June 18, 2025 • 7 mins
Is Australia's tax system too reliant on income tax?
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Welcome to ask fear and greed when we answer questions
about business, investing, economics, politics, tax and more. Are Michael
Thompson and hello Sean, Aileen, you like what I did there?
Speaker 2 (00:14):
I did a tax.
Speaker 1 (00:15):
I gave a little hint as to what today's question
is all about, Sean. Is Australia's tax system too reliant
on income tax? And this is obviously a very topical
one considering what the Treasurer Jim Chalmers was talking about
yesterday and the potential for significant tax reform in coming years.
(00:37):
It comes back to that basic question of are we
too reliant on income tax? The tax that you're paying
that I'm paying arguably too much of.
Speaker 2 (00:45):
Yes, So the answer is yes, but we kind of
have to take a step back on this. So what
is a good tax system? A tax system raises revenue
to finance the government. We get that without putting unnecessary
costs on the econ me. So tax reform is about
how revenue is raised, not just about how much you
(01:06):
can get. When you take that into account, the question
is is do we pay too much income tax? Income
tax as a percentage of total tax take in Australia
is relatively high. And if you look over the last five, six,
seven years, the personal income tax take has grown exponentially.
(01:33):
That's not right, more at a higher growth rate. How
about that, Michael, At a higher growth rate than GST,
which is another big component, probably higher growth rate than
company income tax. You had another income component and then
other taxes. So in the end go and gets money
through the GST, through company tax, through personal income taxes.
(01:53):
Simplifying it totally, then there's munch of other taxes. The
one that's growing most is personal income tax. What we
heard yesterday from the well next Jim Charmas didn't say it,
but it emerged from his discussion at the National Press
Club is that the income tax as a proportion of
all taxes will hit its highest level since the JST
(02:13):
in twenty twenty nine. And the reason we introduced the
GST in two thousand was so that we could lower
the income tax traits. And that's actually what happened. But
income tax is still providing a lot more revenue than
it should.
Speaker 1 (02:28):
Okay, And is that because we are earning more money
and therefore paying more tax or is it because there
are more people of working age. We've got more people
coming into the country that are of working age and
paying income tax.
Speaker 2 (02:40):
So all of the above. Now, having said all that,
remember we had a bunch of tax cuts which kicked
in earlier this year and there are more duty kick
in later. So the government and this was under Morrison
government and the Albanezi government has supported basically is reducing
(03:00):
income tax. But the fact that people sort of bracket
creep people have moved in higher tax brackets. That's one
of the big reasons why so much more income tax
is collected as a proportion of the title tax. Take
Donald Trump. If you said to Donald Trump, do you
like income tax, he'd say, no, we don't want any
income tax. The problem with the income tax is it
stops feel from working.
Speaker 1 (03:22):
You know, I was going to ask you, what is
the downside here to the income tax percentage being too
high as an overall proportion.
Speaker 2 (03:30):
Is it so once you earn one hundred and eighty
thousand dollars, every dollar after that you lose forty nine
cents in it. It really is a disincentive. Same with
a corporate tax rate. Australia's corporate tax rate is relatively well,
it's not the it's not the highest in the OECD,
but it's on the higher side of things. So Ireland,
for example, has a low corporate tax rate, so companies
move to Ireland. So what you want are people, businesses
(03:54):
to invest, people to spend money. High corporate tax rates,
income tax rates. Actually it's a incentive for that, okay.
Speaker 1 (04:01):
Is it also setting us up to fail later on
if we are too dependent on income tax. We have
an aging population, so a greater percentage of people who
are no longer working but are still alive and there
are still there's still money needed for them, particularly for age,
pension and for health and things, and that if we
are too dependent on income tax, it just isn't going
(04:22):
to be enough of that to fund all.
Speaker 2 (04:24):
Of it exactly right. I mean, that's a real problem.
Maybe not today, but we'll be in twenty years, thirty years,
forty years now. The answer everyone says is to rethink
the GST. Now, the gsts are used to pay tax,
so you only pay it if you're using that you're
buying stuffep Obviously there's issues around safety nets and essential
(04:44):
goods and stuff like that, but most people seem to think,
you know, lift the GST from ten to twelve percent
or something like that, and you could afford all sorts
of tax cuts and to help the budget. Remember, the
budget is indeficite for the next ten years on the
government's numbers, that's not really sustainable. You need to actually
improve the outlook there. So the short answer is income
(05:06):
tax is too big a proportion of the total tax take.
