Asking for an exemption was probably a bad idea. A grace period is a win – but things will still get harder eventually.
Many readers will recognise David Dahm, principal of long term practice advisory firm HealthAndLife, as a regular contributor to TMR on financial matters for doctors.
He wrote in TMR this week that the AMA and the RACGP grandstanding in the media on a full payroll tax exemption was a very dangerous strategy.
Some of you really don’t like Dahm. My favourite detractor wrote to me a while back and referred to him as David Doom (I laughed the first time I read that because Dahm does tend towards the dramatic from time to time – I think it comes from frustration on his part).
This particular detractor argued way back to me that Dahm stirs the pot by talking up non-issues, like payroll tax, mainly for commercial reasons, to attract more business.
Dahm was one of the first commentators, if not the first, to alert the sector about issues emerging on payroll tax. He first wrote about it in Medical Observer newspaper as far back as 2013.
More recently when he has raised the alarm, he copped quite a bit of “doomsayer” type flack.
But his recent warnings have turned out to the prescient. A lot of what he was saying on day one has come to be recognised as a giant problem now, and too late for some practices, which have already been audited.
Dahm gets insight early on issues likely to affect medical businesses because from time to time some of his client base gets audited by one tax authority or another, and he has to defend his client’s position in private.
He knows stuff that others don’t know before it becomes public because he spends a lot of time in private explanation marathons with various tax bodies, and when he wins against them (which he maintains he does a lot), what he and his client went through (and learned) is never made public because tax bodies don’t like that sort of publicity, and generally, clients don’t either.
But he’s done what he can to alert us all to what he’s witnessed without breaking any tax body or client confidences.
TMR background checks Dahm’s arguments and while we don’t agree with every position he takes (and often get frustrated at the detail and construction of his arguments), his arguments are always meticulously referenced to key pieces of legislation, government regulations and rulings, relevant court cases and other important sources, such as statements made publicly by interested parties.
It’s what I think ultimately frustrates many of his detractors. I have yet to come across a detractor who has read and researched a topic in play as he has.
I worry I tempt fate by explaining such things – TMR did, after all, publish a lot of work by Margaret Faux. In our defence on that matter, all the work of Faux’s we published stood up in terms of source material and research. Faux for a long time was writing helpful stuff for GPs based on good research and facts.
Faux’s subsequent claim, in alliance with Nine and the ABC, that up to 30% of Medicare was being rorted or at least wrongly billed, never stood up, and so far still hasn’t been addressed properly by Faux or the journalists.
But back to Dahm and payroll tax.
Dahm vs the world (the RACGP, AMA and Queensland Revenue Office)
This week David Dahm wrote that asking for a payroll tax exemption for doctors, which both the AMA and the RACGP have been hard at for the past month or so (see also this week’s RACGP full-page ad in major newspapers and the AMA’s plea in NSW to get GPs to write to their patients) was a seriously misguided tactic from the major doctor bodies.
His argument is:
- That GP and specialist practices, whether they run a services entity business model or not, can’t be carved away by tax authorities from every other business that runs similar structures for obvious legal, political and commercial reasons. Payroll tax is the law and the law hasn’t actually changed, it’s just been clarified, so asking to change it at this juncture is nonsensical.
- That an RACGP argument that public hospitals and ambulance services aren’t subject to payroll tax and therefore GP practices shouldn’t be is spurious, because public hospitals and ambulance services aren’t businesses, they are not-for-profit government run services or agencies.
- That a lot of GP practices are currently compliant, even to the recent QRO ruling, which he argues has a lot of issues at law that still need to be tested, which creates a problem for the AMA and the RACGP because “why, if these practices have done their homework and whatever hard yards were required to be compliant, shouldn’t other practices have to do the same thing?” He told TMR this week “some don’t want to do any of the homework but they all still want an A.”
- That, contrary to what the doctor groups are spruiking, the path to and cost of compliance is not so bad as to mean bankruptcy for a large percentage of practices.
- The QRO ruling is a ruling only and history tells us government tax rulings, state or federal, all eventually get challenged at law, and many times a ruling has had to change to what the law really dictates. He thinks that’s going to happen for parts of the QRO ruling.
The RACGP and AMA case
TMR spoke to the RACGP a week ago and put some of these arguments to them and their side of the story goes like this:
Yes, it probably is feasible for a lot practices to do the work and become compliant for payroll tax over time but:
- The expense of this ongoing remediation will surely send a large segment of the GP practice community broke and further destabilise the whole GP sector, with all the flow-on consequences for patients
- The expense will need to be recouped through increasing patient gap fees, further disadvantaging the patient community and degrading bulk billing
- The whole direction payroll tax compliance is heading is antithetical to running of a patient-centric GP practice in that it is:
- Encouraging the collapse of the whole concept of an aligned group of doctors with a common approach to community medicine, i.e. a practice
- Discouraging continuity of patient care by causing more and more separation of doctors working within one practice (presumably in an older practice environment patients could be easily handed around among practice doctors)
- Disintermediating individual doctors by disconnecting them from the community of a practice, and the doctors around them and therefore destroying the ability for practices to work with patients as a “team”.
That the RACGP would admit the first point may surprise some readers.
