Lights, camera, action call on payroll tax

When Leederville-based Sandbox Productions bids for film and television work, it’s battling businesses across the globe.

“The competitiveness the market has in the film industry is vicious,” Sandbox managing director Grady Habib told Business News.

But while there’s often discussion about how Western Australia can spark development of new industries, there are some handbrakes on local businesses.

For Sandbox, which has been involved in productions including Shipwreck Hunters and Opal Hunters, labour costs are key.

Mr Habib wants the state government to cut the tax businesses pay on their wages, known as payroll tax, to enable Sandbox to compete with challengers in new markets.

International production houses were growing their businesses in Asia, where labour was less expensive, he said.

Mr Habib said workers with expertise in rotoscoping – a process that creates animations from real-life images – cost about $US60 a day in Asia.

In Australia, they cost between $200 to $300 a day, he said. “They’ve got a growing workforce,” he said.

“For visual effects, China and India are becoming powerhouses.”

Sandbox employs 26 people in Perth, although Mr Habib said the company may need to start hiring staff in Asia.

That number means a wages bill of about $1.8 million, well above the minimum threshold to pay the 5.5 per cent tax, which starts at $1 million.

Even the plentiful government rebates to attract film work to Australia, and to WA specifically, were not enough for local businesses to compete with the cost of manpower in other markets, he said.

“Everything I do is trying to make my production as efficient as possible,” Mr Habib said.

“[Payroll tax] adds no value to the pipeline.”

The tax made Australia a less attractive place to do business, he said.

“There’s a reason there’s no manufacturing in Australia, or very little,” Mr Habib said.

“The cost of human resources here is too high.”

Diversified

There’s no disputing the serious benefit mining brings to the state’s economy.

In the 2022 financial year, more than 46 per cent of income earned in WA was generated by the industry, or about $186 billion.

Despite the millions promised by political leaders to diversify the economy, the reliance on mining is higher than a decade ago.

At that time, close to the peak of a resources boom, mining was responsible for 34 per cent of the state’s income.

The payroll tax debate goes to the heart of the government’s strategy to develop WA industries outside of resources.

It’s also relevant to the federal government’s continued promises to boost wages nationally.

In August 2022, the state government promised a further $20 million of subsidies to attract film and television projects to WA.

Then, in November, it announced Malaga would be the site for a $100 million film hub, although commercial negotiations with Home Fire Pty Ltd were ongoing.

Beyond the creative arts, there’s been $181 million for Reconnect WA, the $180 million Industry Attraction Fund and, more recently, an $80 million handout for apartment developers to subsidise the cost of connecting utilities.

The question for the government is whether to pursue economic development by funnelling cash to specific businesses in specific industries or instead try to lower costs across the economy by cutting taxes.

Payroll tax ranked among Australia’s worst taxes in the 2010 Henry Tax Review, which found every $100 raised through the levy cost society an extra $40.

Four years later, the state’s Economic Regulation Authority recommended cutting the rate of payroll tax and reducing exemptions.

The ERA warned the tax incentivised offshoring of jobs, greater use of contractors, and made it less likely businesses would hire new staff.

In recent weeks, the Chamber of Commerce and Industry of WA has also voiced concerns about the tax.

“For WA businesses to face the biggest burden in the country is not only unfair but works directly against efforts to diversify our economy,” CCIWA said.

“WA businesses face the same rising cost pressure as households.”

A spokesperson for the state government said WA’s economy was strong, keeping people in jobs.

“WA has had the equal lowest average unemployment rate over the past year, suggesting that payroll tax has had little impact on businesses’ willingness to hire more staff,” the spokesperson said.

Payroll tax was an important revenue source, they said, but the government had increased the threshold for exemptions by $150,000 in 2020.