Tax Forum 2025: Australian tax reform and fiscal sustainability

Garreth Hanley:
This is With Interest, a business finance and accounting news podcast, brought to you by CPA Australia.

Chris Hatzis:
Welcome to CPA Australia’s With Interest podcast. I’m Chris Hatzis, podcast producer. Is Australia’s tax system fit for so-called dangerous times?

In part one of this special two-part With Interest episode, we bring you a lively and thought provoking discussion on the prospects for meaningful tax reform in Australia. Joining the conversation are two leading experts in the field. David Bradbury, partner at KPMG, former federal minister and assistant Treasurer, and former deputy director of the OECD's Centre for Tax Policy and Administration. And Paul Tilley, former economic advisor to Treasury and the Department of Prime Minister and Cabinet, and author of Mixed Fortunes: A History of Tax Reform in Australia.

This discussion was recorded live at CPA Australia’s inaugural Tax Forum in August 2025, and was adjudicated by Jenny Wong, CPA Australia’s Tax Lead, and Dale Pinto, Global President and Chair of CPA Australia.

And look out for part two where Dale and Jenny continue the discussion with David and Paul.

Let’s dive in.

Jenny Wong: 
There has arguably never been a more exciting and more important time to be talking about tax. From the Treasurer's Economic Roundtable to the Productivity Commission's proposals for business tax reform, momentum is building at home and abroad. Today's conversation that Dale Pinto, the Global President and Chair of CPA Australia, and I will run will examine what's on the table in tax reform, the intersection of geopolitics and tax, and how we strike the right balance between reform, competitiveness, and sustainable economic growth.

We are honoured to be joined by two of the most respected voices in this space, David Bradbury and Paul Tilley, whose deep experience and insights will help us unpack the tax reform road ahead. So please join me in welcoming an expert panel, David Bradbury, partner at KPMG, former federal minister and assistant Treasurer, former deputy director of the OECD's Centre for Tax Policy and Administration, and Paul Tilley, former economic advisor to Treasury and the Department of Prime Minister and Cabinet, and author of Mixed Fortunes: A History of Tax Reform in Australia.

David and Paul, welcome. Let's get the conversation under way. It's not every day we get to bring together two of Australia's leading voices in tax policy and economic reform. I wanted to start by reflecting on Allegra Spender's Tax Roundtable I attended a couple of weeks ago where Ken Henry told the roundtable that our tax system is not fit for dangerous times. What do you both see as the single biggest structural flaw in Australia's tax system today, and just how urgent is tax reform?

David Bradbury: 
Thanks very much, Jenny. It's great to be here. I think if we think about the Australian tax system, and how much tax we collect as a percentage of GDP compared to other OECD countries, it's actually at the bottom end. It's in the bottom quarter of countries. So we're not a high-taxing country by international advanced economy standards, notwithstanding what might sometimes be the view in the community more generally.

I should say that there are many challenges that we face in our tax system as do all countries when it comes to trying to get the balance right. I think that in particular there is a challenge around the fact that we are currently spending more money than we are raising in revenue, and that appears to be the forecast for the foreseeable future. That's not a position that's sustainable from a fiscal perspective.

I think that there are a number of pressures on our tax system because of factors that are eroding tax bases, whether it be issues around tobacco excise taxation, whether it be issues around the decarbonisation of our fleet and the impact on fuel tax revenues, or whether it'd be the declining share of that part of our consumption that is currently taxed under the GST.

Across the OECD, Australia has a fairly high reliance on income taxes. But I think what is notable really is our dependence on income taxes. This is especially the case when you look at not just where we are today but, in the absence of any further policy changes, where we will be in the future.

Now, for me, this is one of the big structural challenges that we have with the Australian tax system, our over-reliance on income taxes and in particular the personal income tax. Why is that an issue? Well, I think it's an issue because of the changing nature of our society and the changing nature of our workforce. Drawing on data from the most recent intergenerational report, it shows that if we go back to 1982/’83, at that time the number of working age Australians for every Australian over 65 was 6.6 people.

So for every person over 65, you had 6.6 people of working age. In '22/'23, that had already reduced to 3.8 people. If you take the forecast through to 2062/'63, which I'm sure we're all looking forward to that, in 2062/'63, it will be 2.6 people. Presumably many of us will be in retirement at that point, and we will be enjoying the fact that a smaller and smaller share of the population will be left to go out and fill jobs in the workforce.

