survival of small businesses, it must be reviewed. That is why I am calling on the government to urgently review South Australia's payroll tax framework with a view to raising the payroll tax threshold for small and medium-sized businesses and introducing temporary relief or exemptions during the period of mandated wage increases. This is not about cutting taxes on big corporations. It is about giving small businesses a fighting chance to stay afloat, keep people employed and continue contributing to our communities.

Let me be clear, I support people getting rewarded for the jobs that they are doing, I support fair pay, I support decent wages and I support superannuation and safe workplaces. However, I also support small businesses, and I believe we can have both: fair pay for workers and a fair system for employers, because when small businesses thrive, communities thrive, jobs are created, services are delivered, local economies grow, and all of them will add enormous benefits for a better and more resilient community. However, when small businesses are burdened by unfair taxes and taxed into the ground, everyone loses. The time for action is now.

The wage increases take effect from 1 July 2025. Businesses are already recalculating their rosters, their menus, their prices and, in some cases, their future, whether to stay open or shut the doors. We have heard in this chamber before that payroll tax is a tax on jobs. It applies regardless of whether a business makes a profit, breaks even or operates at a loss. It punishes employment and discourages growth.

Across South Australia, business owners, from cafes to clinics and from trades to tech, are telling us the same thing: payroll tax is the single biggest factor holding them back from hiring, investing and growing. They are not asking the government for handouts, they are asking for fairness, for a system that keeps pace with rising wages and superannuation and a system that does not penalise them for employing South Australians.

Let's not forget that taxes are usually used to discourage behaviour, not encourage it. We tax cigarettes to discourage smoking, we tax alcohol to reduce harm, but here we are taxing employment. This is a tax on jobs. It discourages employers from hiring more people or offering pay rises. It is fundamentally at odds with our goals for economic growth and for job creation.

That is why I brought forward this motion to call on the government to urgently review the state's payroll tax system and raise the payroll tax threshold for small businesses. While I believe a threshold of above $2 million would be a fair and reasonable benchmark, I welcome a broader conversation with my colleagues, with industry and stakeholders to determine the most effective path forward.

South Australia's current threshold of $1.5 million is no longer competitive. Queensland, New South Wales and the Northern Territory all offer higher thresholds, and Victoria also provides significant regional discounts. Raising our threshold to above $2 million will allow South Australia to lead the way to support small business growth and job creation.

Let's not wait until more doors are closed, more jobs are lost and more communities are left behind. Let's support small businesses with policies that work, and let's ensure that fair pay does not come at the cost of business survival. With those remarks, I commend the motion to the chamber.

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