Something needs to be done about it. GST is the
obvious answer, but that is political dynamite. You know you're
going to increase ten to twelve per cent the GST.
You're not going to make any friends in the Electric Sean.
Speaker 1 (05:24):
Something terrible has happened to me. Yes, in that as
you were talking, I found myself getting really excited, and
I thought, I thought of all of these things that
I wanted to ask you about this, and about kind
of changing a broad based tax like the GST. Whether
you can offset that then with tax cuts for lower
(05:45):
income earners because they will perhaps be affected more as
a proportion of what they're earning, if they're going to
the shops and paying more now for a life of bread.
I got all excited about all of these things, thought,
what has happened? Well, I have now become passionate about
tax REI and desperate to know more. But we are
out of time.
Speaker 2 (06:03):
Oh but Michael, I've got so much more to tell
you about tax reform.
Speaker 1 (06:08):
Would you like to squeeze something else in.
Speaker 2 (06:10):
Or negative gearing? There's one right political dynamite. However, there's
a lot of good reason to think, why would you
actually allow that sort of tax breaks for people who
can afford it?
Speaker 1 (06:21):
Okay, you know what we're going to do? Is I suspect?
And please don't view this as a turn off. We
are going to do over a long period of time.
It won't be in a run of consecutive days, so
do not worry. But we are going to look at
a few of these ideas for tax reform and assess
a few of them.
Speaker 2 (06:37):
You know, to go. He'd love this. In fact, if
he actually knows we're doing it, he'll be here. He'll
just come straight.
Speaker 1 (06:43):
In our fear and greed. Colleague Adam Lang, who is
the biggest tax reform enthusiast I think I've ever met.
Speaker 2 (06:49):
I don't even know if that he knows what it means,
but he loves it.
Speaker 1 (06:51):
Oh, it's extraordinary on it. It's just you've never seen
a more excited human. All Right, Sean, I think we've
answered this one adequately, but we are going to be
coming back it mark my words.
Speaker 2 (07:00):
Thank you very much, Thank you, Michael.
Speaker 1 (07:02):
If you've got your own question, it can be about
tax reform, Please make it be about tax reform, or
it can be about anything else. Send it on through
VI Fearangreed dot com dot au or any of the
social media platforms Instagram, LinkedIn Facebook, Send it through and
we will answer it asap. I'm Michael Thompson and this
is Ask Fear and Greet
Welcome to ask fear and greed when we answer questions
about business, investing, economics, politics, tax and more. Are Michael
Thompson and hello Sean, Aileen, you like what I did there?
Speaker 2 (00:14):
I did a tax.
Speaker 1 (00:15):
I gave a little hint as to what today's question
is all about, Sean. Is Australia's tax system too reliant
on income tax? And this is obviously a very topical
one considering what the Treasurer Jim Chalmers was talking about
yesterday and the potential for significant tax reform in coming years.
(00:37):
It comes back to that basic question of are we
too reliant on income tax? The tax that you're paying
that I'm paying arguably too much of.
Speaker 2 (00:45):
Yes, So the answer is yes, but we kind of
have to take a step back on this. So what
is a good tax system? A tax system raises revenue
to finance the government. We get that without putting unnecessary
costs on the econ me. So tax reform is about
how revenue is raised, not just about how much you
(01:06):
can get. When you take that into account, the question
is is do we pay too much income tax? Income
tax as a percentage of total tax take in Australia
is relatively high. And if you look over the last five, six,
seven years, the personal income tax take has grown exponentially.
(01:33):
That's not right, more at a higher growth rate. How
about that, Michael, At a higher growth rate than GST,
which is another big component, probably higher growth rate than
company income tax. You had another income component and then
other taxes. So in the end go and gets money
through the GST, through company tax, through personal income taxes.
(01:53):
Simplifying it totally, then there's munch of other taxes. The
one that's growing most is personal income tax. What we
heard yesterday from the well next Jim Charmas didn't say it,
but it emerged from his discussion at the National Press
Club is that the income tax as a proportion of
all taxes will hit its highest level since the JST
(02:13):
in twenty twenty nine. And the reason we introduced the
GST in two thousand was so that we could lower
the income tax traits. And that's actually what happened. But
income tax is still providing a lot more revenue than
it should.
Speaker 1 (02:28):
Okay, And is that because we are earning more money
and therefore paying more tax or is it because there
are more people of working age. We've got more people
coming into the country that are of working age and
paying income tax.
