ACT treasurer Andrew Barr is considering delaying his budget changes to payroll tax by "a few months", but companies hit hard by the change say that's not enough.
Online89, a recruitment firm that bids for IT contracts with the federal government said it could be forced out of business by the new tax.
Another, IT placement agency Compas said it was locked into more than 150 contracts and could not afford the tax.
Mr Barr plans to bring recruitment agencies into the payroll tax net, so they will have to pay 6.5 per cent once their payroll reaches $1.85 million. To date, they have been exempt, with the consultants they employ treated as sub-contractors rather than employees.
But Online89 director Peter Legge-Wilkinson, who has 30 to 40 contractors on his books, said many of his contracts with the Commonwealth from July 1 were already negotiated so the prices were locked in.
Agencies were unwilling to change the contract to cover the new payroll tax, so the only alternatives were for contractors to take a pay cut, or for companies like his to absorb the cost. But Mr Legge-Wilkinson said his company worked on small margins and the extra cost could drive him out of business.
A three-month delay would not solve the problem because most contracts were for six or 12 months, and in some cases longer. He has called on the government to delay the change for a year and exclude existing contracts.
Compas partner John Vassallo said he had 110 IT contractors. He charged 6 per cent for organising contracts for them with government departments – a margin less than the 6.85 per cent payroll tax.
He had more than 150 contracts already in place, so was "between a rock and a hard place''. If the changes went ahead his only choice would be to terminate contracts with the departments.
Mr Vassallo said he was not opposed to bringing contractors into the payroll tax rules, but wanted existing contracts exempted.
He also pointed to a grim future for more than 300 payroll management companies in the territory, who would lose their business with the change.
Liberal treasury spokesman Brendan Smyth said he had received a dozen or more emails from firms worried about the survival of their businesses and upset at the lack of consultation and the suddenness of the change.
They had signed contracts in good faith with no hint of the payroll tax change. The contracts also contained penalties for failure to deliver, so anyone forced out of business by the change could also be hit with penalties, he said.
"At a time when doing business in the ACT is a bit tough to put another impediment in the way of a very large sector in the ACT is very, very questionable," he said.
Mr Barr estimates 1000 contractors, mainly in IT, could be affected. He said the government was considering delaying implementation by a few months in response to concerns about the limited time to adjust. He also pointed out that the ACT charged one of the lowest rates of payroll tax in the country.