Higher payroll taxes tipped to ‘impact jobs and wages’
Increased payroll taxes for medium and large businesses in Victoria are likely to flow through to employees, customers and business profit margins, accounting firms warn.
The COVID-19 Debt Levy introduced as part of the Victorian budget will impose a surcharge on Victorian wages for businesses with taxable wages above $10 million.
Businesses with annual Australia-wide taxable wages above $100 million will be subject to a further surcharge of 0.5 per cent on their Victorian wages to the extent they exceed this higher threshold.
The new measures mean that a business with a payroll of $120 million, that employs wholly in Victoria, should expect a total surcharge of $650,000, said accounting firm Pitcher Partners.
“Whilst the Government has said that it is targeting businesses that thrived during the pandemic, the levy will not discriminate and will create an additional payroll tax burden on all medium and large businesses,” said Pitcher Partners partner Ali Suleyman.
“As this measure will increase the operating costs for many businesses in Victoria, it remains to be seen whether the impact will be felt by customers through increased service or product rates or reduced service offerings, by employees through wage pressures, or in business profit margins.”
The Victorian Chamber of Commerce has raised concerns that the higher payroll tax bill will discourage jobs in Victoria and impact businesses at a time when they can least afford it.
“The additional taxes on medium to large businesses in particular will be difficult to absorb given they are already operating in a tough economic climate with increased costs in energy and supply chain,” the Victorian Chamber of Commerce said.
The mental health and wellbeing levy will also continue to be applied as a payroll tax surcharge on wages paid in Victoria for those businesses with annual Australia-wide wages over $10 million. Revenue from the Levy is forecast to be $912 million for the year ending 30 June 2024.
Darkwave founder and director Meredith Fannin said while the budget has targeted medium to large businesses in a bid to pay off its COVID-19 debt, there could be flow on impacts for smaller business.
“This budget did not directly impact small businesses, but there may be a flow-on effect due to price increases from larger businesses hoping to recover some of the additional tax costs that have been imposed on them,” said Ms Fannin.
Wins for small business
The Victorian budget did deliver a range of positive measures for small business with the tax-free threshold set to increase from $700,000 to $900,000 from 1 July 2024, with a further increase to $1 million to take place from 1 July 2025.
BDO estimates that these increases in the payroll tax-free threshold will result in up to $14,550 of annual payroll tax savings each for approximately 26,000.
“The increase in the payroll tax-free threshold is a welcome saving for small business. The payroll tax regime has often been viewed by business owners as an impediment to growth as this business cost increases along with the business growth, preventing the creation of valuable Victorian jobs,” said BDO.
Pitcher Partners said while this is a welcome change for eligible businesses, it will only benefit businesses with relatively small payrolls.
“The Victorian Government estimates that around 6,000 businesses, who otherwise would have paid payroll tax, will no longer be subject to the tax when the threshold reaches $1m. Furthermore, it is expected that more than 26,000 small businesses will benefit from the increase of the tax-free threshold to $1m,” the accounting firm said.
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