Proof Australians are drowning in taxes

If you want proof that Australia has become a taxing and spending economy, look no further than the latest taxation data from the Australian Bureau of Statistics (ABS), compiled by The Australian Newspaper.

Chart from Shane Oliver (AMP)

The combined tax revenue of the nation’s federal, state and local governments has risen to $893 billion a year, up 61% since the onset of the pandemic, with 7% growth in 2025-26. Over the same period, Australia has recorded nominal GDP growth of 47%.

Chart from The Australian

Stamp duty revenue has increased by 112% over the last six years, driven by the house price boom, while personal income tax revenue is up 63.8% and corporate tax take has risen 70%.

Growth in individual taxes (Source: The Australian)

“Most of these percentage increases are by more than GDP and that attests to things like bracket creep on higher income taxes”, Corinna Economic Advisory economist Saul Eslake said.

Eslake added that spending by all levels of government has increased above the long-run average.

“Spending as percentage of GDP has increased 1.5 percentage points above the long-run average between 1975-76 and 2018-19, and this comes down to three main things: first the public have agreed to allow more spending on aged-care, health and childcare; the second is increased defence spending; and the third is an increase in interest expenses”, he said.

“Another factor is that Australia has moved away from a welfare system that is means tested to one that is more universal service provision without means testing”.

This increased spending has plunged the state and federal governments deeper into debt, placing them in the sights of credit rating agencies.

The nation’s total public debt has risen to around $1 trillion, with the Parliamentary Budget Office (PBO) forecasting that total federal and state debt will increase steadily over the coming years.

As a result, interest costs are expected to rise from 4.1% of government revenue in 2024-25 to 6.2% in 2029-30:

“This rising ratio indicates that an increasing share of government revenue is being used to service debt. Over time, this may reduce fiscal flexibility by increasing the proportion of revenue committed to unavoidable interest costs”, the PBO says.

Indeed, the PBO has forecast that the combined debt of the state and territory governments will top $771 billion by the end of this decade, while total federal and state debt will reach $2 trillion.

Institute of Public Affairs (IPA) chief economist Adam Creighton published a research note last month showing how the NSW, Victorian, Queensland and South Australian governments face a big increase in their annual interest bills, as an estimated $226.5 billion of debt will soon need to be refinanced.

This debt was taken out during the pandemic at an interest rate of less than 3%, and Creighton says it will likely be rolled over at around 5.5%, increasing interest payments by about $8.1 billion a year.

At the same time, the states are facing a sharp decline in stamp duty receipts amid the correction in home prices and sales.

As a result, states like NSW and Queensland are facing credit rating downgrades to Victoria’s level (AA), which would increase interest costs.

The reality is that Australia’s governments have been living beyond their means for too long, and this has had a detrimental impact on the nation’s productivity via the over-expansion of the non-market (government-funded) sector:

Chart from Justin Fabo at Antipodean Macro

Australia now faces a prolonged period of austerity to reduce debt levels and return our budgets to a sustainable position.