NSW Budget 2022-23: Payroll tax to lead budget back to surplus

NSW treasurer Matt Kean has handed down a big spending budget ahead of a state election next March, with the government aiming to return to surplus by 2024-25 by leaning on increased payroll tax receipts.

Fady Abi Abdallah, tax partner at BDO in Australia, said the NSW government is expecting payroll tax to overtake transfer duty as the largest source of taxation revenue from 2022-23 as it expects a slowing down of the residential property market.

“It is back to normal for businesses who pay payroll tax with the NSW Government announcing the temporary reduction in payroll tax will not continue,” said Mr Abi Abdallah.

“Businesses will now see payroll tax rates return to 5.45%, up from 4.85% over the last two financial years.”

“Businesses will now have to juggle increased payroll tax payments along with rising interest rates and inflationary pressures.”

Compliance activity investment

Mr Abi Abdallah also notes that the government’s $60 million investment in compliance activities will help in its quest back to surplus.

“The Treasurer’s announced increased funding towards additional compliance activities focused at increasing land tax and transfer duty revenue is set to rake in more than nine times its investment,” said Mr Abi Abdallah.

“This will also assist with the government’s push towards surplus.”

However, he notes that the proposed increase in land tax surcharge for foreign investors from 2% to 4% could potentially backfire.

“The proposed doubling of the land tax surcharge from 2% to 4% has the potential to drive away foreign investment amid precarious economic conditions,” said Mr Abi Abdallah.

“This revenue raiser could ultimately prolong NSW’s recovery if foreign investment in the state dries up as a result of this measure.”

Stamp duty reform

Mr Abi Abdallah has also welcomed the state government’s push towards stamp duty reform with the announcement of the First Home Buyer Choice that will allow purchasers to opt in to pay an annual property tax instead of stamp duty.

“This is the first step in a long journey to helping first home buyers enter the property market and achieve duty reform in NSW.  Hopefully this is the first step towards modernising the state tax regime in NSW,” he said.

“Stamp Duty was introduced to NSW in 1865 and it’s showing its age as an outdated tax which has stifled the property market in the last few decades.”