Experts have proposed changes to simplify and standardise payroll tax. 

Analysts at PwC have studied state and territory payroll tax systems, which many consider confusing and cumbersome to administer. 

The report backs this view, saying payroll tax is the most misunderstood by businesses, politicians and the community.

The economists say reducing the payroll tax rate and broadening its base could balance out economic inefficiencies in the current system and boost productivity.

Payroll tax provided $25.8 billion in revenue for state governments in 2018-19, making it the largest single tax for these jurisdictions. The level of the taxes ranges from 2.02 per cent for regional Victoria and 6.85 per cent in the ACT, with each jurisdiction having different concessions and exemptions. 

PwC has called for thresholds to be lowered, and for a progressive tier of rates to be introduced, similar to the existing model in Western Australia.

The analysts say that the collection of payroll tax should be centralised through the ATO.

They claim this would reduce complexity while standardising exemptions, removing those that no longer offer any public benefit.

“There’s a gross misunderstanding of the way the tax works and actually affects businesses and employees. This is something we should be thinking about,” PwC chief economist Jeremy Thorpe has told reporters. 

The report says that the many misconceptions about payroll tax include the belief that it primarily affects small business. Many also falsely believe it is a tax on jobs that reduces employment, and that successful harmonisation has already taken place. 

“While we looked at a lot of substantial reform options, we came out saying the most practical first step is the reform of the administrative side of payroll tax,” Mr Thorpe said.

“It’s the niggling lack of consistency that is still there that represents a burden on business from a risk perspective, as well as collection and accountability.”