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House of Assembly - Fifty-Second Parliament, First Session (52-1)
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PAYROLL TAX (NEXUS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 11 May 2010.)

The Hon. I.F. EVANS (Davenport) (15:41): I rise to speak to the Payroll Tax (Nexus) Amendment Bill 2010 on behalf of the opposition, indicating I am the lead speaker. The opposition will be supporting this measure in principle but with some questions. We do not intend to hold the house long on this bill but we do have a couple of questions for the Treasurer and whether he wishes to go into committee to take those will ultimately be a matter for him. I will put that to him later in the debate.

This is, on the surface of it, a simple bill. The state governments under the Rann government regime have adopted a policy of unifying the payroll tax legislation nationwide. There is an agreement of all the states to do that. This bill is a very minor issue that we are dealing with in relation to changing the legislation.

The opposition had a briefing from the government officials, and we thank them for that. According to that government briefing, the government consulted no-one about the bill.

The Hon. A. Koutsantonis: Other than you.

The Hon. I.F. EVANS: Other than us.

The Hon. A. Koutsantonis interjecting:

The Hon. I.F. EVANS: The Ministry for Industry and Trade interjects. I cannot understand, given that he represents trade and industry associations, why he makes light of the fact that the government thought so little of those organisations not to consult them. However the state opposition has consulted with those industry and trade associations because we do value their input. And so we did—

The Hon. A. Koutsantonis: You and Martin are working closely together, are you?

The Hon. I.F. EVANS: Yes, we are, actually. I will put that on the record. The Minister for Industry and Trade asks whether the member for Waite and I are working closely together. In actual fact, the member for Waite, with my support and that of the party, will move some amendments to the land tax bill, and I suspect that even the Minister for Industry and Trade will support them. We will see.

Going back to the topic, which is the Payroll Tax (Nexus) Amendment Bill, I was making the point that this government is so ambivalent to the view of business that it did not consult anyone, not a single organisation. So, we took it upon ourselves to write to the industry associations and we heard back from the Motor Trade Association which suggested that it does not have a problem with the bill, but the Master Builders Association is opposed to the bill, mainly because of its retrospective nature.

The impact of this bill commences on 1 July 2009. Given that this is May 2010, we are going to retrospectively apply these new provisions from 10 months ago. The Master Builders Association make the point that that is going to be a cumbersome burden and a red tape burden on those industry sectors in relation to having to retrospectively apply this legislation.

We put that very point to the government officers during the briefing: their answer was that there was an electronic bulletin on the RevenueSA website that referred to this, as from, basically, 1 July of last year, and an alert employer would have picked it up and therefore would be prepared to deal with this particular piece of legislation.

I know that when I was in business I used to always rush to the RevenueSA website to see what bulletins I should be reading to make sure that I was across the latest change to whatever legislation they were referring to. I suspect that the retrospective nature of it will not be a significant burden—I hope it is not. The reality is that across Australia, with the harmonisation of the law, all states are commencing it on 1 July.

I do think it is an example of this government's laziness that it had July, August, September, October and November to bring this piece of legislation in, and did not. Then we are caught in the circumstance that 10 months later we are now dealing with a piece of legislation that it wants to start from 1 July. So, no consultation and retrospective nature.

What actually is the change that they are proposing? The change they are proposing is not a huge change. In fact, when we asked for a live example of where it had caused the state a problem, as in not collecting revenue, the officers could give us just one example—it only occurred once. So, we are legislating here today, retrospectively, to change legislation to fix a problem that we are advised has occurred once. It may well be a sledgehammer to crack a nut, but we are dealing with the legislation.

Business SA is the other organisation that the opposition consulted with. Business SA recognised the retrospective nature of the legislation, but they argue that the harmonisation of the law principle is more important than any concerns about the retrospective nature or the extra bureaucracy for business involved in this particular legislation.

What does the change entail? The change entails changing the definition as to where payroll tax is paid. Currently, we are advised, payroll tax is paid in the jurisdiction where the employee has their bank account. They are now going to change it to where the employee resides; their normal place of residence.

