GST fix strengthens WA’s case to cut payroll tax to create small business jobs

Fixing the GST has made the case for cutting the State Government’s tax on Western Australian jobs even stronger and would help to create jobs in every WA industry.

WA has become more dependent on payroll tax than any other state because the WA Government kept a greater share of this revenue, instead of it being siphoned off to other states through the old GST distribution. Now that the GST distribution has been fixed that has all changed.

WA Premier Mark McGowan highlighted this to the Australian Senate’s inquiry into GST reform that under the old GST formula the WA Government was incentivised to raise payroll tax “which impacts all those small and medium-size enterprises out there across Western Australia” and that this was a key reason to fix the GST.

With the fix to the GST formula and a GST floor introduced, WA can now reduce payroll tax without as a severe impact on the budget bottom line, making it a golden opportunity for the Government to pull this policy lever to create new WA jobs.

The GST distribution was holding WA back, and payroll tax is holding WA jobs back.

The South Australian Government even pointed out in 2018 that if the GST distribution was changed that “Western Australia may have the capacity to cut business taxes like payroll tax leading to a relocation of head offices or other businesses”. We should not miss this opportunity highlighted by the good people of South Australia.

When we want people to smoke and gamble less we increase taxes on smoking and gambling, so if we want small businesses to create more jobs we should reduce the tax on WA jobs.

WA has the highest payroll tax burden of any state, which means it is more expensive to create a job here than anywhere else in the country. It’s not surprising then that WA has the second highest unemployment rate in the country and total employment in WA has been declining, in trend terms, for six consecutive months.

Premier McGowan has set his Government an ambitious target of 150,000 new jobs within five years. The Government can’t achieve this without small business creating jobs. Employment has grown at just 1.1 per cent per year on average for the past decade – less than half the 2.3 per cent growth needed.

CCI’s 2019-20 Pre-Budget Submission calls for the Government to increase the payroll tax threshold by $100,000 to $950,000 to create almost 900 jobs in the first year alone and boost the State’s economy by $283 million.

Small business in WA is struggling. Almost 60 per cent of small business owners earn less than $50,000 a year. Without this reduction in the jobs tax any additional wages to create a new job or give existing workers more hours must come out of that $50,000.

Cutting payroll tax creates jobs, supports wages growth, will add hours for existing workers, supports small business, and because it benefits every WA industry evenly, will help diversify the economy.

Last year was the year to fix the GST. This is the year to reduce the tax on small business jobs to boost diversification and create new jobs for West Australians.

To demonstrate that every WA industry benefits from this change, CCI’s payroll tax recommendation is supported by peak WA industry groups, including the Association of Mining and Exploration Companies, Chamber of Minerals and Energy WA, Property Council WA, the Regional Chambers of Commerce and Industry WA, Real Estate Institute of WA, Tourism Council WA and Western Roads Federation.

To read CCI’s 2019-20 Pre-Budget Submission payroll tax recommendation, click here.

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