Huge income tax hike to fund Australia's return to budget surplus


The country’s Parliamentary Budget Office estimates that the income tax take will need to increase by a huge 14% by 2027/28 to compensate for business tax cuts.

Australia’s Parliamentary Budget Office has revealed that for the government to achieve its promised budget surplus, the income tax take will need to increase by a huge 14% by 2027/28.

To counterbalance controversial company tax cuts of A$65.4 billion (US$49.6), the Budget Office projected in its report entitled ‘2017-18 Budget: medium-term projections’ that the average tax rate on personal income would have to rise from 22.7% in 2016/17 to 25.9% in 2027/28. This would result in the income tax take jumping from 11.1% of gross domestic product (GDP) to 12.6% over the next 10 years, a leap of 14.4%.

Unions expect the proposed income tax hikes to impact nearly 700,000 workers.

But the Budget Office also said it expected company tax receipts to increase from 3.9% of GDP in 2016/17 to 4.6% in 2022/23, driven largely by forecast increases in corporate profits. Tax receipts are then expected to fall back to 4.2% of GDP in 2027/28 due to company tax cuts laid out in the government’s 10 year Enterprise Tax Plan.

But even if income tax increases were enough to compensate for any shortfall, the budget would still only just be in balance, generating a wafer thin surplus of only 0.3% of GDP, well short of the government’s target of 1%.

To make matters worse, the Budget Office also pointed out that the government’s plan to return the budget to surplus on the back of increasing levels of personal income tax relied heavily on a projected “sharp acceleration in wages growth” over the next decade. But it warned that the “significant slowdown” in wage growth experienced over the last few years meant that the gamble was subject to “downside risk”.