Victoria’s potential amid crushing business taxation

While arguing that more needs to be taken into consideration before Victoria is placed at the bottom, Nguyen acknowledged the unique tax burdens that Victorian businesses face.

“We have the highest payroll tax; it takes very long for small businesses just to open a coffee shop and to obtain licences. We also have a high property tax and a high commercial tax rate,” she told the brand.

Nguyen told the brand that this ranking, however, should not be interpreted as a comprehensive measure of economic performance, but one that captures selected dimensions of the cost and regulatory environment facing businesses, including payroll tax, property taxation, licensing and planning

“The state appears capable of generating substantial business formation, while some features of its tax system, notably the payroll tax threshold phase-out, impose progressively greater costs as firms hire employees,” Nguyen said in her working paper.

According to the ABS’ latest statistics on business entries and exits, Victoria had the second-highest net increase in the number of businesses in 2025–26 (19,581), 2024–25 (16,486), and 2023–24 (18,503).

This stands in stark contrast to BCA’s rankings.

“The available evidence does not establish that taxation and regulation are causing innovative companies to leave Victoria. Nor does the BCA ranking, by itself, demonstrate weaker economic performance,” Nguyen said. 

“The policy priority should therefore be not simply to make Victoria a cheaper place to conduct business, but to create an environment in which innovative companies have incentives to remain, scale and commercialise locally.”

“Targeted payroll tax relief for R&D-intensive scale-ups, combined with stronger commercialisation support and systematic monitoring of firm growth and relocation, represents one possible approach.”

Victoria’s unique challenges

For one accountant, it is not just Victoria, but the nation’s business landscape that is “beyond challenging”; but despite this, the increase in Victoria’s state-based taxes, including payroll and land tax, and WorkCover costs have added an additional burden.

“Finding labour is also extremely difficult. We are getting a lot of feedback from trades and construction businesses that had previously been competing with the likes of the Big Build for workers and are now losing staff to major data centre projects, which are offering wages that many small businesses simply cannot compete with,” Tripolino Accountants senior accountant Anthony Tripolino told Accountants Daily.

The talent war also presents itself for small businesses that try to compete with larger firms for workers, impacting the business’s ability to attract new employees and retain existing staff.

“A small business can’t necessarily compete with the remuneration being offered by a major infrastructure project or data centre, but it still has to compete for workers in the same labour market,” Tripolino said.

“Building and construction is another area where it is becoming increasingly difficult to operate. There is a significant amount of red tape at both the local and state government levels, which adds cost, time and uncertainty to projects.”

Further, he said that Victoria’s scrapped work-from-home proposals were a welcome relief for small businesses already doing it tough, noting that businesses he works with were pleased when the bill was scrapped.

“Overall, I think the biggest issue is the cumulative impact. Any one of these things in isolation might be manageable, but when you combine state taxes, WorkCover costs, labour shortages, rising wage expectations and increasing regulation, it becomes extremely difficult for small businesses to absorb,” Tripolino said.

 “Victoria still has plenty going for it, but I think we need to be careful that the cost and complexity of doing business here doesn’t reach a point where businesses start looking elsewhere when deciding where to invest, expand or employ their next worker.”