Apparently, RevenueSA is concerned that employers may be forum shopping and encouraging their employees to put their bank accounts into the jurisdiction that has the lowest payroll tax regime and paying the payroll tax there rather than in South Australia.

Mr Marshall: It wouldn't be here.

The Hon. I.F. EVANS: It wouldn't be here because payroll tax is not that attractive in South Australia. The reality is that when we asked, 'Could you give us an example of that?', they could give us but one example. So, we are legislating on the basis that there has been one example of this and the fact that they want to go to harmonisation of the law.

The issue is that Australia-wide they are going to a system to stop forum shopping so that the jurisdiction where the payroll tax would be paid is the jurisdiction where the employee normally resides. If there is an issue about establishing where the employee normally resides, they are then going to use a fallback provision about the jurisdiction in which the ABN is registered. So, there is a fallback provision.

We raise the issue about the extra cost to business and whether businesses will have to use the system as from 1 July or commence at a later date. We were told that businesses have been given the opportunity to use either the old or the new system and will be required to comply with the changes from the start of the 2010 financial year, but they will be encouraged to work with them as from 1 July. So I think RevenueSA has recognised there is a problem with trying to go back 10 months, given that we are only two months away from the start of a new financial year.

I do have one question on this bill that the Treasurer may wish to answer, which is in relation to the definitions of wages paid. In the briefing there was no mention of the changes of the definition of wages paid. If anyone has ever read the Payroll Tax Act and looked at clause 11 about the definitions of wages paid—

The Hon. K.O. Foley: It is one of my favourite clauses.

The Hon. I.F. EVANS: It is one of the Treasurer's favourite clauses—it is a very complex clause to try and establish on what basis wages are used to calculate payroll tax. For some reason in this bill that clause has been reworded. There was nothing in the briefing about why they have done that. I am no lawyer, but to the best of my reading I cannot really see a difference between the old clause and the reworded new clause.

If the Treasurer cannot confirm for me today that there is no change to the definitions in this bill of wages for which payroll tax will be paid, I would seek a written confirmation between the houses so that we can clarify that on the record for the house. I suspect there is no change, but I cannot work out why that clause has been reworded if it is not to introduce some change. Other than that question, Madam Deputy Speaker, the opposition generally supports the bill.

The DEPUTY SPEAKER: Thank you. Member for Davenport, I have only just got a copy of it in front of me. Which clause were you referring to?

The Hon. I.F. EVANS: It is clause 5, which amends section 11 of the act.

The DEPUTY SPEAKER: Yes. Would that be substitutions of section 10 and 11?

The Hon. I.F. EVANS: Yes.

Mr PEDERICK (Hammond) (15:53): I rise to support this bill. I think there will be some problems with some of the administration of it, but I want to reflect on the rate of state taxes briefly in this state and that, under the Rann Labor government, South Australia is the highest taxed state in the nation. This has been confirmed by two independent reports: the Commonwealth Grants Commission and the Institute of Public Affairs.

Tax revenue has increased by 66 per cent since this government came to office, and one example is payroll tax, which in 2001-02 brought in $601 million and in 2009-10 brought in $903 million, an increase of 50 per cent.

In regard to the Payroll Tax (Nexus) Amendment Bill 2010, the amendments aim to close a loophole in the current payroll tax legislation so that, where taxes are paid to workers who provide their services in more than one state or territory in a month, payroll tax is paid to the jurisdiction of the employee's principal place of residence and not the jurisdiction where the bank account is located, as is currently the practice. We are told that this prevents employers from directing their employees to situate their bank accounts for the payment of wages in a state or territory that has a lower rate of payroll tax.

I just wonder what level of administration this will put on businesses, especially in mining, which are already under stress from the prospect of a super tax. In particular, there are many areas in South Australia—whether it be Prominent Hill, the Moomba gas fields, the Cooper Basin (which goes across the state border between Queensland and South Australia) or mining developments throughout the state—where people fly in and out or go into other states such as Western Australia. In these areas, quite a few people are on rosters of either three weeks on/three weeks off or four weeks on/four weeks off, and they can come from anywhere in the country.

