Read Time: 3 minutes
Australia’s Treasury has raised fresh warnings about the nation’s increasing dependence on personal income tax, cautioning that the current trajectory could place an unfair load on younger generations and weaken incentives to work, save, and invest.
Tax pressure intensifies as population ages
In briefing papers prepared ahead of the August Economic Reform Roundtable, Treasury outlined its growing unease about how demographic and structural shifts are reshaping Australia’s tax base.
The documents, released under Freedom of Information (FOI), reveal concerns that as the population ages and excise revenues decline, a shrinking share of working-age Australians will be left to fund a larger portion of government spending.
“Australia’s tax system remains essential for delivering public services, but it faces growing strain from demographic and economic change,” Treasury said in its pre-event note.
“As our population ages, fewer working Australians will be contributing the bulk of income tax revenue.”
According to the Australian Taxation Office’s 2022–23 Taxation Statistics, a little over half of all government tax receipts came from income tax – a level Treasury and economists alike believe is unsustainable.
Bracket creep and fairness concerns
The briefing warned that bracket creep and steadily rising average income tax rates risk discouraging workforce participation, savings, and skills investment.
Without reform, the report said, effective marginal tax rates could climb to levels that disincentivise employment and productivity.
“High effective tax rates can discourage participation and distort decisions about savings and investment,” Treasury noted.
“Inconsistent taxation of savings income is also influencing where and how Australians choose to save, creating opportunities for tax planning.”
Industry leaders have echoed these warnings. CA ANZ chief executive Ainslie van Onselen said that relying so heavily on wage earners was unfair to those already struggling with cost-of-living pressures and rising housing costs.
“Our system leans too heavily on personal income tax,” she said. “It’s time for structural reform that relieves the burden on working Australians.”
Calls for broader reform
Presenters at the roundtable including Grattan Institute CEO Dr Aruna Sathanapally, ANU economist Bob Breunig, and Commissioner of Taxation Rob Heferen, emphasised that the issue is not just the level of income tax collected, but how it’s distributed.
Sathanapally described the current framework as “horizontally inequitable”, arguing it favours investors and wealth holders over wage earners.
“The imbalance lies in the structure,” she said. “We tax labour income heavily while providing generous concessions for other forms of income.”
Before the event, Breunig told the Financial Review that he supported cutting company tax rates while improving taxation of wealth to promote fairness and productivity.
“People in their 30s and 40s are paying the highest effective taxes while juggling childcare and mortgages,” he said. “Adjusting how savings are taxed could improve equity and make room for competitive corporate tax cuts.”
Shift away from indirect taxes
Treasury’s background notes also highlighted a long-term decline in the share of indirect taxes such as GST and excise duties, which have fallen from 29 per cent to 22 per cent of total revenue over the past two decades.
This trend is expected to persist as digital consumption and new technologies continue to reshape the economy.
Key takeaways
Treasury warns Australia’s income tax burden is climbing, risking fairness and productivity.
- Bracket creep may discourage work and savings without policy intervention.
- Economists urge a rebalancing between income, wealth, and corporate taxation.
- The share of indirect tax revenue has steadily declined over 20 years.
Disclaimer: This article provides general information only and should not be taken as financial or taxation advice. Consult a licensed professional for advice tailored to your circumstances.