STEPHEN JOHNSON: Why Labor is addicted to income tax revenue making up a growing majority of tax revenue

Labor is an economic junkie that is in denial about its addiction to income tax revenue.

Since Budget night, Treasurer Jim Chalmers has been claiming he wants to be less reliant on taxing workers.

He’s told anyone who will listen that he’s been returning bracket creep.

This is despite personal income tax receipts making up an even bigger share of revenue since Labor came to power - with the dependence expected to get even worse in coming years.

Like an addict who can’t admit there’s a problem, Dr Chalmers tried to deflect attention to something else, in this case a new 30 per cent tax on family trusts from July 2028.

“Overall, this is about better aligning the tax system for workers and people who earn their income from assets and that’s why we’re making this difficult change,” he told reporters in Brisbane on Monday.

The Treasurer has also tried to position himself as the friend of the income earner, with a $250 Working Australians Tax Offset, coming into effect in July 2027, forming the centrepiece of his fifth Budget on Tuesday.

A permanent tax rebate would be handed to income taxpayers every year, unlike the previous Coalition government’s temporary Low and Middle-Income Tax Offset of up to $1500 that expired in 2022, which Labor declined to extend.

Labor’s landslide re-election last year was made possible after the Coalition - under former leader Peter Dutton and then shadow treasurer Angus Taylor - campaigned against tax cuts of $268, in two instalments from July 2027 and July 2028.

But since coming to power four years ago, the ALP has become even more reliant on personal income tax receipts, and this is set to worsen as high inflation pushes more salary earners into higher marginal tax brackets.

During the upcoming financial year, personal income tax receipts of $382.4 billion are expected to make up 51.9 per cent of the Federal Government’s projected $737.1b in tax receipts.

That’s grown from 50.5 per cent in 2022-23 - Labor’s first full financial year in power - and Treasury is expecting that share to swell to 58.4 per cent by 2062-63.

By the end of this decade alone, personal income taxes are forecast to make up 54.5 per cent of Commonwealth tax revenue.

“As the population ages and some indirect tax bases erode, under current tax settings the Commonwealth will become more reliant on personal income tax, particularly taxes on salaries and wages – increasing the tax burden on a declining share of working-age Australians,” Treasury said.

The Treasury Budget papers also noted personal income tax revenue had been revised up by $6.6b in 2026-27 and by $15b over the five financial years to 2029-30.

For all the talk of upcoming income tax relief, its share of tax revenue during this upcoming financial year is only expected to fall marginally from 52.1 per cent in 2025-26 when $364.2b in revenue is expected from an overall tax take of almost $700b.

As Opposition Leader, Mr Taylor now wants to index tax brackets for inflation at a cost of $22.5b over four years from 2028-29.

He argued it would give 85 per cent of workers $1000 in tax savings, but Dr Chalmers - suffering from his own addiction to income tax revenue - suggested the Liberal Party was a risk.

“He announces tax policies in an irresponsible, uncosted, unfunded way, and it would cost the Australian people dearly in debt interest,” the Treasurer told ABC Insiders on Sunday.

Without properly costed tax relief policies, it’s true the Coalition risks emulating short-lived former UK Tory prime minister Liz Truss, whose £45b of unfunded tax cuts in a 2022 mini-Budget caused government bond yields to skyrocket and make her leadership a record-short 49 days.

Under the Coalition indexation plan, the beneficiaries would be those who earned less than $135,000, under the 30 per cent tax bracket, and part-time workers on $18,200 to $45,000 under the existing 16 per cent bracket.

This bracket is falling to 15 per cent on July 1 and 14 per cent from July 2027 under Labor’s tax cuts which the Coalition opposed at the last election.

Parliamentary Budget Office estimates show the Coalition’s tax indexation policy would cost $35b over four years, based on indexation at 2.5 per cent of the mid-point of the Reserve Bank of Australia’s 2-3 per cent target.

But indexation at the top of that band could see those costs soar to more than $40b.

Indexing tax brackets at the existing inflation rate of 4.6 per cent would be even costlier should price pressures fail to moderate in coming years, and see workers suffer a real cut in wages.

Neither major party in Australia is willing show political guts and raise the Goods and Services Tax from its present level of 10 per cent, so more of consumption is taxed.

A scare campaign would be guaranteed against any commonsense move to make Canberra less reliant on its income tax addiction.

But the scary thing is workers will be left to clean up the mess from the Commonwealth taxing more of what you earn rather than spend, leaving a lot more of us with a hangover but with no party to show for it.