While businesses were notified of these changes last year, it is interesting to note that consultation did not take place and, as the shadow minister (the member for Davenport) indicated, the government could only provide one current example where those changes would apply. The government has admitted that it has based the concept on anecdotal evidence only.

These changes have been agreed by all states and territories as part of the national payroll tax harmonisation process with only South Australia and Western Australia yet to formally adopt them. It is hoped that these amendments will not have any impact on compliance costs for business or greatly increase revenue to the state; however, they will apply retrospectively from 1 July 2009.

Businesses have been given the opportunity to use either the old or the new system and will be required to comply with the changes from the start of the 2010-11 financial year. Businesses with employees working in more than one jurisdiction that are still operating under the old system will have to make the changes in their payroll tax for this financial year at the time of the annual reconciliation.

I note that the Liberal Party supports the bill, but I hope that, when businesses have to adjust their paperwork, it does not become a burden working out the place of residence of everyone who works in their business.

Mr PISONI (Unley) (15:58): I understand that we are not planning to go into committee, but I have a question that I hope the Treasurer might be able to answer in his reply. Currently, we have a number of projects in South Australia where we have a lot of interstate contractors. The tram is a classic example. In relation to the desal plant, we know that there are a number of workers who reside in Victoria but are here for two or three month stints. The northern expressway and, I suppose, the new superway may very well see interstate workers, who reside in other states, coming into South Australia.

South Australian taxpayers' money is being spent on these programs. There is obviously federal money as well, but it is there for the benefit of South Australia. It appears to me that, as a result of these amendments, Victoria, New South Wales or Western Australia will be the beneficiary of the payroll tax that is collected for those workers who are working on South Australian programs in South Australia. We have heard a number of South Australian companies and members of the Civil Contractors Federation saying how difficult it is to win contracts in South Australia.

I had a discussion with Rod Hook at a Public Works Committee hearing about that situation. His explanation—and I am paraphrasing here—was that, for things such as the tram, the expertise was not here in South Australia, and that, consequently, they had to go to a Victorian company with Victorian workers in order to bring that project in. I then asked him whether that means that it is the end of the tram once the tram extension happens. Surely, if a new tramway was part of the program of the government you would then think it would be in the interest of South Australia to train up South Australian companies, to give them the ability to work on the tram extension.

I am just using the tram extension as an example. They may work in conjunction with the Victorian companies. You might break the contract down, therefore requiring more than one tenderer for different sections, so that those skills could be developed in South Australia for South Australians. We are told that we will be seeing further expansion of the tram line. I would certainly like to see more South Australians employed when the government spends this amount of money, that money is spent on South Australians. Then, of course, there is the added benefit that those contractors will be paying their payroll tax in South Australia and not in Victoria because their workers technically reside in Victoria.

I am wondering whether the Treasurer might be able to explain just how it is determined. Is it where they are on the electoral roll? Are they deemed as living in South Australia if they are here for more than a month, if they fly or drive back on weekends, if they are on for three weeks and back home for a week? I would be very interested to hear the intention of the legislation in that instance and if that will have any impact on the payroll tax collection in South Australia, or if that may in fact be an added incentive for the government to choose South Australian companies when it is spending this money on infrastructure in South Australia.

Mr MARSHALL (Norwood) (16:03): I rise to speak on the Payroll Tax (Nexus) Amendment Bill 2010. I note that we as the opposition will be supporting this bill. The proposed amendments aim to close a loophole in the current payroll tax legislation, so that when wages are paid to workers, who provide their services in more than one state or territory in a month, payroll tax is paid to that state of the employee's principal place of residence and not the state where the bank account is located, as is currently the practice. This is a fairly minor amendment, and, although we support it, I suppose I raise my disappointment that the amendments which are proposed could not be more substantive.

Earlier, the shadow treasurer, the member for Davenport, talked about the very high level of state tax in South Australia, and the member for Hammond also talked about the Commonwealth Grants Commission analysis, which showed that we have the highest rate of state taxes in the country. This is very disappointing. In payroll tax in particular, we have had a massive increase of 52 per cent in the life of this government, payroll tax revenue increasing from $601 million in 2001-02 to more than $915 million in 2009-10.

