Payroll tax: an own goal against universal healthcare

Lynnette Hoffman

writer

Lynnette Hoffman

Managing Editor

Lynnette Hoffman

 

Ill-considered enforcement likely to reduce access to GPs and eviscerate Medicare…

Over the last decade, general practice income has dropped markedly, with 70% of owners concerned about their practice’s viability, according to the 2022 General Practice Health of the Nation Report. It’s against this backdrop that practices have learned their profit margins may be further eviscerated by payroll tax — and the ramifications for Medicare, patient care and the GP workforce crisis could be detrimental. Here’s what this policy might mean in real terms.

Reduced access to bulk billing, with the most vulnerable patients suffering most

One third of practice owners plan to increase consultation fees or reduce or eliminate bulk billing to make up for the impact of payroll taxes, Healthed’s latest survey suggests. And this could take a major toll on patients, state economies and the healthcare system more broadly.

Payroll tax rates vary around the country — with businesses in New South Wales paying at a rate of 5.45% on wages exceeding $1.2 million, and those in Victoria paying at a rate of 4.85% on wages exceeding $700,000, for example. Given the thin profit margins—reportedly 3-8% at most clinics—this could have devastating effects.

“While the effect of having to pay payroll tax may only seem minor, it may just be the straw that breaks the proverbial camel’s back for the financial viability of some practices,” said Dr Christopher Harrison, director of University of Sydney’s MD Population Health Theme.

Dr Harrison said that while he doesn’t have an issue with state revenue offices treating all businesses that hire contractors equally, the survey highlights the potential ramifications—and the importance of treading carefully.

“At a time when there is a concerted effort to increase the rates of bulk billing and to strengthen primary care, there is a risk that abrupt enforcement of payroll tax could undo the recent positive changes,” he said.

More people heading to emergency departments

With a third of practices planning to reduce or stop bulk billing or raise their fees, patients may turn to options that cost less for them in the moment, at greater expense for governments and tax payers overall, he said.

“This may increase the number of patients who seek care from the emergency department, which will increase the cost that the state pays,” Dr Harrison said.

More difficult working conditions and worsening workforce shortage

Further demonstrating the potential detrimental impact, 9% of surveyed practice owners said they are planning to close down or sell to cover the cost of future payroll tax liability. To put this in real terms, that equates to more than 550 practices.

And 20% said they plan to implement cost-cutting measures to make up the difference the tax will make to their already thin margins.

This includes:

  • decreasing GPs’ pay
  • cutting both GP and non-GP staff
  • reducing clinic hours
  • other cost-cutting measures.

“I believe that these cuts could make general practice less appealing for young graduates at a time when general practice needs to be attracting more,” said Dr Harrison.

“The effect of having to pay payroll tax needs to be considered in the light of the many other stressors on general practice, such as low indexation of the Medicare Items, large increases in the cost of providing care, staff and rent.”

Retrospective payroll taxes could lead to even greater burden

Retrospectively applied payroll taxes could have even greater catastrophic impact on the healthcare system, with 28% of practice owners saying they would close or sell if they received a bill of $250,000 or more, Healthed’s survey of 370 practice owners suggests. And 14% said they would put in place cost cutting measures if they received a back-dated bill of this magnitude.

With recent reports of practices receiving retrospective tax bills up to $800,000, and Victoria yet to announce any sort of amnesty or pause on back-dated bills, the hypothetical question showcases the realities that some practices are already experiencing.

How will your practice be affected?

    Not every practice will be affected equally, and many practices say they don’t yet know what the impact will be—or how they will address it.

  • More than a third of practice owners are unsure how their practice will be impacted or how they will respond.
  • 28% of GP practice owners say they won’t be impacted. The survey did not elicit the reasons, but if the total wages paid fall below the threshold in their state, or if contracts fall into an exemption, they would not be liable. Of course, there may be other reasons.
  • Around 20% of surveyed GPs and GP owners are already paid as employees, meaning recent payroll tax rulings will probably not change anything for them.
  • While 38% of GP owners report being “extremely concerned,” 21% are not at all concerned, 7% are only “slightly concerned” and one third are moderately or somewhat concerned.
  • 30% of practice owners said they plan to seek professional advice to cover future payroll tax

Credits

Survey conception and design – Dr Ramesh Manocha, Yasmin Clarke, Lynnette Hoffman

Survey analysis and visualisation and reporting – Yasmin Clarke

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Lynnette Hoffman

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Lynnette Hoffman

Managing Editor

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