The hit of payroll tax on agriculture in Tasmania

Arguments often arise as to whether payroll tax is fair and whether it reduces employment opportunities. It is acknowledged that payroll tax is a significant source of revenue for state governments, funding essential public services such as healthcare, education, and infrastructure that benefit both businesses and the community.

However, the counter argument is that it increases the cost of employment, which can be particularly burdensome for small businesses. This can discourage hiring and investment in workforce expansion.

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Further, businesses with higher payrolls pay more tax, regardless of their profitability. This means that two businesses with the same revenue, but different payroll sizes will be taxed differently, potentially putting high-labour businesses at a disadvantage.

Of note is that in Tasmania there is a flat rate of payroll tax no matter where you are located, whereas other states acknowledge that regional areas find it harder to get staff and the rate of payroll tax is less. For example, in regional Victoria, the rate of payroll tax is only 1.2125%. This makes it difficult for our agricultural businesses to compete when the payroll tax in Tasmania for a similar business is 6.1%.

One of our members has indicated that the difference in payroll tax for them if they were to be similarly located distant from the State capital and with the same payroll, they would pay $735,000 less each year. This money could then be invested in the business to grow and actually employ more staff.

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For Tasmanian agriculture to grow to $10billion by 2050 there will need to be a significant increase in the number of employees in order for those production requirements to be met. But with a high rate of payroll tax, and its anti-competitive effect, there is little incentive for agricultural businesses to employ more staff. Employers will actually look to limit wage increases, reduce hiring, or automate jobs, potentially affecting job growth and employee earnings. This has a flow-on effect to the rest of the economy.

So how can we ensure that Tasmanian agriculture grows and remains competitive.

•              Raising the payroll tax threshold can reduce the burden on small businesses and ensure that the largest employers contribute.

•              Lowering the payroll tax rate can make it less burdensome for employers while still providing necessary revenue for the state.

•              Offering tax incentives or credits for businesses that create jobs, invest in training, or operate in economically disadvantaged areas can offset the impact of payroll tax.

•              Simplifying the payroll tax calculation and reporting process can reduce administrative costs and compliance burdens for businesses.

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The fairness of payroll tax ultimately depends on one’s perspective and priorities, balancing the need for public revenue with the desire to minimise burdens on businesses and encourage economic growth.