“In this world, nothing is certain except death and taxes”
– Benjamin Franklin
Taxes have their benefit on society and are required to build and maintain public services which we all benefit from as a society. However, some taxes potentially have more of a negative effect than a positive on society. Payroll tax is one example.
A discussion about payroll tax was recently sparked on LinkedIn by Tim Brewer, CEO of Functionly, in a post where he said:
“Hi, I am Tim, the CEO and co-founder of Functionly. We are a technology company that sells software to 40+ countries. We were founded in Perth with a small global team of less than 10. We are not a farm or mine and can transfer our IP and hire people almost anywhere until we are lucky enough to exit.
Sadly, today, I asked my team not to employ any more people in Australia because of the Western Australian payroll tax. This is the best way to push all modern industries, IP value creation, innovation & work offshore.
Roger Cook, I am happy to share and help articulate what this anti-Western Australian tax is doing to kneecap industry and economic diversification.
I fear that as AI, automation & robotics eat work as we know it, we are incentivizing the wrong industries to stay away from WA. We need to fix the payroll tax today.”
What is payroll tax
Payroll tax is a tax that companies are required to pay the State Government after they reach a pre-defined threshold of total Australian taxable wages. All states in Australia have a payroll tax in place with rates ranging from 4% in Tasmania to 6.85% in the ACT. Western Australia’s payroll tax rate is one of the highest in Australia at 5.5% of taxable wages.
In WA, payroll tax is paid into the Consolidated Fund of Western Australia to meet the costs of public services such as education, health, public safety, and law and order.
The threshold for paying payroll tax in WA is $83,333 in taxable wages paid per month.
Payroll tax rates across Australia:
| State | Payroll Tax | Monthly Threshold |
| Tasmania | 4% $1.25m to $2m and 6.1% above $2m | $104,166.67 |
| Queensland | 4.75% up to $6.5m and 4.95% above $6.5m | $108,333.00 |
| Victoria | 4.85% and 1.2125% for regional employers | $58,333.00 |
| South Australia | 4.95% | $125,000.00 |
| New South Wales | 5.45% | $100,000.00 |
| Northern Territory | 5.5% | $125,000.00 |
| Western Australia | 5.5% | $83,333.00 |
| Australian Capital Territory | 6.85% | $166,666.66 |
What is the potential effect of payroll tax on WA’s startup and innovation ecosystem
Payroll tax, like any tax, can have both positive and negative impacts on a growing startup and innovation ecosystem, depending on various factors such as the size of the startup, its revenue, and its growth trajectory. Here are some potential impacts:
- Cost Burden: Payroll tax imposes an additional cost burden on businesses, particularly on those with a significant number of employees or a high payroll. For startups, especially those in the early stages, this can be a considerable financial strain, reducing the funds available for investment in innovation, research, and development.
- Hiring and Growth: Payroll tax may influence hiring decisions as demonstrated by Tim Brewer’s post referenced earlier in this article. Startups may be hesitant to hire additional employees or expand their workforce if it means crossing the threshold for payroll tax liability. This could potentially slow down their growth and innovation efforts.
- Competitiveness: In a competitive market, the payroll tax can put WA startups at a disadvantage compared to those in regions with lower or no payroll tax. This may affect their ability to attract and retain talent, as well as compete with businesses in other jurisdictions.
- Innovation Investment: The funds diverted towards paying payroll tax could otherwise be allocated towards innovation investments, such as research and development, product improvement, or market expansion. This diversion of resources may slow down innovation within the startup ecosystem.
