Is the Victorian budget “a terrific budget for business”?

State Treasurer Michael O’Brien has billed Victoria’s 2014-15 budget, handed down yesterday, as “a terrific budget for business,” but experts aren’t so sure. 

The budget projects an operating surplus of $1.3 billion in 2014-15, which will grow to $3.3 billion in 2017-18.

The big ticket item in this year’s budget is the promise to cut payroll tax by 0.05%, from 4.9% to 4.85%, from July 1, which will affect an estimated 39,000 employers.

However, Crowe Horwath tax specialists Adam Mallabone and George Psarrakos, told SmartCompany the cut is “more a headline” than a fundamental structural change to the state’s payroll tax.

Mallabone said while the tax rate is being reduced, there are no planned changes to the tax-free threshold for companies paying payroll tax, which would have been more beneficial for small and medium-sized business.

“The real catch with payroll tax is that it kicks in once a company’s payroll exceeds $550,000 a year,” says Mallabone. “We would have liked to have seen an increase in the threshold so as to exclude a higher number of employers.”

Likewise, Psarrakos says Crowe Horwath does not want to see “employers penalised for hiring more people”.

Mallabone says payroll tax is “the most regressive tax you can get”, and while Victoria’s payroll tax rate has been declining in recent years, it is still higher than other states.

However, the Victorian Employers’ Chamber of Commerce welcomed the move, saying in a statement on Tuesday the cut “keeps Victoria’s taxes competitive against other states and reduces the cost of doing business”.

Elsewhere in the budget, Mallabone and Psarrakos say SMEs and individuals will be affected by an increase in motor vehicle registration fees. Car stamp duty will rise by $0.40 per $200 and light vehicle registration costs will rise from $25 to $270.  

Meanwhile, individuals are expected to save $16 million over four years as a result of the government’s decision to scrap duties payable on life insurance in Victoria.

According to the budget papers, Victorian property investors are also set to pay more land tax in 2014-15 as housing prices in Victoria continue to rise. The value of land tax paid by Victorians is projected to increase by $275.8 million to $1.9 billion, although Mallabone says there will be no actual increase in the land tax rate.

Infrastructure is the big ticket item in the budget, with the government outlining plans to spend up to $27 billion on the state’s road and rail networks, including a remodelled Melbourne Rail Link that will include a train line to the airport.

VECCI chief executive Mark Stone welcomed the infrastructure boost outlined in the budget, which he said will create jobs and stimulate economic growth.

“The budget provides important funding for East West Link Stage 2 as well as funding to progress the Melbourne Rail Link project, both of which will create jobs and are key to enhancing the capacity of Melbourne’s transport system,” said Stone.

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