Treasurer Jim Chalmers’ second budget surplus has been underwritten by the highest share of personal income tax since before the goods and services tax was introduced in 2000 and has led to renewed calls for a tax system overhaul.
The amount of income tax paid by Australians boomed due to an extra 1 million people securing jobs under the Albanese government and bracket creep where rising wages push up average tax rates.
But the GST’s contribution to the budget continued a long-term decline, sinking to its lowest share on record last financial year. Consumers buying more GST-free items such as healthcare, private school education, financial services and rent contributed to the change.
Chalmers became the first Labor treasurer since Paul Keating to hand down two successive budget surpluses, claiming it was evidence of Labor’s strong economic management and would help the Reserve Bank of Australia tame inflation.
“This surplus is bigger at the end of the financial year than we anticipated in May, not because taxes are higher but because spending is lower,” he said.
Spending last financial year was $10 billion lower than forecast, due to a stronger labour market causing less demand for welfare payments and the government delaying about $4.2 billion in grants to the states for infrastructure and other social programs.
However, the final budget result exposes the budget’s reliance on personal income tax revenue which many economists, the International Monetary Fund and the Organisation for Economic Co-operation and Development have described as unstainable.
Pradeep Philip, Deloitte Access Economics partner and an adviser to former Labor prime minister Kevin Rudd, said governments had become overly reliant on income tax and there was a good case for either broadening or raising the 10 per cent GST to fund a reduction in income taxes as well as the introduction of a uniform state-based land tax.
”The history of income tax has been that governments of all types rely on bracket creep to give [tax] back to people and claim some form of tax cut,” he said. “But the question we are getting to now, though, is what does a stage four system of tax reforms look like?”
The budget surplus was $15.8 billion in 2023-24, down from $22.1 billion in 2022-23. Personal income tax topped $331 billion, or 52 per cent of the federal government’s total tax take. This represents the highest share of income tax paid in 25 years since the 2000 financial year – shortly before the Howard government introduced the GST partly to take tax pressure off wage earners.
The average amount of tax paid per person (after inflation) – including taxes on workers, businesses and consumers – hit a record of more than $17,000. The surge in income tax came before the revised $23 billion stage three personal income tax cuts took effect in July. Dr Chalmers said the cuts were providing relief to taxpayers this financial year.
“This is for the last year before our tax cuts for every taxpayer kick in,” Dr Chalmers said.
The revised stage three income tax cuts are forecast to slightly reduce the income tax burden to 51 per cent of the government’s total taxation revenue in 2024-25 – still above the post-GST average of 48 per cent. The 3 percentage point difference equals about an extra $20 billion in personal income tax paid each year compared to the 25-year average, even after the reworked stage three tax cuts.
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It’s amazing how they can contort the story so much that creating heaps of new jobs and reducing the need for welfare payments sounds like a bad thing.
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Treasurer Jim Chalmers’ second budget surplus has been underwritten by the highest share of personal income tax since before the goods and services tax was introduced in 2000 and has led to renewed calls for a tax system overhaul.
The amount of income tax paid by Australians boomed due to an extra 1 million people securing jobs under the Albanese government and bracket creep where rising wages push up average tax rates.
But the GST’s contribution to the budget continued a long-term decline, sinking to its lowest share on record last financial year. Consumers buying more GST-free items such as healthcare, private school education, financial services and rent contributed to the change.
Chalmers became the first Labor treasurer since Paul Keating to hand down two successive budget surpluses, claiming it was evidence of Labor’s strong economic management and would help the Reserve Bank of Australia tame inflation.
“This surplus is bigger at the end of the financial year than we anticipated in May, not because taxes are higher but because spending is lower,” he said.
Spending last financial year was $10 billion lower than forecast, due to a stronger labour market causing less demand for welfare payments and the government delaying about $4.2 billion in grants to the states for infrastructure and other social programs.
However, the final budget result exposes the budget’s reliance on personal income tax revenue which many economists, the International Monetary Fund and the Organisation for Economic Co-operation and Development have described as unstainable.
Pradeep Philip, Deloitte Access Economics partner and an adviser to former Labor prime minister Kevin Rudd, said governments had become overly reliant on income tax and there was a good case for either broadening or raising the 10 per cent GST to fund a reduction in income taxes as well as the introduction of a uniform state-based land tax.
”The history of income tax has been that governments of all types rely on bracket creep to give [tax] back to people and claim some form of tax cut,” he said. “But the question we are getting to now, though, is what does a stage four system of tax reforms look like?”
The budget surplus was $15.8 billion in 2023-24, down from $22.1 billion in 2022-23. Personal income tax topped $331 billion, or 52 per cent of the federal government’s total tax take. This represents the highest share of income tax paid in 25 years since the 2000 financial year – shortly before the Howard government introduced the GST partly to take tax pressure off wage earners.
The average amount of tax paid per person (after inflation) – including taxes on workers, businesses and consumers – hit a record of more than $17,000. The surge in income tax came before the revised $23 billion stage three personal income tax cuts took effect in July. Dr Chalmers said the cuts were providing relief to taxpayers this financial year.
“This is for the last year before our tax cuts for every taxpayer kick in,” Dr Chalmers said.
The revised stage three income tax cuts are forecast to slightly reduce the income tax burden to 51 per cent of the government’s total taxation revenue in 2024-25 – still above the post-GST average of 48 per cent. The 3 percentage point difference equals about an extra $20 billion in personal income tax paid each year compared to the 25-year average, even after the reworked stage three tax cuts.
It’s amazing how they can contort the story so much that creating heaps of new jobs and reducing the need for welfare payments sounds like a bad thing.