There are two main issues, of course, with the levying of payroll tax. First of all, there is the rate, and the second issue is the threshold, and it is this second issue which I would like to deal with here today in my speech. The threshold is a massive disincentive for business, particularly the small and family business sector, in South Australia. I represent the people of Norwood, and there are many small and family businesses in this area, and many of them fall victim to the very low threshold for payroll tax payments in South Australia. Our threshold is $600,000. This is the lowest in the country: many other states are as high as $1 million. So, small businesses and family businesses in those states do not pay any payroll tax until their wages bill hits $1 million.

As I said, there are many small and family businesses in Norwood that have raised this issue with me. I have much sympathy for that, having previously been a member of a family business paying this tax. It is a tax on businesses, but it is more than that: it is ultimately a cost to employees, because it is a disincentive for their business to be employing them, and ultimately it is a cost to all consumers. So, whilst we support this amendment bill, we call upon the government to think more substantially about the guts issues related to payroll tax and, most importantly, the threshold being the lowest in the country.

Ms SANDERSON (Adelaide) (16:06): I support the payroll tax amendment bill of 2010. As mentioned by the member for Morialta in his address in reply, payroll tax was a wartime measure to free up potential workers for national service. We need to wean ourselves off this ridiculous tax that is simply a tax on jobs. Businesses are leaving our state and taking with them the jobs and opportunities for South Australia.

In the 2008-09 year, 26,300 people left the state (half were between the ages of 20 and 39 years) due to a lack of opportunities for jobs and work in this state. I implore the government to act swiftly to reduce both the rate of the payroll tax and the threshold before we lose more jobs and businesses from this state. At the moment, as mentioned, the $600,000 threshold is the lowest in the nation. This needs to be brought into line with the other states so that we can compete and keep South Australians in South Australia and in jobs.

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Federal/State Relations, Minister for Defence Industries) (16:07): I will say a few words in an attempt to answer some of the issues raised and anything that members of the opposition are not satisfied with, particularly the member for Unley, because there are multiple elements to this that I will need to reflect on.

I will start with the members for Adelaide and Norwood. I acknowledge their passionate contribution. I do not know whether they are now announcing Liberal Party policy. I did not hear the lead speaker, my good colleague and friend the shadow treasurer. We are of the same alma mater; we came into this place at the same time. Am I getting old?

The Hon. I.F. Evans: Yes, so am I.

The Hon. K.O. FOLEY: I am not sure whether the members for Adelaide and Norwood have articulated what the Liberal Party tax policy now is; it is a cut in the headline rate and an increase in the threshold. I will give them the benefit of the doubt and pass some advice that they might want to check with their shadow spokesperson.

The member for Adelaide is correct that payroll tax was a wartime measure. We won the war, but we did not see the tax go. The issue of payroll tax is a vexed one. It is one that many employers and members of parliament have issue with. The reality is that it is a significant tax and our single largest tax revenue source. I think I am right in saying that: it is our single largest tax revenue source, as I look to the advisers with me today. It depends whether you—

The Hon. I.F. Evans: GST.

The Hon. K.O. FOLEY: Well, GST aside.

The Hon. I.F. Evans interjecting:

The Hon. K.O. FOLEY: Yes; the biggest own-source revenue—one of the few taxes we have left that we actually levy ourselves. Since coming to office, the member for Norwood says, we now raise 52 per cent more. That may well be correct, but that is not because of an increase in rate: it is because of the growth in the number of people employed in South Australia.

Mr Marshall: It's still too high. It's a disincentive to employment.

The Hon. K.O. FOLEY: Well, it has not been a disincentive for employers in the state. It is quite the opposite. We have seen substantial—

Mr Marshall: We are growing a lot slower than any other state.

The Hon. K.O. FOLEY: Member for Norwood, there is no media in the gallery. I would much prefer this to be a more congenial exercise, but if you want to—

Mr Marshall: You are singling me out.

