As part of a 15-point proposal ahead of the State Budget on Thursday 15 June, the South Australian Business Chamber has made a plea to the state government to consider reform of payroll tax in South Australia.
South Australian payroll tax is calculated on wages employers pay their employees. Currently, if a business’s annual taxable payroll exceeds $1.5 million, it is liable to pay variable payroll tax (0%- 4.95%) with 4.95% payroll tax payable when its annual taxable payroll exceeds $1.7 million.
According to the South Australian Business Chamber’s 2022 Pre-Election Charter, businesses with more than 20 employees said payroll tax was the most constraining state-based tax or levy.
While the 2019 threshold change represented a material change, it occurred at a time of low inflation, low wage growth and, importantly, prior to COVID-19.
We expect since 2019 there has been a substantial increase in the number of businesses liable for payroll tax as a result of a range of factors.
The Wage Price Index for the September quarter of 2022 showed an increase of 3.1%. Also in 2022, the Fair Work Commission increased the National Minimum Wage by 5.2%.
South Australia’s current labour shortages and the 3.9% unemployment rate have made recruitment increasingly difficult, with many businesses increasing salaries to attract and retain staff. A recent survey by the South Australian Business Chamber shows 70.5% of businesses are willing to pay at least 10% over market rates to fill existing vacancies, some even looking at 50% above market rates, and others offering starting bonuses.
The South Australian Business Chamber proposes the State Government lift the payroll tax threshold across the board and provide a 50% discount to businesses operating in regional South Australia.
Increasing the threshold for payroll tax would enhance the national competitiveness of South Australian businesses and create an environment more conducive for small businesses to operate in and thrive, without the fear of inadvertently tipping into the payroll tax band because they have increased staff wages.
Given current inflation trends and the wage index showing significant and ongoing increases, the South Australian Business Chamber sees raising the payroll tax threshold in 2023 as timely and necessary.
Regional businesses often struggle to grow for a range of reasons, including difficulty in attracting and retaining employees, transport and logistic challenges, and operating in a limited market.
High inflation rates, regional housing shortages, the recent devastating floods along the River Murray and the impacts of pre-pandemic bushfires regional are all issues that regional South Australia has had to deal with in recent times.
Over three-quarters of South Australia’s population resides in Greater Adelaide — and in recent years population growth in regional areas was less than half that of that in Adelaide.
The South Australian Business Chamber believes reducing the payroll tax rate in regional South Australia, as is commonplace in other states (e.g. Victoria provides a 75% regional discount; Queensland provides a full 1% (100 basis points) regional discount) would incentivise businesses to move to the regions, thereby stimulating and diversifying those economies. It would also improve their competitiveness compared to interstate regional counterparts.
For example, South Australian businesses located near the Victorian border paying full payroll tax (4.95%) are currently paying over three times the rate payable by their interstate rivals (1.21%). This sharply reduces the competitiveness of regional South Australian businesses, especially in communities in close proximity to Victoria. Introducing a 50% discount on regional payroll tax would reduce this disparity and help these businesses to grow, attract new businesses and help address some of the issues around finding and retaining workers.
The South Australian Business Chamber’s 15-point submission to the state government ahead of the 2023 – 24 budget can be downloaded here.
