Does Australia Need Tax Cuts or a Complete Overhaul?

A new tax proposal is making waves, promising Australian couples a bit of financial relief. But experts warn it could actually make our already broken tax system even worse.

While most people were busy celebrating (or protesting) on Australia Day, One Nation quietly put forward a plan to help couples with kids. Their idea? Let couples split their income evenly between two tax returns. This way, more of their earnings fall into lower tax brackets, reducing their overall tax bill.

One Nation candidate Jennifer Game gave an example: A couple where one earns $120,000 and the other makes $30,000 currently pays around $31,709 in tax. Under this plan, they could split their income equally ($75,000 each) and save about $2,022.

Sounds great, right? Well, not so fast.

A Band-Aid Fix for a Bigger Problem

Australia Institute chief economist Greg Jericho isn’t convinced.

"Income splitting has been floated before, and the main problem is that it mostly benefits high-income earners. It also discourages women from entering the workforce."

And that’s just one piece of a much bigger issue. Experts have been calling for a complete tax overhaul for years, and we’re still waiting.

More than 15 years ago, former Treasury Secretary Ken Henry made 138 recommendations to modernize Australia's tax system. Hardly any were adopted. Some that were? They got scrapped later.

"We're in a worse position now than we were 15 years ago," Henry said last year. "It’s an intergenerational tragedy."

What Needs to Change?

Jericho argues that handing out more tax cuts isn’t the solution.

"What we need right now is not less tax," he said. "We need to ensure that those who can afford to pay do pay their fair share."

One of the biggest issues? Tax loopholes.

Massive tax breaks on superannuation, capital gains, fuel tax credits, private trusts, and even luxury car exemptions mean the wealthiest Australians pay far less tax than they should.

Meanwhile, mining and gas companies get away with paying minimal taxes due to loopholes in the Petroleum Resources Rent Tax (PRRT).

"There are so many exemptions that some of the world's largest LNG projects may never have to pay PRRT," Jericho explained. "That’s a joke."

Is Australia Really a High-Tax Country?

Many Australians feel like they’re being taxed to death, but compared to other countries, that’s not exactly true.

A 2024 report found Australia’s tax-to-GDP ratio is just 29.4%. That’s much lower than countries like Denmark (43.4%), Finland (42.4%), and Norway (41.4%). Even the OECD average sits at 33.9%.

Same goes for income tax. Despite the common complaint that Aussie workers are taxed too much, our tax rates are actually on the lower end compared to other OECD nations.

"If Australia just raised its tax levels to match the OECD average—which is about what Canada collects—the government would have an extra $135 billion a year," Jericho said. "Imagine what we could do with that money—reduce poverty, improve services, add dental care to Medicare."

Will We Ever See Real Reform?

Big tax reforms feel like a pipe dream, but Jericho believes there’s hope.

He points to last year's changes to the Stage 3 tax cuts as proof that governments can make bold tax decisions without facing political disaster.

"If the government said, 'Hey, we’re going to cut tax loopholes for the richest 10% so we can fund things like dental in Medicare,' I think that would be a political winner," he said.

"But you need the courage and the gumption to do it. Hopefully, we’ll see that from this government—or the next one."