Business and Electrical Trades Union join forces to call for payroll tax reform

Peak business bodies and the Electrical Trades Union have formed an unlikely alliance, calling on governments to overhaul payroll tax and ensure the tax system is more ‘pro-employment’.

Business Council of Australia chief executive Bran Black. Picture: Britta Campion

Peak business bodies and one of the nation’s most powerful unions have formed an unlikely alliance, calling on governments to overhaul payroll tax and ensure the nation’s tax system is more “pro-employment”.

There have been growing calls from sectors across the economy for major payroll tax reform, with the Royal Australian College of Doctors warning last month the status quo was “a joke” and putting patient care at risk.

In a surprising break from the broader labour movement, Electrical Trades Union national secretary Michael Wright joined the push for an overhaul of the tax – which operates differently in every state.

Mr Wright argued while payroll tax made sense 100 years ago, it had now become “problematic”.

“We need a pro-employment tax system … and that means those taxes that get in the way of employing people, like payroll tax, need to be reformed,” he told The Australian.

“Why it’s not just rolled into income tax and then handed back to the states, I don’t know.

“It’s the same as stamp duty gets in the way of people buying and selling property for no real reason. Why do we still have payroll tax, which discourages employers from hiring?”

Mr Wright’s comments put the ETU on a unity ticket with major business lobbies including the Business Council of Australia.

“It’s not often the Business Council and unions are on the same page but we agree payroll tax is a handbrake on successful businesses, cutting growth and holding back higher wages for employees,” BCA chief executive Bran Black said.

“Payroll tax disincentivises businesses from employing more staff and paying them higher wages, and it’s a nightmare for national businesses to contend with different rates across states and territories.”

Mr Black said the reforms were needed more than ever given the “steep challenges” facing the economy and the number of businesses closing.

His comments follow The Australian revealing that almost 2000 manufacturing and construction businesses had gone into insolvency in just six months, with thousands of jobs under threat as companies move offshore and shut operations in response to rising power prices, supply chain pressures, labour shortages and high inflation.

Council of Small Business Organisations Australia chief executive Luke Achterstraat said it was clear payroll tax was “ripe for reform”.

“It is a tax on jobs, productivity and punishes businesses for hiring people,” he said.

“As a start, national streamlining should be a priority with many jurisdictions currently running different payroll tax systems.

“Raising payroll thresholds should be examined to reduce the impost on small businesses … already grappling with a cost of living crisis.”

Australian Chamber of Commerce and Industry chief of policy and advocacy David Alexander said that after implementing stage three tax cuts, the government needed to “commit to a comprehensive tax reform process that covers commonwealth and state government tax bases”.

“Such a reform process should look at the drag effects of taxes on businesses, like company tax and payroll tax, to improve their ability to invest and create employment,” he said.

The calls to reform payroll tax sparked concern from some state governments, which stressed the revenue generated was critical for funding hospitals and schools.

“Queensland supports commonsense reform but will not support any reduction in revenue as that would mean cuts to frontline services like hospitals and schools,” Queensland Treasurer Cameron Dick said.

“Queensland’s payroll tax threshold of $1.3m is the most generous of the major states and our tax rate is also lower, meaning 96 per cent of Queensland businesses pay no payroll tax.”

A Victorian government spokeswoman said the state had committed to raising the tax-free threshold from $700,000 to $900,000 – recognition that the previous threshold was too low – which would save around 26,000 Victorian businesses up to $14,550 per year.

NSW Treasurer Daniel Mookhey said his government had approached the commonwealth to “determine the feasibility of sharing single-touch payroll data with the states and territories”.