The Hon. K.O. FOLEY: I am responding to the contributions you made. That is what you do in the second reading speech. Interjections are out of order. The payroll tax increase has not been because of an increase in the rate but because of the significant jobs growth under this government. In fact, since coming to office, we have substantially reduced the burden of payroll tax. The member for Norwood shakes his head. He has been in this chamber for a minute and he is an expert. We have reduced—

Members interjecting:

The SPEAKER: Order! Let the Deputy Premier conclude his remarks.

The Hon. K.O. FOLEY: —the rate of payroll tax considerably since coming to office, and we have brought (up until the last Victorian budget) our rate of payroll tax equivalent to that of Victoria; and I think that we are also equivalent with Victoria on threshold. Our main competitor base, in terms of like-for-like industry, certainly historically, has been the manufacturing state of Victoria. I accept that workforce profiles are now changing, but we have always felt in our government that we had to remain competitive at least with Victoria. So, we have brought our rates and thresholds into line with Victoria, and you cannot say that our companies are disadvantaged in relation to Victoria.

At my last look, although I do not have the scales in front of me, we have a lower land tax percentage than New South Wales, but I do think that it may have a larger threshold. I think our rate is close to if not lower than Western Australia, from memory; certainly not as low as Queensland. But the threshold issue is also a factor, I guess, over time, of the make-up of wages in terms of the size of the businesses that we may have operating.

The truth is, as Ken Henry pointed out, that what we do in all these taxes is to shift the base, and this government is not going to change that. The reality is that the narrower you make the base of taxation the higher the burden on those who are left to pay. Whilst it is intrinsically an attractive option to lift the base, we should bear in mind that we are narrowing the base and placing a burden on a smaller number of employers than otherwise may be the case.

The truth of the matter is that we are not going to abolish it and the Liberals are not going to abolish it (state Liberals at least), and we will continue wherever possible to keep our rates competitive. We cannot allow a gap to open up substantially, particularly with Victoria. Whilst it is obviously an attractive thing on which to speculate—how good would it be if we could get rid of payroll tax—the truth of the matter is that we can't and we won't, because we can't afford it.

To take $600 million plus, or whatever the number is, out of our own source revenue, the ramifications would be horrendous in terms of the delivery of government services. The Henry review has looked at this and, from memory, the Henry review is of the view that, in fact, what you should do is lower the rate and broaden the base. You put a payroll tax on everyone and you bring the rate down. The larger employers will lose a significant impost on their business and perhaps would be in a position to reinvest that in more labour.

I do not think that the opposition will be advocating—we certainly will not be—that we broaden the base. That is pretty obvious. I would just caution the members for Norwood and Adelaide that, in the absence of another form of revenue, it is incredibly difficult to identify how you can replace that tax.

Ms Sanderson: The GST was brought in to replace payroll tax.

The Hon. K.O. FOLEY: No, it was not. Now, the member for Adelaide, and I will be kind, the GST was not brought in to—

Mr Pisoni interjecting:

The SPEAKER: Order!

The Hon. K.O. FOLEY: The GST was not brought in to replace payroll tax. It was never the case. John Hewson's GST, back in the unlosable election in 1993, was 15 per cent. The 15 per cent GST on food, I think, from memory, identified the abolition of payroll tax. What John Howard and Peter Costello delivered, and finally in compromise with the Australian Democrats in the Senate, was a GST at 10 per cent and not on food.

Mr Pisoni: You missed the bit where Labor opposed it.

The Hon. K.O. FOLEY: Come on; can you just—

Mr Pisoni: Tell the whole history.

The SPEAKER: Order!

The Hon. K.O. FOLEY: I am not trying to make a point, I am just—

Mr Pisoni: It's all in Hansard. It's a great way for students to study and then they know the opposite is true, Kevin.

The Hon. K.O. FOLEY: You are a horrible person. I think the member for Adelaide is not uncomfortable with my saying this. What happened in the Howard election when the GST was put in place was that a range of taxes would be abolished and all state treasurers—and at the time I think it was treasurer Lucas—signed off on that. They were the BAD tax (which I think is a hoot of a name for a tax) and the debits tax. There was a whole lot of—

Mr Marshall interjecting:

The Hon. K.O. FOLEY: FID. There were many transactional taxes—

Mr Pisoni: Stamp duty on state cheques.

