We can’t afford payroll tax

WESTERN Australia’s economy appears in good shape relative to others, but there’s no doubt businesses are facing pressure on many fronts.

From a global pandemic and global inflation to trade sanctions on our products, fractured supply chains and the costs to decarbonise.

Chamber of Commerce and Industry WA surveys show the rising cost of doing business – whether in energy, stock, freight or overheads – is impeding three out of four WA businesses.

In terms of wages, four out of five WA businesses (81 per cent) are facing higher labour costs amid competition for scarce workers.

Business confidence has declined for more than 12 months, and our profitability index is at near-record lows in WA.

So, it’s harder than ever to justify adding the nation’s heaviest payroll tax to the burden.

Payroll tax is heaviest in WA across a wide range of taxable incomes.

It kicks in at around 10 workers on average full-time earnings, working as a drag on the small and family businesses that make up a huge proportion of our economy.

It stifles innovation and holds back growth.

The upcoming state budget is likely to reveal that nearly $5 billion was extracted from businesses in payroll tax this year.

That’s a huge number and it’s why CCIWA has called attention to how much more WA businesses pay than businesses in other states.

For example, if you employ 35 people in WA, you pay around $40,000 more in payroll tax than if you employed the same number of people in Queensland.

One small business in professional services told us payroll tax eats half their profits, while inflation takes the rest.

Another in advanced manufacturing said the tight jobs market was forcing up wages so much they’re paying more tax for the privilege of employing the same number of Western Australians.

Perhaps most telling, a small engineering firm held itself back from growing and employing more staff because it couldn’t afford to pass the $1 million threshold and be exposed to the tax on jobs.

Hundreds of businesses agreed reducing payroll tax would lead to more jobs in WA.

When governments want to stop people from smoking or drinking alcohol, they increase the taxes on cigarettes and booze.

By that standard, WA is more determined than any state to prevent jobs being created here.

National data collected for CCIWA in 2021 showed WA’s high payroll tax put businesses and investors off.

Among large businesses, 81 per cent said WA’s rate of payroll tax diminished their view of our state as a place to expand.

Private sector investment, expected to grow 4 per cent this year and 9 per cent next, has been critical to shoring up WA’s economy against inflation and uncertainty.

We need more investment to increase our economic resilience, and reform would make us more attractive as an investment destination.

And WA needs to find new sources of innovation and investment in our economy, whether in advanced manufacturing, renewable energy, space and defence industry or life sciences.

CCIWA believes in the ability of small and family businesses to innovate and transform, to pursue new products and new markets.

WA businesses showed they were up to that challenge during COVID.

That’s why the chamber is calling for a payroll tax threshold of $1.3 million and a 15 per cent rebate on liabilities up to $4 million, tapering down to zero at $7.5 million.

Roughly speaking, it means businesses with 13 employees or fewer wouldn’t pay the tax on jobs. Those who employ between 13 and 75 workers would pay less.

This follows the approach the state government took in 2019, which spared 1,000 businesses from paying the tax on jobs and left 12,000 SMEs better off.

Then, as now, the reform is made more than possible by strong state finances.

Leaving a little more money in the pockets of small and family businesses across the economy is a modest but meaningful change, better enabling growth and innovation.

Critically, it would put WA businesses on a more competitive footing with their counterparts in other states.

As we work to keep the cost of doing business down, secure a skilled workforce, strengthen emerging industries, and attract investment in the face of global crises, reducing a tax on jobs is one of the best ways to bolster the state.

• Chris Rodwell is CEO of the Chamber of Commerce and Industry WA, the state’s peak business group.