The NSW Liberal and National parties have pledged to reduce payroll tax for businesses if elected in 2027, proposing a higher tax-free threshold, a lower rate for smaller employers and automatic indexation to inflation.
The announcement comes as businesses face higher wage, financing and payment costs, while separate federal tax reforms affecting discretionary trusts continue to move through consultation and legislation.
Under the Coalition proposal, the NSW payroll tax-free threshold would rise from $1.2 million to $1.5 million.
Businesses with total Australian payrolls below $10 million would also face a reduced payroll tax rate of 4.75 per cent, compared with the current standard rate of 5.45 per cent.
The threshold would then be indexed to CPI.
NSW Payroll Tax Threshold Has Remained at $1.2 Million
Under current NSW rules, employers generally become liable for payroll tax when their total Australian taxable wages exceed the state’s annual threshold.
For the 2026–27 financial year, that threshold remains $1.2 million, with a tax rate of 5.45 per cent applied to taxable wages above the relevant threshold.
The $1.2 million threshold has remained unchanged since at least the 2022–23 financial year.
For businesses operating across multiple states, the NSW threshold can also be reduced according to the proportion of total Australian wages paid in NSW.
The Coalition argues that leaving the threshold unchanged as wages rise can bring more employers into the payroll tax system or increase their liability even where business profitability has not increased at the same rate.
Proposal Would Create a Lower Rate for Businesses Below $10 Million Payroll
The proposed 4.75 per cent rate would apply to businesses with an Australian payroll below $10 million.
Larger employers would remain outside that proposed concessional rate under the policy as currently announced.
The Coalition has not yet released detailed costings showing the expected impact of the changes on NSW budget revenue.
Ahead of the March 2027 state election, major party policies are expected to be subject to Parliamentary Budget Office costing requirements.
NSW Demand Was Flat in June Quarter
The Opposition has also pointed to weak economic conditions as part of its case for payroll tax relief.
Latest Australian Bureau of Statistics data show NSW state final demand was unchanged in the June quarter of 2026, compared with national domestic final demand growth of 0.3 per cent.
Household consumption in NSW rose 0.3 per cent, while private investment fell 0.4 per cent and public investment declined 0.9 per cent.
However, state final demand is one measure of economic activity and does not by itself represent the full size or growth rate of the NSW economy.
Business Numbers Continued to Grow in NSW
Claims of widespread business closures also require broader context.
ABS figures show the number of actively trading businesses in NSW increased by 26,057 during 2025–26, the largest net increase of any state or territory.
Nationally, there were 375,331 business exits during the year, but these were outweighed by 460,461 business entries, producing a net increase of more than 85,000 businesses.
The data nevertheless show pressure among employing businesses, with much of the overall growth coming from non-employing operations.
Across Australia, non-employing businesses increased by 4.8 per cent in 2025–26, while the number of employing businesses rose by only 0.2 per cent.
Federal Trust Tax Changes Remain Under Development
The Coalition announcement also refers to proposed federal changes affecting discretionary trusts.
The Australian Government plans to introduce a 30 per cent minimum tax on discretionary trust income from 1 July 2028, subject to exemptions and final legislation.
An exposure draft released in September includes additional options intended to reduce restructuring costs.
One option would allow qualifying discretionary trusts to elect to make fixed distributions to nominated beneficiaries rather than restructure, with Treasury saying that approach is not expected to trigger state stamp duties.
The final effect on individual businesses will depend on their ownership structure, income and eligibility for exemptions.
Card Surcharge Rules Have Already Changed
The Opposition release also raises concerns about businesses absorbing card payment costs.
From 1 October 2026, eftpos, Mastercard and Visa introduced rules generally preventing merchants from adding card surcharges to transactions on their networks.
American Express, UnionPay and PayPal have also announced or implemented similar changes.
However, the change formed part of a wider RBA payments reform package that also reduced interchange fee caps and introduced greater fee transparency.
The RBA expects smaller merchants in particular to benefit from lower card acceptance costs over time, although individual businesses may still face payment processing and terminal fees charged by their providers.
Payroll Tax Policy Becomes an Election Issue
The proposed changes would represent a significant adjustment to NSW payroll tax settings if implemented.
The key commitments are:
- Raise the tax-free threshold from $1.2 million to $1.5 million
- Reduce the rate to 4.75 per cent for businesses with total Australian payroll below $10 million
- Index the threshold to CPI in future years
The proposals remain election commitments and have not been enacted.
Their fiscal cost and distributional impact will depend on detailed policy design and independent costing ahead of the March 2027 NSW election.
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