The significance of that means that if the personal income tax, a significant share of that comes from labour incomes, if we are dependent upon that as a source of revenue and the number of people in the labour force continues to decline to the extent that we see, then that tax burden is going to fall on the shoulder of a smaller and smaller group of Australians. There are a whole range of intergenerational inequities in the system to begin with, but that is one that, if it is unaddressed, it will be, I think, a running sore that will need to be addressed in the future. So if I had to identify one, that would be the biggest one that I would focus on.

Jenny Wong: 
Thank you, David. Paul, what do you see as the single biggest structural flaw in Australia's tax system?

Paul Tilley:
It's always hard to know where to start or how to pinpoint. There are so many kind of issues. I guess I'd come to a slightly different place from what David was outlining. Certainly, income tax, I think, is where I'd want to be. But thinking about the roundtable discussion and thinking about the predicament Australia is in in terms of its economic growth, we've had negative per capita GDP for some years, I'd be thinking more in terms of capital income rather than the focus on personal income. I've got some questions about whether the personal income one is quite as dire.

This is a picture tax to GDP since federation, so just scan over a hundred and something years. But looking more at the last of 40 to 50 years of that, which is the period where David was picking up on, our tax to GDP, our tax burden has been broadly flat. Now, it goes up and down in the short term, but the overall tax take has been around about 23%, 24% for the Commonwealth, about 30% for Australia as a whole. We raise about $800 billion in total. Now, there are question marks about, is that sustainable? Will that need to increase? We'll get to that maybe.

If we just look at the gain at the last 40 to 50 years, the top line is personal income tax. Now, again, when I look at that, that last 40 to 50 years, I see something that's fairly flat. It's been about half of total Commonwealth is personal income tax, about half total Commonwealth tax revenue for the last 40 to 50 years. Now, if you project that forward into the forward estimates and long-term projections and you assume bracket creep continues to run without any policy response, then what you see is that line going up. But if you look backwards, what you see is that governments have consistently returned bracket creep.

In fact, personal income tax is stated about half total Commonwealth tax revenue. So I'm less worried about the personal income tax part. But thinking about the roundtable and the need for productivity enhancing reforms, I guess where I'd zero in on is capital income, how we tax capital. Are we attracting as an economy, as a country, capital in a globally competitive market?

So I think there's a bunch of issues there. It's going to come to our company tax rate. It's going to come to other aspects of how we tax capital income, both domestic savings, which is things like superannuation, housing, the way we invest domestically, and then international savings and how we access that. So it comes to things like the dividend imputation system, our company tax rate, how we tax rents, resource rents, other economic rents. I won't maybe drill into them too much now, but that's where I would want to come to is that capital income, how we tax capital income.

Jenny Wong: 
Okay, thank you.

David Bradbury: 
Can I just come back on that?

Jenny Wong: 
Yes.

David Bradbury: 
Look, I think just a couple of quick reactions to what Paul has said, if you look around 2000, you see the personal income tax take a bit of a drop down. It starts to come back up again. That was, I guess, the biggest attempt at a tax mix shift that we've seen in the last 40 years - post-CGT, if you like. So I guess my concern about the assumption that future governments will give back bracket creep is that, if they give back bracket creep and they fund that by shifting the mix, then that would be fine. But what we've seen in recent years has been them seek to give back bracket creep often in the lead up to an election and to not have any structural shift. That is what is leaving us vulnerable in the longer term.

The final thing that I'd say is that I certainly don't contest the fact that that personal income tax line, give or take, looks fairly stable as a percentage of total tax. If we continue to collect, even if there is bracket creep handed back and that allows us to keep it about 40% of the total tax take coming from personal income tax, the burden of that is going to fall on a smaller and smaller share of people over time. I think, for me, that is the unsustainable element of not having that tax mix shift.

Jenny Wong: 
Just shifting gears a bit, David, so from an OECD perspective, how does Australia stack up internationally on tax resilience and readiness for reform? Where do we shine and where are the cracks showing?

