Media Release - Ben Wyatt, WA Treasurer: Training reforms better use of taxpayer dollars 20 Mar 2018

As published by the West Australian - 27 Feb 2018

The Japanese term “kaizen” should resonate for those in business. It is a philosophy by which all employees look continuously to improve their performance. It is also a sound approach for governments. When you see something that is not working as well as it should, you change it for the better.

Last year, the State Government flagged important reforms to a scheme that reduces payroll tax liabilities for employers who enrol their employees in approved training courses.

The original intent of the exemption was to encourage the expansion of apprenticeship training in the State and for businesses to hire and train new staff.

However, while well-intentioned, it has become clear it is in desperate need of reform. First, it was being rorted, which means that WA taxpayers were being rorted. The fact that this rorting was legal highlights the need for change.

Compounding the pain, households had to pick up more of the burden for the State’s revenue.

To highlight how the scheme was open to abuse, in 2013 an application was received for the entire workforce of a large organisation to be registered in a business course. In another case, an employer claimed exempt wages of about 92 per cent of its total wages of $5.3 million in 2015-16, and 93 per cent of $4.4 million of wages paid in 2016-17.

Its payroll tax dropped from about $150,000 in 2014-15 to nil in 2015-16 and 2016-17.

There are businesses whose entire business model is predicated on avoiding payroll tax, which means that their business is making it tougher for the Government to provide the services that people expect. So, given the vested interests in this debate, it is not surprising there are criticisms of these re- forms from some quarters.

To be frank, other States have been smarter in managing these sorts of schemes. WA’s scheme is worth about 2.4 per cent of total State payroll tax liabilities. The next highest is the Northern Terri- tory at 1.2 per cent, with the average of all others at one per cent or below.

It is no surprise then that the cost to the WA taxpayer is out of control, with the cost of the scheme rising from about $11 million in 2005-06 to $80 million in 2016-17.

The other reason the system is in desperate need of reform is that it is falling well short of targeting its genuine training need.

When we have an environment where, as the Chamber of Commerce and Industry says, “constant change and upskilling is the new normal”, then we need to ensure our training resources, and, therefore taxpayers’ money, can be targeted in the most efficient way.

Businesses must remember that when they are asking the Government to subsidise a training course, they are in effect asking the WA taxpayer. I’m confident that if the scenario was put to a householder in Perth’s suburbs they would see the merit in providing an apprenticeship.

However, they would probably rightly point out that if a business thought a well-credentialed manager on a salary higher than the Premier wanted to do a training course for the good of that business, then that business should pay for that training course.

Our solutions will work in two phases. First, exemptions will be limited to apprenticeships and traineeships undertaken by new employees earning no more than $100,000 a year. The savings from this will be reinvested into funding more than 40,000 training places over the forward estimates period.

The second stage will involve exploring options to implement a grants scheme to replace the payroll tax exemption to better target Government support towards the State’s workforce priorities.

We want to stick up for small business and make the scheme available to all businesses, not just those who pay payroll tax as it currently stands. Options will be considered from the middle of the year, for a possible start from July 1 next year.

These reforms are vital — not only to restore integrity to the scheme and ensure that taxpayers’ funds are respected but also to ensure that we target our scarce training funds on genuine training needs.

As we continue to transition to an information-based economy, we must develop our people so they can compete and prosper in an increasingly competitive world.

We must discard the thinking that the biggest do it best and ensure that the smallest of businesses do not miss out on these opportunities.