Mr PEDERICK (Hammond) (17:12): I rise to speak in support of the Payroll Tax (Exemption for Small Business) Amendment Bill 2018. This was one of the key policy platforms for then the Marshall Liberal opposition that we are delivering in government, as long as this bill goes through this house and that other place.
We are hearing how good the business positivity index is at the minute because we had 16 years when people were essentially crushed and had no incentive to expand their businesses. Thousands of our youth left to go interstate with, sadly, many of them never to come back to South Australia. This is one initiative from the Marshall Liberal government that will keep people working here, it will give those incentives and it will provide a much-needed boon for South Australia.
Over time, it will create thousands of jobs and put money back into the economy that would not have otherwise come in, instead of using the old 'tax them to death' syndrome.
You cannot just keep taxing people because you think it is an easy way to make money. We are here to assist the engine room of the South Australian economy, the many tens and tens of thousands of small businesses, people who are prepared to put their homes and all their asserts on the line to start a small business. Sometimes they fail for a range of reasons and, sadly, too many have failed in the previous 16 years.
I take my hat off to everyone in small business. Obviously I come from a farming background where I employed people, and I have also been employed by many different people, whether it was as a farmhand or a shearer, or in my time in the Cooper Basin working for a small earth-moving firm and then working for a bigger business in the WY Line industry in the gas fields.
This is about taking the threshold from $600,000, which might only be about 10 employees, to $1.5 million, which on average would be something around 25 employees. Instead of people managing their business around not going above the threshold for however many employees they have so that they do not breach the $600,000, as they do, there is that incentive not just to be a small business but to grow and to become a small to medium business and, over time, potentially grow into a large business.
As we have heard from the contributions today in the house, it is about encouraging businesses to spend their money on what they are doing instead of just paying their money out in tax. I know certainly from a small business background that if you have a good, wet year—which sadly it does not look like it is going to be in the regional sector—and you get a good crop or you have good returns on stocks, as long as you can feed them, you could be liable for a reasonable tax bill, and then you get years when you may not be so successful on the land.
With all businesses, whether you are in a value-added industry, whether you are in a home-based business, or whether you are in a small business that is just looking at that next step, the thinking is, 'Well, if we do this we'll blow above the threshold. This other cost will come in. We'll have to put this extra building on, and then, just to top it all off, we'll pay all this extra tax.'
I am intrigued by the calculations in the bill with respect to payroll tax exemption for small business. For the record, I did not bother to work them out. The maths formula is there. I will have to take the bill home and get my son doing year 12 maths to see whether I can get him to exercise his mind and work it through. That might be an extra test for his year 12.
What we are doing with this is amending the Payroll Tax Act 2009 to exempt small businesses from payroll tax. Payroll tax is levied on taxable wages at the rate of 4.95 per cent above an annual tax-free threshold of $600,000 under the existing arrangements, under existing legislation. With the changes in this bill, businesses with annual taxable payrolls below $1.5 million will no longer be liable for payroll tax from 1 January 2019, which is coming to us pretty quickly.
Businesses with annual taxable wages above $1.5 million will continue to receive a deduction of up to $600,000 from their taxable wages consistent with the existing tax-free threshold. To smooth this transition to standard rates of payroll tax, businesses with taxable wages between $1.5 million and $1.7 million will pay a tax rate that increases proportionally from zero per cent at $1.5 million to 4.95 per cent at $1.7 million in taxable wages. For example, for a payroll of $1.6 million, the tax rate will be 2.475 per cent applied to the amount in excess of the $600,000 threshold. Businesses will continue to pay a rate of 4.95 per cent if their annual taxable wages are above $1.7 million.
As we have already heard in the house, on the modelling, these changes are expected to benefit around 3,600 businesses, reducing the payroll tax they need to pay by an estimated $44 million per year. Modelling shows that individual businesses will be saving up to $44,550 per annum. That is a really significant amount that a business can plough into its infrastructure, its staff or other assets to make their business a better place.
It is estimated that 3,200 of these businesses will be exempt from payroll tax and that 400 will receive a reduction in their payroll tax liability. This represents around 39 per cent of current payroll taxpayers who will no longer need to pay payroll tax or will pay a lower tax rate. These changes will remove a major disincentive to businesses, creating jobs, employing more people as well as making South Australia a much more attractive place to invest in and grow a business. The only place in the country that will have a higher threshold will be the ACT, with $2 million.
To provide certainty for business, this Marshall Liberal government will continue to implement the small business payroll tax rate measure introduced by the former government administratively until 31 December 2018. The measure reduces the effective tax rate payable to 2.5 per cent for businesses with taxable wages up to $1 million per annum. The rate then progressively increases to 4.95 per cent for businesses with taxable wages above $1.5 million. This is an excellent move for South Australia. It has been a long promised policy by the Marshall Liberal team. I wish the bill speedy passage through the parliament.
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