Thousands of Victorian businesses soon to be exempt from payroll tax

Announced as part of the state’s 2023/24 Budget, the payroll tax changes will see the threshold first increase from $700,000 to $900,000, and then to $1 million from July 2025.

The Victorian Government estimates around 6,000 businesses that otherwise would have paid payroll tax will no longer have to pay a cent once the threshold hits $1 million, while more than 26,000 businesses in total will benefit from the proposed changes.

In addition, the Government will phase out the benefit of the payroll tax-free threshold for larger businesses to ‘ensure this support is well targeted’.

“These significant relief measures follow payroll tax concessions for regional businesses that have been in place since 2017, progressively lowering the rate to one-quarter of that paid in metropolitan Melbourne,” Victorian Treasurer Tim Pallas said.

“Some 5,500 businesses benefit from the regional payroll tax concession every week, freeing up around $430 million a year to invest in their businesses and workers.”

In addition to the payroll tax changes, the Treasurer said the Economic Growth Package will further back businesses by progressively abolishing business insurance duty from 2024/25, saving businesses $275 million in total over the first three years of the change alone.

“Victoria will be the first state to remove this handbrake on business resilience, investment and growth,” Pallas said.

In a bid to support innovation in the state, Pallas has also announced a $30 million investment in the Business Acceleration Fund to support regulators to make it easier for small businesses to grow.

“These actions build on the success of existing $50 million investments in business acceleration and regulation reform which will deliver more than $300 million in savings every year, including time savings of more than 280,000 days a year,” Pallas said.

Alongside these changes, the Treasurer also announced that the operating cash surplus the State Government will deliver for 2022/23 is more than double what was forecast last year, with Victoria to return to an operating surplus of $1 billion in 2025/26, growing to $1.2 billion by the end of the forward estimates.

Another proposed change in the 2023/24 Budget is a ‘landmark reform’ to abolish stamp duty for commercial and industrial properties in a transition to an annual property tax.

“Removing upfront costs on commercial and industrial property purchases will accelerate business growth and boost jobs – with the cumulative increase in the size of the Victorian economy as a result of this reform up to $50 billion in Net Present Value terms,” Pallas said.

“The transition away from stamp duty for commercial and industrial properties will occur after they are sold, with the annual property tax applying after a further 10 years. Importantly, current owners will be exempt.

“This change means a retailer will be more likely to buy the new premises they need for their business to take the next step, or a transport company will have more reason to move into that larger warehouse.”

Business Council of Australia slams COVID debt repayment reforms

Another centrepiece reform included in the upcoming Budget is a plan to pay down the $31.5 billion the Victorian Government borrowed during the COVID-19 period.

This ‘COVID Debt Repayment Plan’ will primarily impact large businesses in the state and the owners of multiple properties, and will ultimately pay down the debt over the next 10 years.

As part of this plan, a temporary levy will be introduced that will focus on large businesses with national payrolls above $10 million, with existing payroll tax exemptions for hospitals and charities to apply. The State estimates this will apply to around 5 per cent of employers - “largely, extremely profitable businesses that came out of the pandemic stronger than ever”.

“We borrowed $31.5 billion to save lives and keep people in jobs. Those investments came at an unavoidable cost, as they did for governments around Australia and the world,” Pallas said.

“We aren’t the only government in this position. But we are the only government with a plan to pay down COVID debt.

“At the same time, the Government is committed to doing its share, undertaking a range of balanced savings measures. We’ll rebalance our public service – bringing it back towards pre-pandemic levels – while maintaining the frontline services that matter to Victorians.”

The COVID Debt Repayment Plan has been savaged today by the Business Council of Australia, which says the Budget ‘sends the wrong message’.

According to BCA chief executive Jennifer Westacott, the Budget will make it harder for Victorians to get ahead.

“Victoria is already the highest taxing state in the country and the new COVID Debt Levy announced today means it will be even harder to invest in the state, let alone create new jobs or grow the economy,” Westacott said.

“It was a payroll tax hike on business that funded additional mental health services announced in the 2021-22 state budget after the devastating impacts of prolonged state lockdowns.

“Now it is business that will foot the bill for helping to pay down the government’s $31.5 billion COVID-19 debt.”