Victorian government pledges $267.1 million in payroll tax relief but threshold still lags

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Victorian Premier Daniel Andrews. Source: AAP/Ellen Smith.

Victorian Small Business Minister Adem Somyurek says the Andrews government is “keeping an eye” on the payroll tax-free threshold, amid concern businesses in the state are losing their competitive edge.

Delivering the 2019-20 Victorian budget on Monday morning, the Labor state government pledged to increase the payroll tax-free threshold from $650,000 to $700,000 by 2022-23.

The plan will cost $86.7 million and is slated to save 1,400 businesses from paying any payroll tax — about 0.24% of all small businesses in the state.

The $50,000 increase — split over two years  has copped some criticism though, with Victorian Chamber of Commerce and Industry chief Mark Stone worried about the effects on small business if the threshold is not brought into line with other states.

Even after the increase, Victoria’s payroll tax threshold is still well below most other states, including NSW ($850,000), Queensland ($1.1 million) and South Australia ($1.5 million).

“More needs to be done sooner to ensure Victorian business does not lose its competitive edge,” Stone said in a statement circulated on Monday.

Speaking to SmartCompany after the budget announcement on Monday, Somyurek defended the government’s plan, saying it deserved credit for increasing the threshold from $550,000 in recent years.

“There are a whole bunch of other factors to take into consideration, you have to balance the rate with the threshold and then the general competitiveness of the industry,” he says.

Somyurek did, however, point to the possibility Labor could increase the threshold further in future budgets, although he was less than specific. 

“There will be some levers, and we pull the levers here and push the button there,” he says.

In total there’s $267.1 million in payroll tax relief in the Victorian budget, but the Andrews’ government has again saved the lion’s share of the benefit for regional businesses.

Regional firms can expect another cut to the headline payroll tax rate, this time from 2.4% to 1.2% by 2022-23, costing $173.2 million.

It is the third payroll tax cut for regional firms under the Andrews government, which decreased the headline rate from 4.85% to 3.65% in 2017 and then to 2.42% last year.

When the reforms are fully implemented regional payroll tax will be a quarter of the 4.85% metro rate.

Asked whether metro businesses were due a payroll tax cut, Somyurek said they “don’t want to leave the regions behind” as urban businesses benefit from infrastructure spending.

“You can say that, but I think the small business sector is going pretty well at the moment,” Somyurek says.

“We don’t want to leave the regions behind, we want to make sure the prosperity is spread across the entire state.”

It is estimated 3,500 regional firms will benefit from the cut — about 0.6% of small businesses in the state. A business is regional if it pays at least 85% of its payroll to regional employees.

A further $7.2 million has been earmarked for expanding the payroll tax exemption to paternal leave, which was a commitment made prior to the election.

Elsewhere in the state budget, $2.5 million has been made available for small-business support services, including funding for mentoring, workshops, online information and the state government’s event program.

Funding to the tune of $150 million over the next three years will be provided to establish a Victorian Jobs and Investment Fund, which will support the ongoing operation of LaunchVic and develop opportunities to create jobs and promote economic development.

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