Dan Petrie: Payroll tax symbolic of reform sickness

OPINION: Payroll tax remains the dumbest levy governments can impose upon businesses, something Queensland’s peak medical bodies are experiencing right now, writes Dan Petrie.

Payroll tax in the 2020s remains the dumbest levy governments can impose upon businesses with Queensland’s peak medical bodies currently working through a potential minefield in understanding how doctors can work within a medical centre and what a potential payroll tax liability might look like.

Health is topical because it is a labour-intensive industry and as such, the greater the headcount, the more likely a payroll tax liability will follow.

If doctors are already struggling to provide adequate servicing based on federal funding and the prospect of increased state taxes, it simply means outgoings, if it hasn’t already happened, will outstrip income.

Economies of scale tend to work better with larger medical centres noting the margins to run such operations are already very small.

Simply put, reform needs to be at the top of the agenda next time the Premiers, Chief ministers, and Prime Minister get together for their National Cabinet catch up.

Payroll tax nationally provides the middle tier of government in this country $27 billion according to accountancy body CPA Australia who produced an excellent paper on this very issue only six months ago.

Such an impost is effectively a tax on job creation.

Payroll tax which is calculated on an organisation’s wages bill is costly, a major compliance burden for business and so far removed from its original purpose, its existence in today’s digital economy is cause for some concern.

A new payroll tax is proving a nightmare for Queensland doctors.

The history of payroll tax is noble enough, having started out as federal policy called the Pay-roll Tax Act 1941 and accompanied by the Pay-roll Tax assessment Act that was introduced as a 2.5% levy on wages paid to employees regardless of the business.

The act was to provide funding for a new child endowment scheme and at the time was discussed as being only a temporary measure during a wartime period.

Thirty years later, the tax was transferred to the states where it has remained with differing rates and thresholds ever since.

Australia is an outlier in maintaining its wartime tax, noting that most OECD countries maintain higher sales taxes in the form of a GST (or value added taxes) and two-levels of government.

According to PWC, an incremental shift in the GST rate could generate as much as $40 billion, wiping out the $27 billion payroll tax figure as well as providing compensation to Australia’s lowest income households.

That said, it would mean the states would draw close to two-thirds of their income from federal government grants and as such their viability as a structure would be questioned.

The thought of such reform would create quite a few upset stomachs and with so many of us not willing to take the reform medicine, it is instructive to look at the history of our highly regarded but ailing health system.

Being wedded to such dumb taxes at a state level has meant the solutions required at the federal level have been ignored and the same old band-aids applied.

In 2014, the glacier that is health expenditure in Australia had given then prime minister, Tony Abbott and his treasurer, Joe Hockey enough ulcers, to make health the centre piece of their 2014 “horror budget,” with the introduction of a proposed $7 co-payment for bulk billing.

Abbott’s budget manoeuvring ended up being a pincer movement of the Coalition’s own making as the foray into asking Australians to pay to see the doctor went directly against the fair-go, so ingrained in this country’s culture.

Australians feel passionately about a health system that can be accessed by all citizens, regardless of income or status and it wasn’t long before Mr Abbott’s premiership was on life support.

Ironically, the first co-payment proposal was originally laid out by Labor prime minister, Bob Hawke in 1991, who by that stage was a much diminished figure compared with the widely popular leader of 1983.

The proposal enraged the Labor base and by December that year, Hawke’s political execution had been completed by Paul Keating whose stomach for reform in the early 1990s and to this day remains quite strong.

History will provide reasoning around prevailing economic conditions but failure to address key reforms are ultimately what makes and breaks all leaders.

Payroll taxes are symbolic of the disease of not reforming and as a result, the symptoms associated with decades of bedding down inefficient levies, are now presenting in the critical area of service delivery.

The vexed payroll tax currently creating nightmares for Queensland doctors is another entry on the state’s miserable laundry list of own goals for the state’s beleaguered health system and that suggests the patient that is federation is also not feeling well.