Australia on opposite track to welcome OECD recommendation

SYDNEY, 15 September 2021: As the COVID-19 pandemic continues to take an economic toll in Australia, welcome recommendations from the OECD have urged government to enact tax reform, set up Australia for growth and develop a vision to reduce national debt.

One recommendation put forth by both the OECD and in The Tax Institute’s ground-breaking report, the Case for Change, is to gradually replace our reliance on income taxes with a higher and broader GST. However, unless something changes, we are on track to do exactly the opposite.

The Tax Institute’s Director, Tax Policy and Technical, Andrew Mills, CTA (Life), said, “Treasury’s recent 2021 Intergenerational Report shows that reliance on personal income tax is only set to grow, from 11.1% of GDP in 2020-21 to 12.7% of GDP by 2035-36.”1

“By instead broadening the GST base, increasing the rate to at least 12.5%, or doing both, we can make the necessary change to safeguard our economic future. This must be coupled with reduction in personal tax and compensation for the least well off. Lower reliance on income taxes isn’t just good for people working today – it’s good for generations to come.”

The OECD’s recommendations continue what is a needed and welcome conversation around tax reform.

“Re-evaluating our tax system and finding a better way forward is clearly a top priority when it comes to Australia’s future economic health. If we want a genuinely effective plan to address our mounting national debt, then tax reform needs to be a large part of that conversation,” Andrew said.

The OECD and the hundreds of tax professionals who contributed to the Case for Change are on the same page about needing change to happen. Now, we just need the government to come to the party.”

“A tendency towards backing what is - wrongly - perceived as politically safe policy has had a damaging effect on Australia’s ability to develop sound tax policy and law. While that may seem easier in the short term, avoiding necessary - but perhaps harder to sell - changes, hurts all Australians.”

“By relying so heavily on personal income tax, we are raising our economic risk. As an entire generation prepares to retire a huge gap will be left in our tax revenue. There are simply not enough younger workers contributing income tax into the system to support the number of retirees in a sustainable way, unless we look at other revenue streams.”

The OECD report pointed out that a heavy reliance on income taxes, rather than consumption taxes, “makes the tax mix less growth-friendly”, a fact explored in depth in the Case for Change.

Facts from the Case for Change2

  • The mix of taxes in Australia has largely been unchanged for approximately 60 years.
  • In 2017–18, 51.3% of tax collected was from personal income tax. The OECD report indicates this remains substantially unchanged.
  • More than two-thirds of Australia’s tax receipts come through personal and corporate income taxes — which is approximately twice the OECD average.
  • Most other advanced economies have placed a considerably higher reliance on the taxation of consumption (or value-added) taxes.


1 Treasury, 2021 Intergenerational Report

2 The Tax Institute, Case for Change, pg 3



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