Speaker 2 (02:40):
So all of the above. Now, having said all that,
remember we had a bunch of tax cuts which kicked
in earlier this year and there are more duty kick
in later. So the government and this was under Morrison
government and the Albanezi government has supported basically is reducing
(03:00):
income tax. But the fact that people sort of bracket
creep people have moved in higher tax brackets. That's one
of the big reasons why so much more income tax
is collected as a proportion of the title tax. Take
Donald Trump. If you said to Donald Trump, do you
like income tax, he'd say, no, we don't want any
income tax. The problem with the income tax is it
stops feel from working.
Speaker 1 (03:22):
You know, I was going to ask you, what is
the downside here to the income tax percentage being too
high as an overall proportion.
Speaker 2 (03:30):
Is it so once you earn one hundred and eighty
thousand dollars, every dollar after that you lose forty nine
cents in it. It really is a disincentive. Same with
a corporate tax rate. Australia's corporate tax rate is relatively well,
it's not the it's not the highest in the OECD,
but it's on the higher side of things. So Ireland,
for example, has a low corporate tax rate, so companies
move to Ireland. So what you want are people, businesses
(03:54):
to invest, people to spend money. High corporate tax rates,
income tax rates. Actually it's a incentive for that, okay.
Speaker 1 (04:01):
Is it also setting us up to fail later on
if we are too dependent on income tax. We have
an aging population, so a greater percentage of people who
are no longer working but are still alive and there
are still there's still money needed for them, particularly for age,
pension and for health and things, and that if we
are too dependent on income tax, it just isn't going
(04:22):
to be enough of that to fund all.
Speaker 2 (04:24):
Of it exactly right. I mean, that's a real problem.
Maybe not today, but we'll be in twenty years, thirty years,
forty years now. The answer everyone says is to rethink
the GST. Now, the gsts are used to pay tax,
so you only pay it if you're using that you're
buying stuffep Obviously there's issues around safety nets and essential
(04:44):
goods and stuff like that, but most people seem to think,
you know, lift the GST from ten to twelve percent
or something like that, and you could afford all sorts
of tax cuts and to help the budget. Remember, the
budget is indeficite for the next ten years on the
government's numbers, that's not really sustainable. You need to actually
improve the outlook there. So the short answer is income
(05:06):
tax is too big a proportion of the total tax take.
Something needs to be done about it. GST is the
obvious answer, but that is political dynamite. You know you're
going to increase ten to twelve per cent the GST.
You're not going to make any friends in the Electric Sean.
Speaker 1 (05:24):
Something terrible has happened to me. Yes, in that as
you were talking, I found myself getting really excited, and
I thought, I thought of all of these things that
I wanted to ask you about this, and about kind
of changing a broad based tax like the GST. Whether
you can offset that then with tax cuts for lower
(05:45):
income earners because they will perhaps be affected more as
a proportion of what they're earning, if they're going to
the shops and paying more now for a life of bread.
I got all excited about all of these things, thought,
what has happened? Well, I have now become passionate about
tax REI and desperate to know more. But we are
out of time.
Speaker 2 (06:03):
Oh but Michael, I've got so much more to tell
you about tax reform.
Speaker 1 (06:08):
Would you like to squeeze something else in.
Speaker 2 (06:10):
Or negative gearing? There's one right political dynamite. However, there's
a lot of good reason to think, why would you
actually allow that sort of tax breaks for people who
can afford it?
Speaker 1 (06:21):
Okay, you know what we're going to do? Is I suspect?
And please don't view this as a turn off. We
are going to do over a long period of time.
It won't be in a run of consecutive days, so
do not worry. But we are going to look at
a few of these ideas for tax reform and assess
a few of them.
Speaker 2 (06:37):
You know, to go. He'd love this. In fact, if
he actually knows we're doing it, he'll be here. He'll
just come straight.
Speaker 1 (06:43):
In our fear and greed. Colleague Adam Lang, who is
the biggest tax reform enthusiast I think I've ever met.
Speaker 2 (06:49):
I don't even know if that he knows what it means,
but he loves it.
Speaker 1 (06:51):
Oh, it's extraordinary on it. It's just you've never seen
a more excited human. All Right, Sean, I think we've
answered this one adequately, but we are going to be
coming back it mark my words.
Speaker 2 (07:00):
Thank you very much, Thank you, Michael.
Speaker 1 (07:02):
If you've got your own question, it can be about
tax reform, Please make it be about tax reform, or
it can be about anything else. Send it on through
VI Fearangreed dot com dot au or any of the
social media platforms Instagram, LinkedIn Facebook, Send it through and
we will answer it asap. I'm Michael Thompson and this
is Ask Fear and Greet
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