The Hon. K.O. FOLEY: —on leases, marketable securities and, as the member for Unley constructively puts this time, on stamp duties on mortgages, etc. The last tax that we have not followed through—and all states broke the agreement—is stamp duty taxes on commercial property. The problem is that much of this has been twisted over the years at the expense of the states with the Property Council, or builders at least, saying that stamp duty was to be taken off the family home or house transactions. That was never going to happen. That was never on the IGA report. It was commercial properties, but we pulled up at that because we could not afford it, we needed the revenue.

Payroll tax was never part of Howard's GST. We have this big tax there: it is a vital part of state revenue. If you cut it, you have to identify an offsetting saving. In a perfect world, I would love to be rid of payroll tax, provided I had an acceptable replacement—and we cannot think of one and my guess is that neither will your side.

Mr Marshall interjecting:

The SPEAKER: Order! The minister is speaking. It is not a question from the opposition.

The Hon. K.O. FOLEY: I think the member for Norwood will find the resource tax is being put back in to a cut in company tax or a contribution to low income earner superannuation, from memory, and to an infrastructure fund. So, that is not going to work either. At the end of the day, we have the payroll tax system that we have. I should admit that we are bringing in yet another payroll tax cut in this budget (which is part of the election commitments) to provide full rebates for trainees at a cost of some $25 million. So, there will be a $25 million per annum cut.

The Hon. I.F. Evans: That was our policy.

The Hon. K.O. FOLEY: We are in government. It was our policy and we will be implementing it, and that will be a further reduction in the burden on employers in this state. On the issue that the shadow minister raised, I am advised, on advice, that there is no change to the definition of what wages paid are and that we are now, I assume, getting national consistency in how we describe that in legislation. In relation to the issues raised by the member for Unley in respect of payroll tax paid by contractors from another state working in South Australia, my advice is they pay payroll tax here in the jurisdiction, unless they are working across jurisdictions on a particular project. However, as I said, to benefit the member for Unley, I will have my staff go through his question and identify what else we need to answer.

I would like to comment briefly on this aspect. I am not critical—and the member for Unley may want to have a stoush over this—and this is not meant to be inflammatory, it is just my view on the issue of companies obtaining work in South Australia. I think he makes a very good point about skilling our people in this state in ways in which they are better placed to get contracts as they come along, and that is why we have vehicles within government such as the industrial supplies office—that is the old name but what its new name is escapes me. Its whole reason for being is to identify work packages and companies that have the skill sets to bid for those contracts.

However, at the end of the day, we are a signatory to the national preference agreement and that means that we do not favour local contractors—and we have never done that. Our government has never done it—and I am not aware of the last Liberal government doing it—except in some selected programs. I am sure there are some examples where this has not been followed for various reasons, but the policy strength for the non-preference agreement means that you keep your local companies competitive.

First, if you shut the borders and simply say, 'We will only have the South Australian contractors bid', you are bringing in a degree of protection which may mean that companies will not be as competitive as they need to be. Secondly, we are a very small state and most companies in the fields of contracting to government in construction, etc., work on a national basis, and if we start closing our borders to international firms, if that retaliatory action occurs in other states, then it will greatly disadvantage our companies' abilities to access contracts.

I will give you an example. One of the great builders of South Australia under an outstanding CEO in Peter Kennedy is Hansen Yuncken. It is a household name in South Australia as a major builder and it has built most of our hospitals in this state. If we simply said, 'Well, Hansen Yuncken could have every project in South Australia' and maybe we would only let Built Environs or someone else tender, two things would happen. My guess is, first, the state would not get the most competitive price flowing back to taxpayers; and, secondly, Hansen Yuncken, whose order book is probably larger in New South Wales and Queensland than what it is in South Australia would be shut out of those projects, stopping a company like that from growing through contracts interstate.

I have always been a strong believer in the national preference agreement and I think it is good for our business. However, I will peruse the Hansard contributions and any answers that are required that have not been given, I will provide as soon as practicable.

Bill read a second time and taken through its remaining stages.

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