PAYROLL TAXES (1941)
The federal government introduced payroll tax in 1941 at 2.5% of wages to finance a national scheme for child endowment. In 1971, the federal government handed over payroll taxes to the states and they promptly increased the rate to 5%.
Tax competition between states and lobbying by individual employers and employer groups for exemptions has since reduced the payroll tax base to less than half of the comprehensive labour income tax base. Nevertheless, payroll taxes are a critical source of tax revenue for the states and account for 30% of their total revenue.
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