When the pandemic hit, and it looked like tens of thousands of Victorian workers would be out of jobs, business stepped up.
Flexible arrangements were thrown into place, people were retained wherever possible, and companies paused other plans to keep the economy moving.
Then, when the threat of the pandemic receded, businesses were called on again — this time to pay a mental health and wellbeing surcharge, applying to those with taxable wages above $10 million.
It came at a particularly difficult time for many mid-market businesses, as they were beginning to recover from the effects of protracted lockdowns, and imposed unnecessary pain on labour-intensive businesses in retail and hospitality.
Now, the Victorian government has turned to business again, this time to shoulder a 10-year repayment plan to address COVID debt.
In order to repair the gaping hole in the state’s budget, Victorian businesses with national payrolls above $10 million a year will be subject to an additional 0.5% levy on top of the existing payroll tax rate, with a further 0.5% for businesses with a payroll over $100 million.
This is no small request.
Treasury modelling suggests the extra payroll burden, coupled with a range of other changes that remove payroll tax-free thresholds for small business, and capture more property investors, will claw back $2 billion from business and property owners in 2023-24.
Demands will grow by roughly 5% a year over the forward estimates to $2.3 billion in 2026-27.
That equates to $2 billion-plus a year that isn’t being invested in growth, can’t be spent on building business and won’t be put towards critical investments that could support productivity, digital transformation or environmental transition.
It hampers our competitiveness in attracting business investment compared to other Australian states, and it is also likely to be an inhibiting cost for businesses, particularly as they look at their labour expenses.
While the Victorian budget showed record low unemployment in the state, this comes at a cost for businesses trying to compete for scarce talent.
Wages are rising — 3.5% this year and next — and when faced with additional taxes on labour, many businesses may decide it is easier to leave positions unfilled.
It’s unsurprising, perhaps, that Treasurer Tim Pallas expects a reversal of employment fortunes, with a forecast 0.5% rise in 2023-24 and a further 0.25% rise in subsequent years.
While it is tempting to assume that only big businesses will be scorched by the Debt Levy, the reality is that a form of business bracket creep has been occurring in Victorian budgets.
A Victorian business with a national wage bill of $10 million can still be a relatively small operation in this state, but remains firmly in the Treasurer’s sights.
The latest changes again apply payroll tax increases from the $10 million threshold, but also go further, by eliminating the tax-free threshold for any business with a $5 million wage bill, and reducing the tax-free threshold for each dollar that a business pays over $3 million.
Only the smallest businesses, with wage bills under $1 million, will see relief. From July 1, 2024, the payroll tax-free threshold will be lifted from $700,000 to $900,000, and lifted again to $1 million from July 1, 2025.
The shift to burden businesses with additional payroll taxes — while eliminating the payroll tax-free threshold for small-to-medium business — represents a double blow for companies already struggling with higher wages, additional costs, and inflation.
Businesses can’t just absorb this cost. It instead gets passed on in the form of increased prices for goods and services, which simply fuels the inflationary environment.
The alternative is not to make the additional hire or invest in the additional capacity — neither of which is a good outcome for Victoria.
There is no doubt that the budget repair process for our state will be long and painful. Right now, though, it is the group most needed to lead the recovery that will feel the worst of the pain.