Every Prime Minister, Premier or Opposition Leader preaches how they are all about creating and focusing on “jobs, jobs, jobs.” You hear it at every election and thereafter.

We agree that it should be the primary focus of any government, as a healthy employment level generates other benefits for the wider economy and the population’s prosperities.

So one thing, that accountants and business owners struggle to come to terms with is why states in Australia have a tax on jobs. That tax is called Payroll Tax, and we believe that it should have been abolished decades ago.

In Victoria, if an employer’s total payroll is over $ 575,000, every dollar above that threshold has tax applied at 4.85%.

This tax isn’t just for the big end of town. Small and medium businesses are also impacted.  See below example:

Your local restaurant may employ 15 staff with say an average wage of $ 40,000 per person. So that’s $ 600,000 of wages. Add on to this super of $ 57,000, and the employers total payroll is now $ 657,000. The excess of $ 82,000 is then taxed at 4.85%, so a sum of $ 3,977 needs to be paid by the employer in payroll tax to the Government.

Our question is why?  Why does this tax exist and what does it achieve?

In our opinion the simple answer is Revenue Raising. It surely has no other purpose and if it did, we’d love to hear it. You could argue that the revenue raised helps fund government expenditure, but all taxes do that.  By way of example, the employment of an individual may reduce welfare expenditure and generate more tax revenue as the individual becomes a “taxpayer.”

It’s a tax on jobs and along with that, business operators are given more red tape as they report to the relevant State Revenue Authorities each month on what their payroll tax obligations are.

Governments get away with it because the majority of voters don’t pay it and hence it’s not a hot political topic. Both government and the opposition love the revenue it generates and so why would they rock that boat and campaign for its removal.

Its business owners that pay it, but indirectly the wider population pay for it as payroll tax is a disincentive to employ when you reach those thresh holds for some.

If you can find a tax that is more counter- productive than Payroll tax…..let us know.