INTERVIEW: Deloitte partner Paul Hockridge

Isabelle Oderberg: Who are going to be the real beneficiaries of the payroll tax cuts in the business world?

Paul Hockridge: The beneficiaries in the business world will not be evenly spread, either from state to state or within the states and the reason they won't be evenly spread is there's more in this for the top end of town than for the mid market and medium enterprises.

The logic behind all that is that the changes to payroll tax, that is reducing payroll tax, will benefit the top end of town more because they're the people who employ more people, so the benefits in a reduction to payroll tax at the smaller enterprise level will fail to have as much of an impact.

The only other thing I would say is that I guess when weighing up the winners and losers, there are still differences in state to state, particularly in the stamp duty area and there has been a lot of pressure to help out first home owners, but of course the rest of the market still finds stamp duty a considerable burden and the other one is land tax, again there are significant differences in the land tax rates from jurisdiction to jurisdiction. Land tax is a particular burden and Victoria is out of step with the rest of the country in that it imposes a penalty rate of land tax where land is held in a trust.

IO: So would this be affecting the listed property trusts?

PH: Yeah, more for your small to medium enterprises, so a change here could impact on listed property trusts, but I guess it's a help more for the small to medium enterprise market who might have say one or two rental properties, that the extra land tax burden could result in considerable pain.

IO: And are you suggesting that this would be an area that the government might essentially be looking to address?

PH: It's certainly an issue that's ripe for reform in Victoria.

IO: Are the payroll tax cuts unfairly giving benefits to big business?

PH: It certainly benefits big business more than small business and one of the other ways it benefits big business is that the payroll tax regimes around the country are being harmonised as of tomorrow and again it's typically the top end of town that benefits most from harmonisation because they're the ones who employ people in more than one state. So, the big winner as of tomorrow really is the top end of town.

IO: So is there anything here for small business?

PH: Even a small tax cut is nice and so they will benefit from the reduction in payroll tax, but for any big changes we really need to wait to see what happens with the review of the tax system generally and the state treasurers have already put the federal government on notice that they can't go dropping state taxes any more unless there's a significant reduction in the federal tax burden.

IO: What do you think is going to be a realistic outcome for the review then? If you were betting man, where would you be putting your chips?

PH: The real difficulty for the federal government is going to be in making meaningful tax cuts when they've said that they won't change the GST base. That's the real difficulty the federal government's going to face, because most of the revenue is collected from personal income tax and then company income tax and that puts us at a significant disadvantage to the rest of our overseas competitor countries because they rely much more on indirect taxes. Once we say we won't raise an estate duty or a gift duty and we won't change the GST rate or base, then there are real limits on where we can find revenue to fund major reform.

IO: And in terms of the payroll tax changes, geographically are they going to be evenly distributed, or very different levels among the states?

PH: The savings will really be spread in those jurisdictions which employ the more people rather than capital, that is labour-intensive industries rather than capital-intensive industries.

In an area where there's a significant manufacturing base like NSW and Victoria, then you would expect a significant saving for major employers particularly in those jurisdictions.

The other states will also benefit, but perhaps all the more so in Victoria and NSW.

IO: And the purported $5 billion in savings, I think it's over four years, from the payroll tax cut, is that a realistic figure?

PH: I think there's a fair bit of guess work there in relation to where the $5 billion comes from because that's not only payroll tax, that's also a range of other taxes and the state treasurers have put us on notice that those tax cuts are dependent upon the federal government coming to the party.

IO: Which is as you said yet to be seen?

PH: Exactly, exactly and that's very hard because the revenue's got to come from somewhere. It's wonderful if like say in Queensland we get a resource boom and levies from coal go up, but absent windfalls like that, the money's just got to come from somewhere.