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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2009-05-12 Daily Xml
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PAYROLL TAX BILL

Second Reading

Adjourned debate on second reading.

(Continued from 28 April 2009. Page 2027.)

The Hon. D.W. RIDGWAY (Leader of the Opposition) (16:29): I rise on behalf of the opposition to indicate that we will be supporting this bill. In fact, it has arrived from the other place where the member for Goyder (Mr Steven Griffiths), our shadow minister for finance, was the lead speaker, so I will not make a long contribution other than to reiterate some of the important points that he made.

This bill follows an agreement between the state and territory treasurers in 2007 to progress towards the adoption of consistent arrangements regarding the harmonisation of payroll tax. As all members would be aware, in today's business environment this kind of consistency is quite necessary. Businesses are no longer confined to statewide operations and South Australia must remain a competitive state in which to do business. Increasingly, we are seeing more and more businesses operating on a nationwide basis or certainly across state borders. As members may recall, I lived on the South Australian/Victorian border and there were a number of businesses operating in the area; in fact, nearly every significant small business in either Bordertown or Kaniva operated in the other states.

The main aspects to the bill are: the timing of lodgement; motor vehicle allowances; accommodation allowances; fringe benefits; work performed outside the jurisdiction; employees' share of acquisition schemes; superannuation contributions from non-working directors; and grouping provisions. As I have said, the opposition in the other place supports the principle of the states working more cooperatively and businesses having a better understanding of their requirements when operating across state boundaries. My colleague Steven Griffiths notes that payroll tax revenue to this government for this financial year is around $888 million and, in the last term of the Liberal government, it was $601 million. So, in the past seven years, we have seen it grow by some $287 million.

The feedback that I have been getting from South Australian businesses is that the threshold on payroll tax needs to be lifted in order to stimulate employment in our state and encourage productivity and economic growth. Although we are supporting this bill without amendment, I point out that businesses are struggling a great deal at the moment and payroll tax is one of the main things hindering our businesses in this state. In fact, unemployment is tipped to increase from 5.6 to 9.5 per cent, and certainly payroll tax is, if you like, a dampener on employment growth.

It was stated in the House of Assembly that a small business owner some 15 or 20 years ago was liable for payroll tax if the business employed around 20 people. However, considering the current wages, which have gone up significantly in that time, it can only be employing about eight people to now be liable for payroll tax. So there certainly has been (a bit like land tax) a significant amount of slippage. In essence, in the past, businesses were able to become reasonably well established before having to pay this tax but, sadly, that is no longer the case.

I have a very good friend who is still in business, thankfully, and who was growing his business many years ago and really did not have his head around the fact that he may have to pay payroll tax once salaries passed the threshold. He had gone out on a bit of a limb and bought another bit of equipment and borrowed some money to employ an extra person and then, suddenly, he was hit with payroll tax. I remember him ringing me, knowing that I was involved in politics, and asking, "How can this be? I'm being taxed for growing my own business and taxed for giving jobs to South Australians.'

Certainly, our current payroll tax threshold is not sympathetic to small to medium enterprises which really are the engine room of our state's economy. It is interesting to note that some 26,000 small businesses ceased operation in the first three years of this government, from 2003 to 2006. I think it likely that another 20,000 or more will cease to operate and disappear by 2011. It will be in excess of 40,000 small businesses which have ceased to operate in this state under the term of this Labor government.

We also need to think about the future and the fact that, in the next 10 to 12 years, some 206,000 baby boomers are estimated to be retiring. I do not think the government has really recognised this fact, and I do not think we are doing enough to provide for the transition resulting from such a large loss of skill and experience. Recent unemployment figures show that about a quarter of our 15 to 19 year olds are unemployed. This is a key group that we need to be attracting into the workforce. Payroll tax thresholds need to be changed in order to attract them and to make it possible for employers to employ these great young people who are out there looking for work but who will be under increasing pressure as the unemployment figure rises.

My colleague Mr Steven Griffiths noted that the Commonwealth Grants Commission has just released figures looking at nine areas of tax policy across all states and, of those, South Australia is the highest taxing in six of the areas. It indicates that, while we are supporting this arrangement for harmonisation and consistency across state borders for payroll tax, members will all be aware that there is significant work to be done. With those few words, I indicate that we support the bill.

The Hon. M. PARNELL (16:35): The Greens will be supporting the second reading of this bill but, in doing so, I want to make some general observations about payroll tax and then talk particularly about extensions to the payroll tax regime, and also put a number of questions on the record for the minister in relation to exemptions.

The first thing I would say is that we support the harmonisation objectives of this bill. We note that the first round of harmonisation went through a couple of years ago and that this is effectively the second round, which harmonises those items that were not dealt with in the first, which includes the exceptions to the payroll tax regime. However, in general terms, one thing that the Greens have serious concerns about is the extent to which we use or fail to use our tax system to achieve social, economic and environmental objectives.

