Universities to lose millions under Andrews government’s payroll tax increase

Victoria’s two most prestigious universities stand to lose more than $20m a year under the Andrews government’s payroll tax hike.

University of Melbourne Vice-Chancellor and Chair of the Victorian Vice-Chancellor’s Committee Duncan Maskell. Picture: Ian Currie

Victoria’s vice-chancellors are urgently seeking a meeting with Treasurer Tim Pallas to request an exemption from the Andrews government’s new mental health levy, which will require universities to pay tens of millions of dollars extra annually in payroll tax.

While organisations including private schools, private hospitals and charities are exempt from the new levy — announced in Thursday’s state budget to help fund a signature $3.8bn mental health package — no such exemption has been granted to universities, as they struggle amid international border closures which have seen them lose billions of dollars in revenue from overseas students.

The concern from the universities came as opposition from business groups hardened, with calculations based on the $804m the levy is expected to raise in 2022-23 indicating the number Victorians employed by more than 9000 affected businesses is likely to be at least 1.2 million, and possibly as high as double that figure.

University of Melbourne vice-chancellor and chair of the Victorian Vice-Chancellors Committee Duncan Maskell indicated universities had been blindsided by the new measure.

“Victorian Vice-Chancellors were surprised to learn that the payroll tax levy will apply to local universities given our charitable status and given we already spend a great deal of money doing so much work in mental health,” Professor Maskell said.

“We are seeking an urgent conversation with government to understand the rationale for this and to ensure that all relevant information is with the government prior to this policy being put before parliament.”

A spokeswoman for Monash said the university estimated the payroll tax surcharge would cost an extra $10-11m annually. Calculations based on publicly available documents indicate the University of Melbourne would be forced to cough up an extra $11-12m.

Universities including RMIT, Latrobe, Deakin and Victoria University would also be on the hook for millions of dollars.

Federal Education Minister Alan Tudge told The Australian the payroll tax surcharge was a “tax on jobs”, including those at universities.

“It seems that as we’re putting additional funding into the universities while they have some financial challenges, the state government is adding taxes,” Mr Tudge said.

A National Tertiary Education Union spokesman said that while the union did not have a view one way or another on the nature of the levy, its impost on his sector represented “yet another issue that universities are going to have to deal with in terms of their rather beleaguered finances.”

The Andrews government’s decision not to exempt universities from the tax increase comes almost exactly a year after it offered the university sector payroll tax deferrals valued at around $110 million, enabling them to delay payment for the period from July to December 2020 until 2022-23.

The payroll tax deferral came alongside a $350m fund to support universities with capital works and research partnerships.

At the time, Mr Pallas said a stable university sector would significantly contribute to the state’s recovery efforts amid the coronavirus pandemic.

“That’s why we’re stepping in to provide this funding that will protect thousands of jobs and ensure our universities can weather the storm,” he said.

On Friday, a spokesman for Mr Pallas confirmed the payroll tax surcharge would apply to all organisations who already pay payroll tax and have national payrolls higher than $10m — including universities.

The spokesman said the Andrews government were “proud supporters of our universities and have continued to back them above and beyond any other state government.”

At a post-budget business lunch, Mr Pallas defended the mental health levy, revealing Victoria approached the federal government to use a mechanism similar to the Medicare levy to fund a national version of the mental health package and was rebuffed.

The Victorian Treasurer hit back at Josh Frydenberg after the Federal Treasurer on Thursday accused the Andrews government of undermining Australia‘s economic recovery through new taxes.

“My dear friend the federal Treasurer, who’s prone to hyperbole, particularly when it comes to Labor state administrations, he does get a little bit excitable, but to describe Victoria as anything other than the outstanding job creating state in the nation is a joke, and I don’t need the third federal Treasurer that I’ve had to deal with now giving me a lecture about how to create jobs and economic growth,” Mr Pallas said.

“Our economic growth is twice the nation’s and our jobs growth is outstanding.”

Having initially said on Thursday that business would be prepared to “bear the brunt” of the new levy despite being fearful of further levies, peak body AiGroup bolstered its opposition the payroll surcharge on Friday, accusing the Andrews government of a “cash grab” following strong feedback from members.

“This Labor government is not encouraging business to Victoria, rather it’s issuing an invitation for companies to look elsewhere, said AiGroup Victorian director Tim Piper.

“Victoria is less competitive today than it was yesterday. This is more than a levy: it is a permanent tax hike. It’s not innovative – in fact most economists would describe it as politically-driven.”