Deloitte calls for lower income taxes, higher GST and wealth taxes

Substantive tax reform would be necessary to fix Australia’s entrenched structural budget deficit, Deloitte Access Economics’ December 2025 Budget Monitor report has concluded.

The budget monitor projected that the 2025–26 underlying cash deficit would come in at $38.9 billion. The gap between revenue and spending was also forecast to worsen over the forward estimates, leading to an underlying cash deficit of $44.6 billion in 2028–29.

Without substantive reform, Deloitte warned that Australia’s economy would be stuck in a structural deficit due to escalating spending pressures and an outdated tax system.

“While the Government has commendably turned up the volume on economic reform since the 2025 election, we are yet to see the talk turned into action,” Deloitte Access Economics partner and report co-author, Stephen Smith, said.

“The Federal Budget is over-reliant on income tax for revenue, a situation which disproportionately benefits older and wealthier Australians at the expense of younger working people. With political pressures likely to see migration fall, young Australians may have to bear more of this burden than they already do.”

In 2022–23, a little over half (51.6 per cent) of Australia’s total tax revenue came from income tax, according to ATO statistics.

Deloitte proposed a package of five policies to reduce income tax and address Australia’s structural budget deficit. The proposed changes would add an average of $57 billion per year to the underlying cash balance over the next decade, according to the firm’s modelling.

In combination, the policies would result in lower personal income and company tax rates, compensated for through a higher, broader GST, reductions to the capital gains tax discount and the introduction of an inheritance tax.

The full list of proposed reforms included:

1. Simplifying the personal income tax system and indexing the tax brackets to inflation.

2. Harmonising the company tax rate at 20 per cent for all companies, while introducing a new tax that only applies to ‘super profits’.

3. Increasing and broadening the GST, alongside a commensurate increase in welfare payments.

4. Reducing the capital gains tax discount from 50 per cent to 33 per cent.

5. Introducing a broad-based, low-rate inheritance tax.

Deloitte proposed a simplified two-tier income tax system, with a marginal tax rate of 33 per cent on incomes from $33,000 to $330,000, and of 45 per cent on income over $330,000, to be indexed at 2.5 per cent each year.

The report said there were “strong economic and fairness arguments” to index the income tax thresholds, but warned this could cause a “significant long-run deterioration in the budget position” if implemented in the absence of other reform.

Deloitte also called for the company tax rate to be ‘harmonised’ at 20 per cent, down from 30 per cent for large companies and 25 per cent for small companies. This would be compensated for with a new tax on ‘super profits,’ defined as after-tax profits exceeding a return on capital of more than 5 per cent over the 10-year government bond rate.

It suggested that these tax cuts could be balanced out by increasing the GST rate to 15 per cent and broadening the base to include all foods and education. This could raise an average of $90 billion per year over the decade to 2035-36.

Paired with the income tax cuts and additional government support of approximately $31 billion per year, the bottom 40 per cent of households would be left no worse off by this change, Deloitte said.

The report also labelled the current 50 per cent CGT discount ‘overly generous,’ and said it should be reduced to 33 per cent.

“While the logic behind Australia’s CGT discount is sound, the size of the discount is too generous. While it makes sense to compensate investors for the effect of inflation, the 50 per cent discount does a bad job of approximating the actual effect of inflation,” Smith said.

Finally, the report said that a broad-based inheritance tax of 10 per cent would curb inequality and raise $3 billion per year on average over the decade to 2035–36. It proposed a tax-free threshold of $100,000 and an exemption for those inheriting a principal place of residence.

“Wealth taxes are a way to repair the budget, help all Australians share in the asset price windfall that has flowed to older generations over the last 40 years, and help to prevent inequality from cascading through future generations,” Smith said.