The e61 Institute has published new research finding that many South Australian businesses have “bunched” their payroll bills just below the $1.5 million threshold and are resisting growing due to the high cost of becoming eligible for payroll tax.
South Australia’s payroll tax settings mean that businesses with payrolls between $1.5 million and $1.7 million annually “face a sharp increase in their marginal tax rates from 0% to roughly 27%.”
The Institute found that since the changes to the payroll tax threshold in 2019 “the number of firms just below the threshold increased by 21%” and that South Australia’s payroll tax settings have “created a material barrier to firm employment growth”. They also found that the number of businesses above the threshold has decreased by 18%.
The 2019 reforms increased the tax-free threshold from $600,000 to $1.5 million, introduced a scaled tax rate for businesses with payrolls between $1.5 million and $1.7 million of zero to 4.95%. The maximum deduction remained unchanged at $600,000.
Our June 2023 Survey of Business Expectations showed that there had been a 19.3% increase in the number of businesses paying payroll tax from the 2020 – 2021 financial year to the 2022 – 2023 financial year, with 46.4% of businesses reporting having paid the tax in the latter year.
South Australian Business Chamber CEO Andrew Kay said that “Payroll tax is no longer just an issue for big business.”
“In the five years since the last increase to the threshold, we have seen significant wages growth. Businesses who have not increased their workforce have been pushed over the threshold in what is a case of ‘bracket creep’ for payroll tax.”
“Others are monitoring the situation to keep wages below $1.5 million, because once they are exposed to payroll tax, the cost to the business escalates quickly with every additional employee.”
Kay said the South Australian Business Chamber would “continue to push for change” in the area.
“There is a real opportunity here to unlock business growth and also set up SA as the most competitive place to do business in the country,” he said.
Read the e61 Institute report here.
Read the South Australian Business Chamber’s 2024/25 State Budget Submission here.
