Australia's Tax Mix

Australia's total tax take has grown from around 5% of GDP at Federation to nearly 30% today. The Commonwealth dramatically expanded its share during WWII and has dominated ever since, while state and local governments have maintained a relatively stable collection around 6-8% of GDP.

At Federation, customs and excise duties were virtually the only Commonwealth taxes. Income tax rose dramatically through the World Wars and now dominates the tax mix. The 2000 GST introduction was the most significant structural reform, replacing the old wholesale sales tax and shifting consumption taxation to a broader base.

Stamp duties and royalties are the most economically damaging taxes, costing 70 cents in lost economic activity for every additional dollar raised. Land taxes and the GST are among the most efficient. Meanwhile, the tax-transfer system redistributes significantly: older Australians receive far more in benefits than they pay in taxes, while working-age groups are net contributors.

The share of income tax paid by under-30s has halved since 1980, from 26% to under 10%. Meanwhile, the 50-59 and 60+ age groups have steadily increased their share, reflecting both population ageing and the concentration of wealth and income in older demographics. This has profound implications for the sustainability of the tax base.

Without policy changes, bracket creep will push the personal income tax share above 45% of total tax by 2035. One frequently discussed alternative is broadening the GST base - modelling shows that doubling the GST rate could fund a ~$97 billion reduction in personal income tax, fundamentally rebalancing the tax mix.