Australia’s Tax System Is Unsustainable

Key Takeaways

• Retirees can hold ~AU$2 m ($1.3 m) tax‑free super, paying zero income tax.
• Share of over‑65s paying income tax fell from 27% to 17%.
• Top 5% of earners contribute 37% of all income tax revenue.
• GST remains at 10%, far below OECD average of about 20%.
• Personal income tax could reach 58% of total taxes by 2063.

Pulse Analysis

Australia’s fiscal architecture is built on a narrow income‑tax base that disproportionately benefits affluent retirees. Tax‑free super thresholds allow seniors to amass up to AU$4 million ($2.6 million) in retirement savings while contributing little to the Treasury. Meanwhile, younger Australians face stagnant wages, high marginal rates and a GST that lags behind the OECD average of roughly 20%. This structural tilt fuels an intergenerational "tax sandwich" and fuels public debate ahead of the upcoming budget.

The demographic shift intensifies the problem. As baby‑boomers retire, the working‑age cohort shrinks, concentrating the tax load on fewer earners. Treasury’s Intergenerational Report projects personal income tax to rise from about 53% of total tax revenue today to over 58% by 2062‑63, even as public debt climbs. Compared with peers such as Canada or the UK, Australia’s reliance on income tax is unusually high, leaving it vulnerable to economic cycles and limiting fiscal flexibility.

Policy experts argue the solution lies in diversifying the tax base. Raising the GST to 15%‑20%, expanding resource and land taxes, and closing loopholes on superannuation concessions could spread the burden more evenly and reduce dependence on wage earners. The 2010 Henry Tax Review already outlined such reforms; updating its recommendations could restore intergenerational equity and bolster productivity. While political resistance remains, a shift toward consumption‑based revenue would also lessen the need for large‑scale immigration solely to fund the tax system, offering a more sustainable path forward.