Awkward detail in new tax cuts

Australia’s income tax take is set to soar to a record high this financial year with taxpayers to be slugged even more in the future despite the Albanese government’s stage three tax cuts.

Fresh budget forecasts released on Tuesday night show Australians will again be flattened by record income tax collections in just two years time.

In a first for the federal budget, Australia’s total income tax take will soar above $300bn, climbing to $334.6bn this financial year on the back of low unemployment and strong wages growth.

The surge in tax revenues will mean that 52 per cent of the total federal tax base will be reliant on income tax this financial year, according to the fresh budget forecasts.

From there, income tax receipts will then drop to $326.5bn next fiscal year due to tax cuts, before rebounding to reset a fresh record of $343.5bn in the 2025-26 financial year.

The income tax take is then expected to trend higher still, the budget shows.

The Albanese government’s overhauled tax plan will give every Australian additional tax relief, with the measure geared to benefit low- and middle-income earners the most.

Workers earning $50,000 will receive a tax cut worth $929, those on a salary of $100,000 will benefit from an additional $2197 in their take home pay, while those earning $150,000 will get a further $3729 back.

However, even with the stage 3 tax cuts, the personal income tax take has been revised upwards by $6.7bn next financial year, and up $25.1bn higher over the five years to 2027-28, compared with December’s mid-year updated figure.

“This reflects strength in year-to-date collections, which have been supported by stronger-than-expected employment growth and a pick-up in wage growth,” the budget notes.

By the end of the decade, the federal government’s dependence on personal income tax will jump to its highest level since the turn of the century, according to recent analysis by the independent budget watchdog.

As wages growth remains strong in the near-term, a greater share of workers’ incomes will be taxed at a higher rate as Australia’s tax brackets are not adjusted to inflation – the phenomenon known as ‘bracket creep’.

Also helping boost the nation’s bottom line, the Commonwealth’s 10 per cent goods and services tax (GST) is expected to raise $100bn before the 2027-28 financial year.

An assumed fall in oil and gas prices has reduced the amount raised by the petroleum resource rent tax by $750m over the five years to 2027-28, compared to December’s forecast.

Meanwhile, the company tax take has been additionally upgraded from its December estimates, jumping by an additional $5bn to $142.9bn as strong commodity prices buoy profits in the mining sector.

Company taxes have also been revised up for next financial year by $5.5bn and $26.2bn over the five years to 2027-28.

“Mining company profits are relatively unchanged in aggregate over the forward estimates, with higher commodity prices in the near term offset by lower export volumes in all years,” the budget papers state.

“Strength in company tax receipts in later years of the forward estimates is also supported by an improved outlook for the non-mining sector.”

The budget has pushed out the start of an expected decline in prices for iron ore, Australia’s most valuable export.

The total federal tax take is set to hit an 18-year high of 23.8 per cent of GDP in the current fiscal year, the highest since the Howard government’s penultimate budget, the papers showed.

The former Coalition government introduced a self-imposed 23.9 per cent cap on tax receipts as a share of the economy, which is based on the average recorded through the Howard government.

Treasurer Jim Chalmers has previously declared the tax-to-GDP cap as an arbitrary figure, motivated by political rather than economic reasons, and does not feel constrained by the figure, despite meeting the target.