With SA's unemployment rate rising to 5.7 per cent in July, Pitcher Partners Tax Consulting Principal, Phil Shepherd, said payroll tax was one of the most hated taxes imposed on businesses and actively discouraged businesses from taking on more employees.
In order to boost both investment and employment in South Australia, the Government needs to seriously think about alternatives. Assuming a sweeping review of the GST is off the table, one option might be to scrap the payroll tax in favour of a broad-based revenue tax or Gross Receipts Tax (GRT).
“The whole idea of penalising the employer for doing the right thing, creating jobs and sustaining business in South Australia, is absurd,” Mr Shepherd said. “It does not make any sense from a policy point of view.
“A broad based revenue tax would be fairer and make more sense as it wouldn’t just be taxing organisations that employ South Australians – but it would share the burden with organisations that outsource jobs overseas, or leverage technology as a substitute for man-hours.
“There are a number of successful businesses which have made good profits without paying a cent in payroll tax. In fact, many of those organisations are often on the receiving end of government grants and tax breaks – and they should be encouraged to keep innovating. But if you contrast those businesses with a labour-intensive business, like an engineering firm, its plain to see that the heavy lifters receive few, if any, tax concessions – plus they get penalised for providing jobs to our states best and brightest.”
In a discussion paper provided to Business SA, Mr Shepherd pointed to the increasing adoption of GRTs in the United States, including three of the larger States – Texas, Ohio and Washington.
He suggested that a South Australian version could allow deductions for bad debts; exclusions for income received by hospitals and not-for-profits; and exclusions for publicly owned gas or water corporations.
“Similar to the current Payroll Tax provisions, there could be a minimum turnover threshold to ensure small businesses that are struggling to make a buck aren’t penalised,” Mr Shepherd said.
“Further tax credits could be allowed for certain capital investments in South Australia, helping to attract businesses to set up their operations here.”
Mr Shepherd hopes that the government strongly considers the option of a GRT in the future and looks forward to continuing the discussion with them.
If you would like further information about this please contact Phil Shepherd, Principal, Tax Consulting, Pitcher Partners Adelaide or your Pitcher Partners expert.