Payroll tax to have seismic impact if not addressed

Ben Falkenmire

writer

Ben Falkenmire

Writer

Ben Falkenmire

GPs predict major negative impact on workforce, practice viability and burnout

More than half of GPs say the payroll tax will leave general practice worse off as a whole, with 38% saying it could affect the viability of their clinic, according to Healthed’s latest survey of more than 1600 GPs.

And that’s not all—47% expect the tax to increase work-related stress and burn-out, and more than a third say it’s likely to negatively impact their current level of involvement in general practice.

Recent court cases in NSW and Victoria have increased the likelihood that states and territories will seek payroll tax on the amount GPs invoice general practices, a move that is expected to reverberate across a sector reeling from successive cuts to Medicare funding.

Payroll tax criteria differ for each state and territory, but in general, it targets mid and large tier clinics and is around 5%. In NSW, for example, the payroll tax rate is 5.45%, which clinics with annual wages of $1.2 million or more are required to pay. For a doctor invoicing a clinic $250,000 for his or her services, this equates to a $13,625 tax expense for the clinic.

“Our practice is already struggling financially, this is likely to further add to the burden…I hope we survive,” one GP lamented.

Other GPs called the tax ‘devastating,’ ‘demoralising,’ and ‘destructive.’

“It has the potential to decimate general practice and force many doctors in their 60s to immediately retire,” another GP said.

Nearly 40% of surveyed GPs say their clinic’s viability is at stake

RACGP Vice President Dr Bruce Willett says the tax will eviscerate profit margins at most clinics, which range between 3% and 8%, and if the tax is applied retrospectively, it could wipe many clinics out.

“I expect general practices will put up their consultation fees by $15 to cover the payroll tax and to continue to cross subsidise bulk billing. Practices would struggle to cut GP fees because they’re in a seller’s market,” Dr Willett says.

“The Queensland Government has granted an amnesty to general practices until 2025, but none of the other states have followed suit, which is troubling. A retrospective tax would make a lot of practices insolvent.”

“Practices across Victoria and NSW are already closing because of the payroll tax issue. Because Medicare has been choked off, rural practices and smaller practices are getting to be unreliable and this tax will make it worse,” he says.

“Most General practices survive on a profit margin lower than the proposed tax. Combined with back pays of tax, many practices will shut – just walk away. Slim profit being converted to large loss!” one surveyed GP said.

One surveyed GP said the tax will “probably bankrupt some, force others to close down.”

Another commented that a “high percentage of GP practices are likely to become non-viable and close, as they are unlikely to be saleable. Bankruptcies could result…”

“This may be the proverbial straw for a lot of practices after years of running on paper-thin margins due to rising costs, overheads and inflation-related pressures,” one GP said.


Another hit to a lean workforce

More than half of surveyed GPs (51%) said the payroll measure would negatively impact the GP workforce more broadly.

Surveyed GPs worried that the tax would lead more medical students to ‘shun general practice’ and some blamed instability in the sector, caused by ‘constant changes’ such as the payroll tax, as a driving cause of GP shortages.

AMA NSW President Dr Michael Bonning agrees that the payroll tax will further detract medical graduates from entering general practice.

“There are already fewer trainees choosing this part of the profession,” he says. “Presented with a simpler option of staying in the hospital system and continuing training with lots of entitlements and without the spectre of a significant drop in income, many graduates are choosing that path instead.”

The tax could also push GPs to retire or change the way they practice, with 34% saying it will have a negative impact on their involvement in practice.

One GP said they will ‘leave the profession soon if my income doesn’t improve substantially’.

Another believed the tax would hasten the retirement of many older GPs, while another commented that ‘GPs will have less incentive to work’.

Federal member for Kooyong, Dr Monique Ryan, told Healthed the tax would cause stress to many GPs who are already struggling to provide bulk billing services.

“We know that it’s getting harder and harder to find a bulk-billing doctor, and that many Australians are having to defer seeing their doctor because of the cost of doing so,” Dr Ryan says.

“This is a false economy – it can result in poor health outcomes and in people needing to present to hospital emergency departments rather than to primary health care centres. We need to take pressure off GPs, not increase it,” Dr Ryan says.

Dr Bonning expects the payroll tax will see clinics push up patient fees or GPs will be forced to take a cut in fees. Either way, he expects GPs will end up working longer hours.

“GPs will inherently try and do more for patients to justify an increase in a consultation fee, or they’ll end up working longer hours to make up for loss of income,” Dr Bonning says, adding that the extra hours will likely result in more stress and burnout.


What happens next?

The Queensland Government issued a ruling in December 2022 stating that clinics in their state are eligible for payroll tax from the 2022 financial year onwards, with an amnesty on the tax’s retrospective status until the 2025/26 financial year.

Recent court rulings in NSW and Victoria mean clinics there could already be eligible, creating a pressing need for clinic owners in all three states to seek tax advice on their engagement terms with GPs.

The RACGP and the AMA NSW are calling on states and territories to exempt the contracts between practices and GPs from payroll tax, highlighting that practices already pay payroll tax on the salaries of nurses, reception staff and practice managers.

Dr Willett says, at a minimum, an amnesty on the retrospective status of the tax should be provided, and the tax’s revenue threshold should be raised to give the smaller of the mid-sized clinics some reprieve.

Dr Bonning expects to see struggling practices sell to corporate owners who can better absorb the tax, but even corporate owners could be vulnerable, with the AMA NSW President warning they may opt to dilute their bulk billing offering to make up for the increased cost.

“Many of them have been a last resort bulk billing option for patients. If they can’t absorb the tax, patients will lose the ability to see a GP in a timely manner,” Dr Bonning says.

The tax might also see GPs choose to operate a one-GP practice, which would be a backwards step in Dr Bonner’s opinion.

“Individualisation of practice diminishes the benefits of team-based care that has been really beneficial for patients, especially as the needs of patients become more and more complex,” he says.

Credits

Survey conception and design – Dr Ramesh Manocha
Writing and reporting-Ben Falkenmire
Survey analysis and visualisation– Yasmin Clarke
Editing – Lynnette Hoffman

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Ben Falkenmire

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