David Bradbury: 
Look, one of the things I learnt from my time at the OECD, and I spent a large period there as the head of tax policy, and what we did was we benchmarked countries, but then we also provided advice on potential tax reforms. A couple of things that I learnt. One is that every country has its blind spots when it comes to tax. I'm thinking the United States, the only country in the OECD that doesn't have a national consumption tax, a VAT or a GST. New Zealand couldn't have a capital gains tax. All sorts of countries have their blind spots.

I think Australia, when you think about the resilience of our base, a couple of observations to make. As I said before, we rely a lot on personal income tax. We rely on corporate income tax. Our reliance on corporate income tax is a little bit overstated because some of what we see in the corporate tax is actually money that gets handed back to people through the imputation system. In many other countries, the tax a shareholder pays shows up as personal income tax, and it doesn't get any reflection in the corporate tax part of the equation. So that's something you've got to be aware of.

There are a couple of areas... Australia doesn't have an inheritance tax, and I don't expect that we will have one anytime soon. That's very politically challenging. We had them at the state level. But more than half of all OECD countries have them. Social contributions, I mentioned before, we don't have them. Look, I don't think we should be disappointed by that. The social contributions, they're almost like an add-on to the personal income tax, but they're not a very fair way of raising revenue because typically they are not progressive in the way the personal income tax is. So I don't think we're losing anything by not having those in place.

Clearly, when it comes to the taxation of consumption, we are starting to fall back. We fall back in terms of a general consumption tax. We call it a GST. Others call it a VAT. We collect a lot less than most OECD countries in that respect. But even when it comes to specific taxes on consumption, we used to actually collect a lot more than we do and for the reasons I mentioned before. You've got the electrification of the vehicle fleet. That is going to reduce the amount that we collect from excise on fuel. The other piece, which I have to say is really an area that I get quite upset about actually, what's happening with tobacco taxation in this country. I think that at one level there are things that you can do at the policy level. Sometimes you can overtax, and then there will be these behavioural responses. That's one element. But then there's also the enforcement dimension.

What worries me about tobacco taxation is not just the fact that since 2020 we've lost about $42 billion worth of revenue, which is not insignificant, but it's the fact that we have a tax that is a part of our tax mix that is being so openly flouted by people and the enforcement is just not there. Why I think that is a really worrying thing is that in the lack of that enforcement, that is what starts to undermine people's tax morale, their willingness to abide by the rules and to pay their tax. When you start to see shops popping up in your neighbourhood that are selling tobacco without tax, you have to ask yourself the question, how long will it be before they stop collecting GST? When they start doing that, will the people that are not selling tobacco next door start to do the same thing?

So I think that there are a number of things to be concerned about here. But perhaps the final thing on resilience is I think on the corporate tax, as Paul said, we do have a very high rate. That is largely, I think, because the companies that pay it, they are here because they have to be here either to extract materials from the ground or to provide goods and services to our domestic market. So in a sense, they're not here because they find the tax rate to be an acceptable tax rate. They're here because they have to be here to service the market.

What that means is, if you have a high rate like that, people that don't have to be here, they won't be here. Our corporate tax is strong in revenues, but it's fairly shaky in the sense that a lot of it does depend upon natural resources. Some of which if you start to project into the future, if decarbonization is the objective that we're moving towards, some of those industries potentially will not be there for us to count on the way we have in the future. So I think that's another area of vulnerability.

Paul Tilley:
Can I just add one other comment to what Dave was saying just before we leave the overall architecture of the Australian tax system and are we low tax, high tax, what's our tax mix? One thing we just have to keep in mind in the Australian context is the way superannuation works and payments into superannuation works. So our super guarantee arrangements where each employee has 12% of their salary, their wage contributed to superannuation. Now, we're unusual because that's a private system. It goes into a private savings account, in a superannuation fund. But it's got a lot equivalence to the more European social security arrangements.

There they go into a government fund. The European social security contributions count as a tax. Our super guarantee payments obviously don't count as tax, but it's murky when we sort of work out... David knows this best of all, of course. Our super guarantee payments are a compulsory payment that is made by employers but effectively out of the remuneration of the employee. You can't add it to the tax, but I think it's relevant in the context of, are we a low tax country or not?

Jenny Wong: 
Paul, your writing highlights the hurdles to real tax reform in Australia. Is the root cause for our reform political inertia, structural challenges, or something else? Why have we gone over 25 years without meaningful change?

