The McGowan Government has had a budget win, with the WA Liberals deciding not to block a payroll tax increase on big business.

The Liberals' decision guarantees the Labor Government has the support to get the key budget measure through State Parliament, just a week after seeing its gold royalty increase blocked by the Upper House.

Just as with the gold royalty hike, Labor needed Liberal support to ensure the payroll tax increase was not blocked in the Upper House, after the Nationals vowed to oppose it and key crossbenchers indicated they were also against it.

Liberal leader Mike Nahan said that while his party did not support the payroll tax increase, it had decided to "let the Government govern".

He said the business lobby had not been able to convince him that the policy needed to be blocked.

"The firms impacted have not come to us in large number or argued the case very strongly," Dr Nahan said.

Dr Nahan said the fact small businesses were exempt from the payroll tax increase swayed the decision.

Mr Wyatt says he is happy the Liberals are supporting the payroll tax increase. ( ABC News: Jacob Kagi )

"The payroll tax increase only applies to companies with a payroll above $100 million, while the gold royalty applied to gold firms large and small," he said.

Treasurer Ben Wyatt said the Liberal Party had made the right choice, but it did not excuse their decision to block the gold royalty hike.

"I am pleased the Liberal Party reluctantly, belligerently, finally got themselves to a position where perhaps for the first time they are finally accepting some responsibility for the fiscal mess they created," he said.

"It is just one of the decisions we have to make to restore the finances to a more sustainable footing."

Business groups disappointed

Liberal support for the payroll tax increase had been far from guaranteed, with some MPs having pushed for the party to attempt to stop it getting through Parliament.

The blocking of the tax hike would have left a $435 million budget black hole, on top of the $392 million gap caused by the blocking of the gold royalty increase.

The payroll tax hike is a temporary measure, commencing next July, which will impact employers with an annual payroll above $100 million.

Business groups had lobbied the Liberals and crossbenchers to oppose the increase, warning it would lead to significant job losses.

Chamber of Commerce and Industry chief executive Deidre Willmott warned the impact of the tax increase would be significant.

"You cannot increase payroll tax without having an impact on jobs and on small business," Ms Willmott said.

But Premier Mark McGowan had warned the rejection of the payroll tax hike would have meant further financial hits to households and potentially spending cuts in essential areas.

"We want to get back to surplus by 2021 and to get back to surplus means you have to make hard decisions," he said.