Comments by outgoing Treasury secretary Martin Parkinson about payroll tax have caused a stir this week, with business groups slamming any suggestion that Australian states and territories should increase rates of payroll tax.
Speaking at an Australian Business Economists event on Tuesday, Parkinson said increasing payroll tax rates and removing thresholds would have the same effect on revenue as broadening or increasing the GST, reports Fairfax.
Parkinson suggested the states and territories look more closely at their payroll tax arrangements, saying that the states have become too reliant on the Commonwealth for revenue.
“It’s something that everybody pretends is a terrible thing [and] a tax on labour,” said Parkinson. “But it’s no more a tax on labour than the GST.”
What will the election mean to you?
Sign up to our free newsletter, including this weekend’s coverage of the election.
While Parkinson stopped short of calling for the states to “race out and fix their payroll taxes”, he said the state and territory governments are “making public policy choices … [and] if they are going to make those sorts of public policy choices they should face the consequences of their decisions”.
But Peter Strong, executive director of the Council of Small Business of Australia, says the states should abolish payroll tax, which unfairly targets the small end of town.
“It is a tax on employment,” says Strong. “It inhibits businesses from growing and I know of businesses that once they approach the payroll tax threshold, they stop employing people.”
Instead, Strong says COSBOA members believe it would be best to broaden the base of the GST, as opposed to increase the GST rate, and this would allow the states to abolish payroll tax altogether.
“The GST is a broad tax and everyone pays,” says Strong. “Payroll tax unfairly targets the part of the economy we want to grow: small business.”
The Australian Chamber of Commerce and Industry has also called for the abolition of payroll tax in response to Parkinson’s comments.
“Payroll tax is a highly inefficient tax and one that is levied without regard to capacity to pay,” said ACCI chief economist Burchell Wilson in a statement.
ACCI is calling for the states and territories to rule out extending the reach of payroll tax, which it says it more damaging to the economy than company tax.
“There is no requirement for a business to be profitable before becoming liable for payroll tax and taxation on business inputs, including labour, is poor policy,” said Wilson.