Paul Tilley:
Well, yeah, so many reasons. I guess the book I did on the history of tax reform in Australia, I could only count three major successful tax reforms. It was the 1942 unification of income tax at the Commonwealth level. It was a Second World War thing. There was the 1985 Labour government, the Paul Keating reforms were really income tax reform, capital gains, etc. Then the 1998 or 2000 reforms of the Liberal government, the Howard government, the Costello reforms, the GST. Lots of other attempts.

Tax reform is difficult. I was trying to work out, well, what are the ingredients, what are the more political economy aspects of why some reform efforts are successful? Those three I could point to and other partial successes and the ones that have not worked. I guess there's a number of factors, a number of stars that I guess need to align.

You need political capital. You can't expect a government on a very narrow majority to go out with a big major tax reform. Tax reform is difficult. The losers are louder than the winners. So you need political capital. You probably need a crisis. Governments are so used to telling us how well everything's going under their watch. It's hard then to say, "Because we're going so well, we need to turn the system, make a major change." You really need to either find a way to set the ground that there's a crisis, a banana republic-type thing, or an actual crisis. Normally, in history you need a crisis or you need fiscal room. You need to be able to compensate and overcompensate the losers. That's sort of a way the tax reform has...

So those stars need to align: a strong political position, maybe a crisis, and fiscal room. Now, we've not had that. Since 2010 in particular, we've had, up until this term, governments with hung parliament, slim majorities. We haven't really had the sort of crisis. We have had the GFC and we have had COVID. Rather than having fiscal room, we're actually faced with a situation where we probably need to raise more revenue, the points that Dave was making. We at least need to maintain the tax burden, and we probably are going to have to lift it. The pressures on various spending fronts are such that I don't think governments of either political persuasion or the community is up for big spending cuts. I think the pressure is the other way.

The final point I'd make has made life even more difficult, this is the point Ken Henry had made when he launched the tax reform book, that we've sort of shot ourselves in the foot on our transparency issues. Now when governments do tax changes, they typically want to put out a table or a list, and if they don't do it the media will, of all the winners and losers, and you can't have losers. This is the weird thing. You can only have winners. So all these tables, everyone is a winner. So that sort of transparency now, the expectation that we will own up to and we will publish who the winners and losers are, that's made it very difficult to rearrange the tax burden.

I guess there's a bunch of things there. But I think we're set at a point right now, where there is a window that's partly open. We have a newly elected government with a significant majority, a significant political mandate, not a specific mandate, but a general mandate, and they've set the scene now to say they're thinking about some significant economic reforms including tax reform. I think at that point, going back and doing nothing is as politically damaging as going forward and doing something. So I think we are at a very interesting point right now. This conference is just perfectly timed.

Jenny Wong: 
Yes, it is.

David Bradbury: 
Can I add to that?

Jenny Wong: 
Yes, for sure, David.

David Bradbury: 
Look, I agree with just about everything that Paul has said there. John Howard in his autobiography said that big reform needs one of two things: bipartisanship or a big fat majority. I'm not holding my breath for bipartisanship. Maybe it will happen. But it's actually not true. When you look at some of the big tax reforms, they've happened in the face of really trenchant opposition, all of them. The Hawke-Keating reforms, there was a lot of opposition, and the GST there was a lot of opposition.

Now, it requires a big dose of courage in the "Yes, Minister" version of the expression. But I do think that it's not unreasonable for the government... There's a lot of pressure on the government at the moment to say, "No one expected you would have this really big majority and now go for your life. You need to seize the moment to do something really dramatic." I have a lot of sympathy for the prime minister's position in saying, "Well, we will do what we took to the electorate." I think that doesn't mean that there is no scope for reform. I think that in the course of any term of Parliament, you need to deal with the issues that arise when they arise.

One of the issues, a couple that I spoke about before. The electrification of the fleet, well, we had a court decision that basically means that the states can't levy these excises on electric vehicles. That is an issue that the government of the day working with the states has to address. I don't think it's reasonable to say, "Well, you need to wait till the next election before you can do that." That is an issue that needs to be addressed. The tobacco excise issues, they need to be addressed.

The other structural issues, yes, they need to be addressed, but there is no reason why they have to be addressed right now. I think it's entirely legitimate for the government to say, "We're going to spend a bit of time working out what we want to do, but we will take it to the electorate at the next election." They will do that knowing that they've got a much more solid majority heading into that election. But I think the importance of an electoral mandate cannot be underestimated.

