The 21st century

The 2000s brought with it rapidly rising incomes for Australia, with the international price of Australia’s mining exports more than tripling over the 10 years to 2012.[18]

The increased revenues were utilised to implement a variety of tax concessions, including the Simplified Super package in 2006, which made most streams of superannuation benefits tax-free in retirement,[19] large personal income tax cuts in 2006-07 and a tripling of the tax-free threshold in 2012, from $6,000 to its current level of $18,200.[20]

Successive governments have attempted to partly wind back the concessional character of the 2007 superannuation tax changes[21], however these same reform packages introduced additional concessions[22] and incentives to maximise concessional contributions. While often targeted at reducing inequality,[23] these changes have also increased the complexity of the superannuation system. Chapter 2 discusses the increasing costs of tax concessions, including those relating to superannuation and GST. Chapter 3 discusses these kinds of trade-offs involved in tax policy design.

Another major event for tax in Australia since 2000 was the Global Financial Crisis (GFC). Since the mid-1990s, total tax revenue as a share of GDP had remained relatively stable but declined steeply between 2007 and 2010 during the GFC (Figure 1-9).

While the GFC caused a milder economic slowdown in Australia compared to the early 1980s and early 1990s recessions, the impact on tax revenue was greater. The exchange rate rapidly depreciated from historic highs, declining by almost 30% in a two-month period from late August 2008,[24] such that company tax fell by a record 15% over 2 years.[25] Growth in wages on tax returns fell to 4%, faster than during the 1990s recession.  However, the large tax cuts promised at the 2007 election caused personal income tax to fall by 9% over 2 years, the largest decline for at least 50 years. Capital gains tax, which was a very small component of revenue in the early 1990s, fell 70% across all entities during the GFC. In addition to the immediate loss to tax revenue, the capital losses were carried forward, detracting from tax revenue for almost a decade after.

In the last decade social expectations of the government have continued to rise. Since its beginning in 2013, the National Disability Insurance Scheme (NDIS) has grown to be the third largest government spending program(Figure 1-2) , projected to grow to $89.4 billion in 2031-32 (2.6% of GDP).[26] So far, personal income tax is again providing the additional revenue through bracket creep needed to fund the increasing demands on government, this time the NDIS.