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State and federal governments must make a concerted effort to curb spending or risk a record tax blowout, according to the Centre of Independent Studies.
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Households face highest tax levels in 2 decades, analysis shows
05 April 2024
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Up to 45 per cent of household income is going towards paying taxes, and the last time tax levels were so high was 23 years ago in 2001, according to an analysis by The Centre of Independent Studies.
The analysis also found local, state and federal governments were set to collect $29,700 in taxes per person in 2023–24, up from $26,500 in 2021–22.
“It can be surprising just how much tax we pay,” CIS senior research fellow Robert Carling said.
He said the true tax burden on households was much higher than what is normally reported because it encompassed the various taxes levied on individuals and businesses, and not just income tax.
“While the focus is on income tax paid to the federal government, the reality is that individuals and businesses are constantly paying a wide range of taxes; not only to the federal government but also to state and local governments.”
The CIS found tax revenue as a percentage of GDP, the most commonly cited measure of the tax burden, had been creeping up over the last decade.
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Expected to reach 30 per cent in 2023–24, Carling said it had only ever hit similar levels following World War II to finance war efforts and again in 2000–01.
“Based on federal and state government mid-year budget reviews, it is likely to be close to 30% in 2023-24. It is fair to say this measure of the tax burden is close to the highest it has ever been in peacetime,” he said.
However, the “true economic burden” of taxes falling on households could be up to 45 per cent, CIS found.
This was based on the fact that taxes for which the business sector was legally largely responsible – such as GST, payroll and company income tax – were in effect passed onto households through higher prices and lower wages and shareholder returns.
Even if these business taxes were excluded, the tax burden was 35 per cent of income.
“In either case, it is a heavy burden and much heavier than most people would realise,” Carling said.
He said the blowout was caused by many variables and tax policy decisions over successive governments and was only set to increase in the medium to long-term projections of government expenditure.
Federal and state governments needed to “make a concerted effort to curb the growth of spending” to get levels under control, Carling said, but “regrettably at this juncture there is no sign of that happening".
Impending stage 3 tax cuts would also do little to provide relief, constituting only 3 per cent of a year’s total taxation.
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