There are two certainties in this time of uncertainty – unemployment figures are set to get a lot worse, and the majority of jobs will be created by small and medium business owners.
So it doesn’t take a genius to put the two together and realise that some incentive to assist SMEs would help them retain staff, reduce cuts to employee hours, and create new jobs.
And the best incentive is this. Reduce payroll tax for one year. Not only would this mean an immediate cashflow benefit to business, thus hopefully saving jobs and employment hours, but it would provide an emotional fillip in grim times.
It is hard to understand the impact of this tax unless you are a boss.
For a start-up venture, it kicks in when a company is still very vulnerable, robbing it of vital cashflow. For more established companies it is a tax on jobs. And for many employers, one of the major emotional benefits of running a business is creating jobs, so it is frustrating to be hit with a tax on such a useful social contribution.
For companies struggling in a downturn and near the threshold, payroll tax offers an incentive to reduce staff to get down below the threshold. And a disincentive to employ above it.
Last year SmartCompany started a petition to reduce payroll tax. It was illuminating for any bureaucrat to see the depth of feeling attached to this tax.
We quickly received 240 responses from companies describing the impact of the tax and the opportunities they could pursue if it were reduced or the threshold raised. Read some of their comments at the end of this piece.
What is clearly obvious from the responses is a reduction in payroll tax or a rise in the threshold would result in more jobs.
Now employment groups are renewing calls for cuts.
So how likely is it? Payroll tax collections amount to $15 billion a year into state coffers. Let’s take a 30% reduction in the payroll tax rate to 3.46% from 4.95% in Victoria (ridiculously it varies state by state).
A company with 20 employees, paying average weekly earnings, with a wages bill of $1 million, would end up having their payroll tax reduced to $15,570 from $22,275 a month. Now that would save jobs – or certainly prevent people’s hours being reduced.
The bad news is the 30% reduction would cost $4.5 billion for the year. VECCI today has called on the Federal Government to step in and assist the states to reduce payroll tax. And one might well argue it would have been a better use of tax payers fund’s than the stimulus package.
Do you want payroll tax reduced? Come and join me on the forum this afternoon and tell us – and the Government – how a payroll tax reduction might stop you reducing jobs or employee’s hours. And sign our anti-payroll petition here.
Here are 10 comments form business owners:
We are growing rapidly, funded from positive cashflow, and would like to accelerate our growth, but payroll tax costs us three or four additional employees.
We are getting taxed to put people in jobs and not on the welfare system.
We are a services company paying large salaries to staff. We already pay GST on all services income and get no tax relief on their salaries. Payroll tax adds another 5% to the cost of employing people to provide services. It is hard enough to be competitive, profitable and provide a great working environment in a services industry without paying double tax!
This tax is seriously hurting my company. I am now trying not to employ any extra people as this tax is creating more debt for me to carry.
This absolutely ridiculous, company choking punishment for giving people employment limits further expansion and development of the company. It’s as illogical as killing a goose before it laid a golden egg – it’s outdated, unnecessary and does not have a future. Company owners are keeping their heads just above water in order to support taxation office rather than developing technical and scientific solution – which can be taxed as company tax. It’s a pity that Australia is so old fashioned to keep such unnecessary controls and breaks on company owners – let’s end it and allow businesses to flourish rather than wilt!
Things are tight enough for my employer.
The tax creates a penalty for employing staff. My personnel business is charged the full tax that we have to pass on to small business negatively impacting growth and employment. Lets face it employing one more person who then pays their own tax and is removed from benefits must be a net advantage rather than the counterproductive payroll tax. The Federal Government and states need to get together on this one and quickly.
The $950 bonus isn’t going to get taxpayers out of financial hardship so that they can “stimulate” the economy. It’s going to the pokies and pubs; well done Mr Rudd! Employed people are intrinsically the backbone of every and any economy. The Government is discouraging employment, and reducing businesses margins which they would otherwise spend sensibly in order to survive and thrive. Instead, the Government have said: “Yikes, there’s a global meltdown caused by low interest rates and easy credit…. duh let’s solve the problem by lowering interest rates even more and providing excess credit; that should do it…. duhh”
Payroll tax is a major disincentive to my organisation employing top flight people. I won’t employ anybody directly until this abhorrent tax along with all the others in this over taxed country are abolished.
It’s regressive. It is a tax on employment I could afford to hire another three part timers and build my business more.