Abolish the payroll tax
Governments of all persuasion often claim that they support a strong private business sector, while at the same time burdening business with a range of taxes, regulations and obstacles. One such tax that has been a consistent thorn in the side of the private sector is the state payroll tax.
Payroll tax is paid by businesses based on the amount that they pay their staff. It is literally a tax on jobs.
In many ways, the payroll tax is similar to the income tax. Both drive up the cost of employing people. Both are paid by employers, based on wage payments. Both result in lower take-home pay for workers, higher prices for consumers, and lower profits for investors. The main difference is that while the Commonwealth income tax applies to everybody, the state payroll tax only applies to people working in a medium or large business.
Suffice to say, taxing businesses for hiring people will decrease their incentive to hire more people. By driving up labour costs, payroll tax leads to fewer businesses and more unemployment.
State governments that want to create a pro-business environment with high levels of employment should set a long-term goal of abolishing payroll tax. This isn’t as hard as it sounds. In Queensland, payroll tax contributes only 7 percent of total revenue. With prudent financial management and spending restraint, a reformist government could afford to remove the payroll tax in a few years.
Employment models suggest that removing the payroll tax could lead to 30,000 new jobs in Queensland, cutting the unemployment rate from 6 percent (the second highest in Australia) to under 5 percent.
In addition, a low-tax business environment would attract new business to Queensland, and contribute to stronger economic growth and higher wages.
In contrast to a reformist agenda, the latest Queensland state budget included a minor payroll tax rebate of only $0.015 billion, applicable for only one year. Looking around Australia, the WA government offered slightly more valuable payroll tax relief, with a one-year rebate of $0.1 billion. In the battle of moderate and meek reforms, the WA government wins this policy fight on points, but both states should do more.
Pursuing a reformist tax agenda would require real political leadership and a willingness to make tough decisions to hold down government spending. But given the benefits of tax reform and the questionable quality of some government programs, it is an agenda worth pursing.