I was a part of a government that implemented a carbon price, one of the best carbon prices in the world, if any of the academics that looked at it, one of the best carbon prices in the world, but we did not have a mandate for that. We lost the next election, and the incoming government repealed a tax, a price that actually was working in all of the ways that economists say these things should be working. So you need public support. So I think it's entirely legitimate for the government to say, "Not now." But I would be hopeful that they can spend this time to develop a programme and to try and do what you can only do from government, and that is to reform the tax system heading into that next election.

Jenny Wong: 
That's good insight. Thank you, David. Is the idea of revenue neutral reform holding us back from bigger, bolder tax redesign, or is it still the right way to frame the debate, Paul?

Paul Tilley:
The revenue neutral? I kind of thought about this... I thought about this a lot over a long time. I think revenue neutral is still the best way to start your thinking. Even if you're thinking, "We're going to lower the tax burden, or we're going to increase the tax burden," I think you're best to start revenue neutral because it forces you, and not just you, it forces everyone to think about the trade-offs in tax reform.

If we change this, as in we raise less revenue here and we raise more revenue there, will that be a net positive or a negative? It forces you and everyone else to consider those relative merits of different ways to raise the tax. You can think then separately, "Well, we'll increase the total tax burden or decrease it." I guess Treasury officials, you're scarred from long battles, most of which you lost, that so many interest groups come to government saying, "Why can't you get it? Why can't you understand that if you just lower the tax burden on us, our activity, you will get more of our activity? You say you want more of our activity. Here's the obvious easy way to do it. Just lower the tax burden on us."

Now, what they don't want to do is to say, "Where will that revenue come from?" or they'll say something like, "Oh, you should just cut spending." We all know that if the demand curve slopes down, supply curve slopes up, that if you lower tax on something, if you lower the price, you will get more of it. Okay, that's not a great insight. The issue in tax reform is that, if I lower tax here and I raise that tax revenue somewhere else, will I get a bigger efficiency effect from where I lower tax and raise it, or will I get a net improvement?

That's why I think revenue neutral is the best way to think about it in the first instance. Now, of course, you can think about two things at the same time. I think we are, with the reasons that David was pointing out initially, we probably are facing a point where we're going to have to as a community think about raising the tax burden. I just think that's an inevitability. I just don't think either side of politics or the community is going to be prepared to cut spending in a way that would balance the budget given the extent of the structural deficit we face.

David Bradbury: 
If I can just add, my starting point would be where you ended there, Paul, that we should be thinking about, how do we get from where we are today to having fiscal sustainability, to having a balanced budget? Part of that is tax, and part of that is spending. We do this often because of the way it's just difficult to have the broader conversation, so we focus on tax or we focus on spending. I agree with what you said before. I think the last election demonstrates that people are quite comfortable with the spending side. People are not calling for government to reduce spending. Some people are, but by and large, across the community there's not a big call for reductions in spending.

I think the danger with the revenue neutral argument is when it's applied in a very specific context. We saw this with the Productivity Commission. I didn't interpret their mandate to be quite so constraining, but they have taken it to be so, where on the corporate tax they basically said, "We're coming up with a reform of the corporate tax that will be revenue neutral." You need to think about the tax system as a whole, and it may be you achieve revenue neutrality.

But some taxes, the burden increases and other taxes, it doesn't. To me, it seems artificial and unnecessarily constraining to be thinking around every single tax, you can only make a tax change if it's revenue neutral. I don't think you'll ever get any tax reform if you adopt that approach. So a starting point would be the budget, where do we need to get to? But then even within the tax system, we should be thinking of the whole of system effect as opposed to individual taxes.

Chris Hatzis:
We hope you enjoyed listening to David Bradbury and Paul Tilley. Their discussion with Jenny Wong, CPA Australia’s Tax Lead, was recorded at CPA Australia’s inaugural Tax Forum in August 2025. And don’t forget — part two will be available shortly on With Interest, where Jenny Wong and Dale Pinto, Global President and Chair of CPA Australia, continue the conversation with David and Paul. They’ll explore what’s unfolding in the global tax landscape and whether multilateralism works when it comes to tax revenue. Until next time — thanks for listening.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance business and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode, and we hope you can join us again for another episode of With Interest.