But its two main beefs are that it will make it significantly more difficult for GPs work in teams and to practise medicine in a community environment, both of which will impact badly on patient care, and that compliance is just going to cost too much given the current state of the profit margin of most practices.
And these arguments are pretty good ones on the part of the college and the AMA.
Payroll tax compliance to the extreme degree that the QRO ruling is suggesting (Dahm thinks the extremes may never actually apply) certainly make teamwork and community harder, and, no matter what, there’s going to be more cost getting compliant here.
The killer question
But, at least until yesterday, Dahm had one killer question for the RACGP and AMA: What happens if you don’t manage to secure a payroll tax exemption from the various state revenue offices?
It’s was a killer question because stepping back from all the noise and politics, getting an exemption for doctors running profit-making businesses, notwithstanding all the other crap and hardship government is throwing at GPs, did not seem likely to ever happen.
If you were buying Dahm’s argument it led to an obvious question: if getting an exemption really is that impossible, what is the college and the AMA thinking here?
The question may not ever be fully answered now because yesterday the Queensland treasurer Cameron Dick, after talks with NSW treasurer Matt Kean, took a proposal to National Cabinet to grant GPs a temporary 2.5-year payroll tax holiday.
Whether this was intended as some kind of leverage or not, Queensland, at least, has now committed to this holiday.
That’s a huge win for the AMA and the RACGP both politically and practically for their members.
But there is still not likely to ever be an actual payroll tax exemption, and it’s not clear why the AMA and the RACGP ever really thought they might get one.
If you think, “well, no harm trying”, Dahm points out that their all-out strategy in the media has two possible very bad side effects:
- It exposes a lot of practices to the state revenue offices as potentially not being compliant, therefore putting them on some sort of audit “kill list” for the future ( a little conspiratorial but certainly its happened before … after Robodebt, who could ever think things like that don’t happen)
- It might have provided a lot practices which aren’t compliant with a false sense of security that they did not need to start fixing anything because the AMA and RACGP were going to manage to get a full exemption.
All holidays have an end
The payroll tax holiday solves a lot of problems for practices in the short term.
But not in the long term at all.
The holiday idea is almost certainly born of political expediency on the part of Queensland and NSW, both which have governments going to elections soon. They need to be seen to be doing something for their electorates to counter the bad press starting to emerge on the collapse of bulk billing.
Kudos to the RACGP, ACRRM and the AMA for finally getting traction on such bad press.
That the two states took the idea to the National Cabinet meeting reeks of politics, because they don’t need to ask the federal government to create a payroll tax holiday. They can just do it, as payroll tax is a state tax.
They probably took it to National Cabinet to use as a gun to the head of the federal government in negotiations on other funding (hopefully healthcare funding): “You guys put some more money on the table or no payroll tax holiday for GPs and see how that plays out when we blame you for it.”
They’ll no doubt claim to be sacrificing a lot of revenue, which will need to be topped up in some way by the federal government.
But really they aren’t getting much payroll tax revenue now from GPs, they’ve only been planning to get it.
It’s all politics and blame game, which is the sordid side to what should be a good thing.
Some explaining to do, holiday or not
Historically, we haven’t seen the RACGP play the political game so well, which is encouraging for its membership in some ways.
But we have to remember that the college and the AMA were shooting for the moon with a full exemption and accidentally hit a manmade satellite, a payroll tax holiday, instead.
A full exemption strategy, according to Dahm, was a form of suicide mission on the part of a lot of practices that might have fallen into a false sense of security on something they would never see.
The holiday, in a way, is the state government’s answer to the college and the AMA: we’ll give you a holiday because you’re giving us grief on bulk billing with our electorates in the runup to our elections, but you’re never getting a full exemption.
Dahm, who in some circles is approaching the status of pariah for his stance on the issue, has always maintained that you will never see a see a full get-out-of-payroll-tax-free card.
What you do get is time to become compliant.
Dahm points out that for any practices thinking of simply switching over from a services entity model to an employee model, the costs and damage will be far more catastrophic as it will create issues for doctors who were once contractors with the ATO, with downstream legal ramifications from those doctors getting into trouble (the blame game would be very messy and lawyery no doubt).
So what were the RACGP and AMA really thinking? A cynic might say it’s been political grandstanding for which they were never likely to be pinged by their members, especially if their members fall for the line that an exemption is feasible. But that’s a hard opinion to sustain after talking to the RACGP senior people – they are simply not like that over there (… any more).
That would make the college somewhat naïve, then. Is that a good enough excuse for potentially holding out false hope to practices of a full payroll tax exemption?
Remember, before the concept of a holiday came along, if practices thought they should hold out for the college to succeed in their crusade, and a year down the track they hadn’t, and then those practices got audited, they’re were almost certainly going to be killed by that audit in most states (less so in Queensland where they promised not to backdate bills).
Half a happy ending
You’d love to say we have a happy ending here, but it’s only half-happy.
The holiday is a big win for both the AMA and the RACGP.
But remember the RACGP’s arguments: that compliance cost would sink a lot of practices financially, and destroy the dynamic of team-based care and community within a practice.
Both those problems remain very much in play when the holiday is over.
Note: First Draft was going to have a go at the Strengthening Medicare Taskforce report, which also got released yesterday, but we figure it needs to cook for at least a week in the public domain before we get a full reading on its implications. So see you next week for that fun ride.