Increasing income tax caused by a shrinking ratio, says Treasury

Australia’s high income tax reliance has been increasing, which Treasury says is as a result of a dwindling ratio of working-age Australians to those over 66, deputy secretary for Revenue, Small Business and Law Group, Diane Brown, said at the 2026 CPA Australia Tax Forum.

In the 1982–83 budget, there were 6.6 working-age Australians for each Australian over 66, which fell to 3.8 over the next 40 years, to 3.8 in 2022–23.

Treasury projected this ratio to fall further to 2.6 by 2062–63.

Further, its budget data revealed that as of 2022–23, around 15 per cent of Australians aged 70 and over paid income tax compared with around 30 per cent in the 1990s.

Brown said that the concentration of the income tax burden on a smaller cohort of Australians will limit their ability to save and secure wealth.

“The increasing average tax rate also reduces incentives for people to work and invest in developing their skills,” she said.

“A significant trend that has been raised in intergenerational reports, and by other commentators, is the aging of the population and the declining proportion of the population in the workforce.

“This is very important in the context of Australia’s high reliance on personal income tax.

“This impact is exacerbated because fewer older Australians pay income tax today compared to the past.”

Discretionary trusts, Treasury engagement

Further, during her keynote, Brown said that Treasury’s “careful and thorough data analysis of discretionary trust distributions” found evidence of income bunching around tax thresholds.

“This suggests deliberate strategies to distribute income to beneficiaries with lower tax rates when possible.

“We understand that taxpayers will of course seek to minimise the tax they pay using legitimate opportunities provided by the structure of the tax system.

“However, when large numbers of people take advantage of these opportunities in the tax system that were unintended and detract from revenue, it detracts from horizontal equity and puts pressure on other parts of the tax system.”

This follows CPA Australia and other submissions to Treasury’s Minimum tax on discretionary trusts consultation paper, saying that it undermines a “legitimate and widely used structure for family businesses and investors for more than 80 years”.