Fast Lane: The problem of payroll tax

Payroll tax is back on the political agenda after an Abbott government minister called for tax reform saying he has never thought payroll tax is a “good or efficient tax”.

Josh Frydenberg, parliamentary secretary to Prime Minister Tony Abbott, told Sky News on Sunday state governments are the ones which are going to have to “make the case” for any increase in the GST because they will be the beneficiaries of it.

It’s a relief to see payroll tax finally getting a mention as all too often it is left off the agenda all together.

Any discussion about tax reform should include consideration of how to abolish payroll tax which unfairly targets small business.

Payroll tax is a tax on employment which inhibits businesses from growing and employing more people.

It’s a highly inefficient tax which is imposed with no regard for capacity to pay. 

While states and territories have recently moved to reduce payroll tax and lift the thresholds at which the tax kicks in, more needs to be done.

But as payroll tax is imposed by the states more action is needed than mere comments by a government minister. 

Support is needed from the states and territories and this support will not be forthcoming if there is no alternative source of revenue provided. 

One option is that advocated by the Council of Small Business of Australia, which wants to broaden the base of the GST, as opposed to increase the GST rate, to allow the states to abolish payroll tax altogether.

The GST currently brings in about $50 billion a year and payroll tax $20 billion. 

The problem is the states will not want to be seen pressing for the GST, especially as Victoria and other states head to elections.

It seems like SME frustration with the lack of reform in our tax system is set to continue. 

A survey by accounting firm BDO at the start of this year identified reform of GST and payroll tax as key for small business.

The survey found 95% of the 135 respondents were frustrated by a lack of action on tax reform.

Little has changed since then.

Continued tinkering around the edges has just added complexity to the tax system where more bold action is needed.

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