During COVID, governments moved quickly with targeted support to protect businesses from an economic shock they did not create. 

Payroll tax was cut, thresholds were lifted, and temporary relief gave tens of thousands of NSW businesses the breathing room they needed to survive, keep people employed and hold the line until conditions stabilised.

Those NSW Government decisions – together with an increase in the instant asset write off by the Federal Government – mattered. They saved jobs and businesses. And they showed that when an external crisis hits, smart, targeted relief can prevent short term disruption from becoming decade-long damage.

External shocks

Today, regional NSW businesses are facing another external shock. This time, it is being driven by fuel costs, supply chain pressures and rising input prices that are ripping through cash flow. 

Just like COVID, these pressures are not the result of poor management or market failure. They are imposed from the outside, and businesses are being asked to absorb them in real time.

The warning signs are already flashing red.

From 1 July to 8 March this year, 3605 NSW businesses entered insolvency for the first time, up more than 21 per cent compared with the same period in 2024. 

New South Wales alone recorded more than 10,000 insolvencies, nearly matching the combined total of Victoria and Queensland over the past three years. These are not abstract numbers. They are employers, family businesses and local operators running out of runway.

When cash flow tightens, fixed costs bite hardest. And payroll tax is one of the most damaging fixed costs facing growing businesses. 

At 5.45 per cent, NSW has one of the highest payroll tax rates in the country. The threshold remains stuck at $1.2 million, despite years of rising wages and inflation. 

If that threshold had been indexed to the Wage Price Index since 2020, it would already be around $1.38 million. Indexed to award wages, it would be closer to $1.49 million.

Instead, businesses are being pushed over an artificial tax cliff simply for hiring staff.

Tax punishes businesses

According to the NSW half yearly review, the amount of payroll tax paid in financial year 2024-25 was $13.368 billion, $333 million higher than originally forecast. 

The bottom line: more money is being ripped out of the hands of about 50,000 productive businesses than ever before.  

Almost seven in 10 businesses recently told Business NSW that payroll tax has prevented them from employing staff. That is not because they do not want to grow, but because the tax actively punishes them for doing so.

The impact is felt most by small and medium sized businesses, the backbone of the NSW economy. Payroll tax creates an artificial ceiling on workforce expansion. The moment a business hires that next worker, the tax bill jumps, margins shrink and risk spikes.

Young and unskilled workers pay the price. Youth unemployment jumped from 9.1-9.3 per cent in the year to December 2025. 

When hiring triggers a higher tax bill, it is no surprise that businesses think twice before taking someone on, especially during periods of uncertainty.

We see this on the ground every day.

One regional business told us this week: ‘Payroll tax relief during COVID was great to assist cash flow. We had to pay it after six months, but we could keep the money in the business to manage cash flow through the uncertainty’. 

An Oberon accommodation provider told us last week – off the back of the Great Western Highway closure – ‘April and May normally generate over 50 per cent of our annual income… this is potentially catastrophic’. 

The parallels with COVID are clear.

In both cases, businesses are facing sudden, external shocks. In both cases, cash flow is hit first. And in both cases, early intervention can stop temporary disruption from becoming permanent economic scarring.

Targeted relief works

The lesson from the pandemic is not complicated. Short term, targeted relief works.

That is why Business NSW is calling for practical payroll tax reform for regional businesses, which are subject to higher costs and thinner margins.

Lift the threshold from $1.2 million to at least $1.5 million and index it properly. Cut the rate below 5 per cent to bring NSW into line with other states. 

Victoria has a regional payroll tax rate of 1.2 per cent. No wonder businesses jump over the Murray River from Albury to Wodonga.  

A NSW business with a $4 million annual taxable wages bill would save an estimated $110,00 annually if they were in regional Victoria.

At a federal level, we need to make the instant asset write-off permanent, increase the threshold to $50,000 and introduce a 20 per cent investment allowance for large-scale assets over $100,000 to support substantial, long-term business Investments. 

These are not radical ideas. They are sensible, proven measures that support employment, investment and growth.

NSW cannot afford to relearn the same lesson twice. During COVID, decisive, targeted action – and not blank cheques – saved businesses and jobs. Faced with another external shock, the right response is the same.

Act early. Target relief where it matters. And give businesses the chance to keep people employed and keep the economy moving.

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