Victoria's payroll tax will be cut to the second lowest rate in the nation, but business says a further overhaul of the impost is long overdue.
The state government will reduce the tax levied on the wages paid by employers by 0.05 percentage points to 4.85 per cent from July 1, as part of its 2014/15 budget.
It will become one of Australia's lowest payroll tax rates, behind Queensland (4.75 per cent).
The Victorian Employers' Chamber of Commerce and Industry (VECCI) welcomed the reduction but noted the $550,000 threshold at which the tax kicks in hadn't changed in a decade.
Increasing the threshold would "take a lot of people currently in the net, out of it", says VECCI chief economist Steven Mr Wojtkiw.
"A payroll rate cut will go a long way to help boost jobs growth and certainly it will lower costs for employers," he told AAP.
"(But) if we want to remain competitive against other states, like NSW and WA, then there is a challenge for the state government to provide an increase in the payroll tax threshold."
The threshold in NSW is $750,000, while in WA it will soon rise to $800,000.
However, Premier Denis Napthine says Victorian businesses with payrolls of between $4.7 million and $26.7 million will soon pay the lowest payroll taxes in Australia.
"Reducing payroll tax will make Victoria an even more attractive option for businesses looking to invest or relocate, and will give us a significant competitive advantage compared to other states," he told reporters on Tuesday.
Treasurer Michael O'Brien said the cut would amount to a saving for Victorian businesses of $234 million over four years.
"It's a good thing that when other budgets and governments are talking about increasing taxes, in Victoria - because of our strong economic management - we can talk about and deliver cuts to taxes," Mr O'Brien said.