Tax is a very useful tool for encouraging things that we want more of and for discouraging things that we want less of. I am putting it in very simple terms but I am sure that I am not the only person who has, in Economics A lectures at university, pondered the question about why we tax something we want more of (like employment) and yet we fail to tax things that we want less of (like pollution), particularly when you consider that pollution has reached levels where it is changing the very climate of the planet. We accept that other factors come into play in relation to the choice of a tax base and how broad or narrow it should be. We have to take into account the ease of measurement and collection, but the way the Greens look at it is that that should not overshadow the broader economic, social and environmental objectives of taxation revenue, which, in relation to payroll tax, should include not creating a barrier to further employment.

In relation to exemptions, members might recall a campaign that was waged by non-profit environment groups a couple of years ago, led by Greening Australia, where they urged the state government to 'axe the green tax', as they put it. There are not many, but there are some non-government conservation organisations, such as Greening Australia, whose payroll exceeds the threshold for tax purposes, and they were paying many thousands of dollars in tax, money which could have been spent on their original objectives, in particular, tree planting.

As a result of that campaign, in mid-2007 the government announced that it was going to expand the list of worthy organisations that would be given payroll tax relief. I note in this current bill that we are attempting to harmonise the exemptions between the various states. I would like the minister to clarify that all organisations that are currently exempt from payroll tax under the existing legislation will continue to be exempt from payroll tax. Variations on that question include what types of organisations the government believes may be getting payroll tax relief for the first time under this new proposed arrangement and whether there are any organisations at all that are currently exempt from payroll tax that will have to pay in the future.

I understand that, on the face of the legislation, it looks as though it is more likely that the number of organisations to be exempt will increase, and that would flow from a change in the definitions. Previously, a non-profit organisation had to have 'wholly charitable objects', and, under the proposed bill, non-profit organisations need to have only their sole or dominant purpose as charitable. I want the minister to clarify that 'charitable' does include these non-profit, non-government environmental groups.

It might seem that I am making quite an issue out of something that sounds very simple, but I come to this debate from long experience working in the non-profit sector where we had endless arguments with federal taxation officials about the different definitions that are at work here—the definition of 'charitable purposes', the definition of 'public benevolent institution'—and what flows from those different definitions. Whilst we are talking about relief from payroll tax, there are other taxes, obviously, that are more significant. There is income tax and there is also the ability for organisations to attract tax-deductible donations from members of the public.

My understanding of the changes that were brought in a couple of years ago is that the government's intention was that all these organisations would be protected. What I would like from the minister is some detail about the interconnections between state and federal taxation regimes around the types of organisations that might be included. If I stick, for example, with the environmental organisations, as I understand it the current arrangement at the federal level is that organisations apply to the Australian Taxation Office to be included on a register of environmental organisations. Once accepted onto the register, you are then able to make calls to the public for donations, which are then tax-deductible.

I need to know whether all such organisations on that register will be exempt from payroll tax in South Australia. Is that the test? Is the test the same as deductible gift recipients? Is the test in relation to environmental groups whether they are on that commonwealth register or is there some other test? Is it a test of income tax exemptions? Is that the list that we should be looking for?

With those brief remarks and with those questions on the record, the Greens are prepared to support the second reading of this bill.

The Hon. A. BRESSINGTON (16:43): I rise to briefly indicate my support for the second reading of this bill, which seeks to harmonise payroll tax provisions in South Australia with the equivalent payroll tax legislation in New South Wales and Victoria.

This bill is a result of an agreement reached in March 2007 by state and territory treasurers to move towards consistent arrangements announced by New South Wales and Victoria on a number of key areas, including payroll tax. As has been noted, the legislative amendments to implement these measures were contained in the Payroll Tax (Harmonisation Project) Amendment Act 2008, which I supported in this chamber.

Payroll tax is a controversial topic and is often referred to as a tax on jobs. Small businesses, led by Business SA, have long campaigned for the cuts in both the threshold and rate of payroll tax. In an ideal world it would not exist, but, as it currently represents about one quarter of South Australia's taxation revenue, it is a vital factor in the government's ability to provide infrastructure and essential services.

There is, therefore, a delicate balancing act that a treasurer must perform between delivering these important things without stifling business too greatly, and it has been made no easier by the global financial crisis. If payroll tax is abolished or cut the revenue shortfall must be compensated for by either reducing services and/or increasing taxes elsewhere.

With payroll revenues forecast to be pushing $900 million this financial year, we are talking about a very significant amount of money. However, although payroll tax is controversial, the subject matter of this bill is straightforward and commonsense. I support the content of this bill because I see it as a move to better reflect the current business environment and the direction in which it is likely to continue to head in the future.

Whereas in the past the vast majority of businesses operated solely within the state, today many operate right across the country. With this in mind, consistency of payroll tax arrangements is highly desirable. It is a better reflection of the times we are in and, not only that, it simplifies things and reduces administrative processes. Again, I support this bill and look forward to its swift passage through the council.

Debate adjourned on motion of Hon. B.V. Finnigan.

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