Uncovering Australia’s hidden tax crisis

The Tax Policy Journal 2026, which examines the growing mismatch between Australia’s rising long-term spending pressures and its relatively unchanged tax system, explores fiscal sustainability, federal and state debt, and proposed tax reforms aimed at improving efficiency, fairness, and the long-term resilience of Australia’s fiscal framework. It was produced by the Institute of Financial Professionals Australia (IFPA) Research Foundation.

Scott Heathwood, chairman of the IFPA, said that the journal is intended as a wake-up call to policymakers, industry, and the public.

“For too long, Australia has leaned on bracket creep and rising debt to avoid having an honest conversation about the tax system,” Heathwood said.

“The Journal lays out the facts plainly – we cannot keep expanding government without rethinking how we found it,” he added.

As explored in the journal, Australia’s tax system continues to project stability, with steady revenue growth, comparatively manageable debt, and fewer signs of fiscal instability than many advanced economies. Yet, it highlighted that this apparent stability masks deeper structural pressures that are becoming increasingly difficult to ignore.

At the forefront of the issue is a gap that is expanding between what governments are expected to deliver and how those commitments are funded.

The journal argued that Australia’s tax system has not evolved at the same pace as these demands. Heavy reliance on personal income tax, reinforced by bracket creep and political resistance to broadening the tax base, has created a narrow and inflexible revenue structure.

Contributions from the International Monetary Fund and former Productivity Commission Chair Michael Brennan (now of the e61 Institute) reinforce the need for structural reform rather than incremental adjustment.

Analysis suggests the current tax mix may no longer align with the level of public services Australians expect or with the long-term sustainability of government finances.

The journal also highlighted how GST distribution, Horizontal Fiscal Equalisation, and rising state debt shape economic incentives and constrain future policy choices.

Whilst Australia’s overall debt position remains moderate in comparison to other countries, the trajectory has shifted. State borrowing has increased significantly, driven by infrastructure investment.

As a result, it was noted that future policy choices will need to operate within tighter constraints than in the past.

Further, the journal showed that Australia can no longer avoid the question of how it pays for the public services its citizens increasingly expect.

In his paper, Australia’s Public Revenue Constraint, Brennan argued that the country’s tax system is reaching its limits at the very moment government spending pressures are intensifying.

The analysis suggested that Australia’s fiscal debate has become disconnected from economic reality, with voters continuing to demand high-quality healthcare, aged care, infrastructure and social services, but politicians remain reluctant to discuss the broader tax reforms required to fund them.

Meaningful reform is inevitable, Brennan said, with options such as broadening the GST, increasing land and resource taxes, and redesigning income tax thresholds potentially able to improve efficiency while maintaining fairness.