Summary

Tax revenue has increased markedly since Federation, from around 5% of GDP to around 30% of GDP in 2023-24 (Figure 1-9). 

Ignoring the period during the Second World War, tax revenue as a share of the economy has grown relatively steadily between 1920 and 2000. Some periods saw more rapid increases, such as during the Great Depression, when governments introduced taxes to fund welfare spending, and some periods were more stable, such as the 1950s.

Governments have intervened to modify the size and composition of tax since Federation, although major changes have been mostly in response to particular events rather than with a broader and long-term view.

Figure 1-9: Australia’s tax revenue as a share of GDP

Source: ABS and PBO analysis.

In terms of Australia’s tax mix over more than a century (Figure 1-10), this Chapter has identified 4 broad periods.

The first 50 years were characterised by marked changes to the tax mix because the 2 world wars and the Great Depression resulted in governments proactively expanding their sources of revenue. Excise and customs duties originally provided the most revenue, but by the end of the period, income tax made up half of tax collections.

Figure 1-10: Major categories of Australian tax revenue (all governments)
Shares of total

Source: ABS and PBO analysis.

The second period was from the end of the Second World War to 1980, when tax revenue as a share of GDP increased, particularly after 1960. The tax mix remained relatively stable, with the major trend being unrelated to direct government action. The increase in personal income tax share observed during the 1960s and 1970s was a result of governments taking advantage of bracket creep to fund their expanding expenditure commitments. The larger tax take, particularly from individuals, highlighted the gaps in the tax base which could be exploited to reduce tax. These gaps were always present but had become more problematic.

The third period, from 1980 to 2000, focused on addressing these problems by making significant changes to the tax system, such as the introduction of fringe benefits tax and capital gains tax. However, changes to the overall tax mix were relatively minor. The share of tax from excise and customs duties continued to decline, partly through the removal of tariffs on trade, but mostly because of the increase in other taxes. The introduction of the GST in 2000 made a further adjustment away from the trend towards income tax.

Since 2000, some of the pressure on the adequacy of Australia’s tax collections has been alleviated by high tax revenue from corporate profitability. Changes to personal income tax have largely centred on the size, distribution and timing of changes to rates and thresholds rather than on tax reform. Aside from higher company income tax collections, the substantial change to the tax mix has been the continuing decline of excise and customs duties, a trend likely to continue in the future.