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Business NSW has called for a major review and overhaul of Australia's tax system by the government.
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Business NSW calls for federal review to end payroll tax, stamp duty
07 May 2024
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11 minute read
Payroll tax, stamp duty, company tax, and the GST are some of the tax platforms up for review under a Commonwealth-led rethink proposed by Business NSW.
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NSW businesses pay an average of $2,688 in payroll taxes per staff member, well above the national average of $2,463 and accounting for approximately one-third of NSW’s source revenues, according to the advocacy group.
This put the state third behind the country-leading WA ($3,285) and the ACT ($2,808), making all states “highly dependent” on the tax, according to Business NSW. This is an increase of 234 per cent from pre-pandemic levels recorded in 2018–2019.
“From payroll tax and stamp duty to realignment of company tax and GST reform, business and the broader Australian community need a more efficient, globally competitive, and therefore sustainable tax system,” said Business NSW CEO Daniel Hunter.
Tax reform was one of four pillars of the group’s productivity proposals in its pre-budget submission released in January, a cause it has again urged in a statement on Monday.
The group is calling on federal and state governments to come together on tax reform through the Council of Federal Financial Relations (CFFR), the cabinet body that administers government tax sharing.
“The time has come for meaningful tax reform that can better distribute tax burdens on businesses and stimulate new economic growth,” said Hunter.
“We recommend that the Federal Treasurer focus on working with the CFFR to reform payroll tax, GST, and income tax to create a better environment for dynamism and growth in Australia.”
In its pre-budget submission, the group also urged the federal government to consider the competitiveness of the company tax rate in case a lower rate might boost productivity.
Payroll tax took centre stage in both the pre-budget submission and the more recent statement, as a platform that “remains a priority for businesses.”
“As a starting point, steps should be taken to reduce the administrative and compliance burden of payroll taxes on business,” the group submitted.
“The pursuit of digitisation and integration of better state and territory systems would also have the added benefit of reducing payroll error or unintentional wage theft.”
While the group said it supported abolishing the payroll tax, it deferred to the Henry review of Australia’s tax system on possible alternatives.
Famously, the Henry review proposed a focus on four revenue sources at the exclusion of other, less productive taxes including GST, payroll, insurance, property transfer, stamp duties, and more.
Revenue raising, the review found, should be concentrated on a “robust and efficient” mix of personal income taxes, business income taxes, private consumption taxes, and economic rents from natural resources and land.
“The GST is itself an operationally complex tax, designed on tax invoice concepts more suited to the documentary standards of the 1960s than the digital potential of the 21st century,” said the final report of the Henry review.
“Moreover, Australia retains some other inefficient state taxes on consumption (such as insurance taxes) and a narrow payroll tax. It would be possible to replace the current narrow state taxes base (including payroll tax) with a low-rate, broad cash flow tax.”
The Henry review took aim at payroll taxes as an inefficient and unjustifiably significant contributor to state revenues.
While most taxes chip away to some degree at economic efficiency, the most efficient taxes are those that denigrate consumer welfare the least, it argued.
Henry estimated that payroll tax has a “relatively high welfare cost, reflecting the effect of the tax-free threshold on business size. A payroll tax with no tax-free threshold is estimated to have a welfare loss similar to the GST.
“The tax regime on SMEs, as it stands, is a handbrake on our national growth engine, but the stars are now aligned for brave reform,” said Hunter.
“Without commonwealth involvement, the prospects for tax reform at state levels will falter,” he said.
Hunter said NSW’s “raw deal” under the federal government’s approach to GST distributions has highlighted the need for a fundamental tax rethink.
Each year, one state leader or another makes headlines arguing that their jurisdictions’ share of GST income is inadequate.
This year, NSW took the reins in arguing that the latest GST carve-up could cost the state $11.9 billion over the next four years, costing it its AAA credit rating and shattering its budget surplus.
NSW Treasurer Daniel Mookhey said the “absurd” distribution could undermine the state’s ability to contribute to key commonwealth initiatives including the NDIS and education.
“The fact that New South Wales has now lost more revenue from the Commonwealth Grants Commission than we did during COVID-19 from a global pandemic means that we simply don’t have spare change anymore,” he told the ABC.
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