Lifetime perspective

Over one’s lifetime, individual’s contribution towards the total pool of personal income taxes takes an inverted U-shape, where it increases with age and peaks in the 40-49 age cohort, this then falls in their 50s and 60s, and moderates in their 70s (Figure 4-3).

Figure 4-3 Share of tax by ten-year cohorts

Source: ATO Taxation statistics and PBO analysis.

The 40-49 age cohort represents the peak years for paying income tax, because of the combination of the number people working and the size of their incomes. While there are as many working in the 30-39 age cohort, their incomes are generally lower.

On average, each successive generation born in the 1930s, 1940s, and 1950s is contributing more to the overall personal income tax pool in their later years. As mentioned above, this may be due to the older cohort remaining in the workforce for longer.

On the other end of the spectrum, the curve is becoming steeper for those entering the workforce. Those aged 29-years-and-under are contributing less for each successive generation but appear to quickly match the cohort before them in the 30s and 40s. 

In general, people are taking longer to build up to income earning, their mid-life earnings have tended to be higher than their older cohorts, and they appear to be working longer. If this trend does not continue, for example, that mid-life income does not rise like it has traditionally, then to obtain the same level of expected government revenue, either average tax rates or other taxes will need to increase.