This overview of Australia's tax system looks at the roles played by different taxes and how they have changed over time. It finds that the tax mix has remained relatively stable since 1980, with a heavy reliance on personal income tax, and explores scenarios where this mix could shift due to policy changes or economic trends.

The guide traces the development of Australia's tax system from Federation in 1901 to the present day, highlighting key historical events (such as the introduction of the GST) that have shaped the tax mix. The paper also explores the relationship between taxes and government spending, demonstrating how policies can be implemented through either revenue or expenditure measures to achieve similar outcomes. The authors emphasize the need to consider taxes, transfers, and tax expenditures together for a complete understanding of the system.

Key points

• Australia's tax mix has been relatively stable since 1980, with personal income tax representing a significant and growing portion of total tax revenue.
• The relative contribution of personal income tax to the overall tax mix involves a high-degree of ‘lock-in’. Major changes would be required if that reliance were reduced. 
• The tax mix is dependent on how governments approach their economic and social policies, either through tax concessions or direct spending. 
• Different governments may effectively pursue the same net outcomes through significantly different methods. 
• Only significant policy or other changes would materially change the tax mix: even the most substantial tax policy of at least 50 years – the introduction of the GST – did not significantly shift the overall tax mix.
• Changing Australia’s tax mix by only 5% in any form would involve policies worth around $40 billion per year.