Tax. The very word can send shivers down a business owner’s spine. And when it’s tax time, you can hear entrepreneurs – and accountants – all over the country curse, grump and throw their general ledgers out of the window. But I have to say, I understand the need for tax.
Roads, infrastructure, public spaces, education … I get it. They’re not going to happen without taxes being levied. So, in many ways, it can be a good thing.
When it comes to personal income tax, we all complain about how much we pay – but it makes sense. Ditto for company tax. They’re both tied to your level of income or profit. Broadly speaking, these taxes are only going to be levied if you actually generate the income needed to pay them.
But without a doubt, the stupidest tax in the history of mankind has to be payroll tax. Even when I first learnt about it in Year 8 in Miss Aurisch’s Commerce class at school, I thought to myself: “A moron invented this tax.” I may have been a mere 13 years old, but nothing about it made sense to me.
In case you’re not familiar with payroll tax in Australia, it’s a tax levied by state governments on businesses. You get the privilege of paying payroll tax when the amount of wages you pay to employees exceeds a certain amount. In order words, as you employ more people, you get whacked with a tax that effectively penalises you for providing more jobs to people.
It’s. Freaking. Insane.
Every state’s payroll tax threshold is different. From 2012-2013 in NSW, it’s $689,000. In other words, if you pay more than $689,000 each year in wages, you get slugged with this additional tax.
In Victoria, it’s $550,000. In Queensland, it’s $1.1 million.
To add insult to injury, this amount includes superannuation. So as the Federal Government increases the compulsory employers’ superannuation contribution, you get closer to the threshold. Or, if you’re already over the threshold, you get to pay even more payroll tax!
Don’t get me wrong. I don’t begrudge the employers’ compulsory superannuation contribution at all. I have no problem contributing to the future welfare of my staff. But to effectively penalise business owners for contributing to the retirement savings of their employees is BEYOND belief.
Earlier this week the NSW government announced that it would increase the threshold from $689,000 to $750,000.
Thanks heavens for small mercies. But while this is a small step towards sanity, it doesn’t change the fact that payroll tax is fundamentally flawed.
The reality is that payroll tax, hereafter known as The Stupidest Tax in the World:
* is debilitating for small businesses
* acts as a disincentive for small businesses to hire more staff
* can be a catalyst that pushes you to let go of employees if cash-flow is tight
* is a huge obstacle for small businesses at a critical time of their growth.
Fundamentally, it’s a punishment to business owners who have the foresight and courage to provide more jobs for more people.
Before you think that this is a tax that is only slugged to profitable multinationals run by fat cats on big corporate salaries, think again. $689,000 is not that much. A small business employing a mere 10 people can easily reach this threshold. And when your business is that small, chances are that you’re still in a precarious phase of growth. You’re not swanning around in a LearJet. You’re likely to be conservative in your spending because you’re at a “make or break” stage in development.
The problem is that payroll tax has been going on forever. Well, since 1941 anyway, when the federal government introduced it to finance a national scheme for child endowment. (Payroll tax become the responsibility of state governments in 1971.)
And since the state governments now rely heavily on it – it accounts for between 24 and 36 per cent of each state’s total revenue – they’re not going to give it up any time soon. (Source: Federal Treasury)
That doesn’t change the fact that it’s The Stupidest Tax in the World. And just because something exists doesn’t make it right.
Without a doubt, small businesses are the engine room of the Australian economy. The Stupidest Tax in the World makes no sense, was conceived by morons and will only serve to burden small businesses who are trying to grow and create more job opportunities for people.