Federal budget 2023: Incomes are on the rise on all fronts

Federal government revenue will hit a record share of the economy this century after the world gave Australia a huge pay rise, as personal and company income taxes swell Canberra’s coffers.

Treasurer Jim Chalmers delivers the 2023 federal budget in Canberra on Tuesday. Picture: NCA NewsWire / Dylan Robinson

Federal government revenue will hit a record share of the economy this century after the world gave Australia a huge pay rise, as personal and company income taxes swell Canberra’s coffers to fund an expansion in social spending, defence and health.

A stronger economy, with more people in work, including foreign students and working holiday makers, the return of solid wages growth reviving bracket creep and surging commodity export prices are expected to provide $28bn in extra revenue since the October budget for the current fiscal year alone.

Without the stage three personal income tax cuts beginning in July 2024, worth around $20bn in the first year, the share of total receipts from tax individuals would rise to almost 50 per cent, a level international bodies have warned is a risk to fiscal stability.

In the financial year beginning in July, tax receipts rise to 23.9 per cent of gross domestic product, the tax ceiling used by the previous Coalition government as part of its fiscal rules.

The broader measure of total receipts, that takes in non-tax revenue rises to 25.9 per cent of GDP, the highest federal take since 2000-01, the year the Howard government introduced the GST.

Tax receipts are surging on all fronts and have been revised up by almost $41bn for 2023-24 since Labor’s first budget in October, and $116bn over the five years.

The budget papers note “near record levels of participation and employment, a pick-up in wages growth and sustained high commodity prices are supporting a rapid recovery in receipts following the pandemic”.

The budget papers also said around one-fifth of the increase in tax receipts reflects the update to assumptions about the path of commodity prices in “response to sustained high prices, largely in 2023-24.

“The upgrades to company tax receipts are expected to moderate by the end of the forward estimates period, as commodity pries are assumed to return to long-term levels,” the budget papers said. “Elevated risks to the global outlook, volatility in commodity prices and uncertainty around the response of households to rising interest rates mean that tax receipts will remain vulnerable to the changing outlook for some time.”

Over the four years of forward estimates in Tuesday’s budget, there’ll be an improvement in revenue of $102bn due to changed economic conditions.

“This Budget, we’ve returned 82 per cent of the extra revenue windfall that’s largely come from lower unemployment, stronger jobs and wages growth, and higher prices for key exports,” Jim Chalmers said in his budget speech.

“We’ve now returned 87 per cent over this Budget and the last.”

New tax measures and policy decisions will add $22bn to revenue over the forward estimates period.

Dr Chalmers said the new measures were “modest, but meaningful” and include:

• Tightening superannuation tax concessions for those with balances exceeding $3m.

• A 15 per cent global and domestic minimum tax for large multinational companies.

• Changes to the Petroleum Resource Rent Tax, so that Australians receive a fairer return on the sale of our natural resources, sooner.

• Raising the tax on tobacco by 5 per cent for 3 years.

• And extending tax compliance programs.

The Treasurer said because the government was returning “most of the welcome improvement in revenue to the budget” debt will be almost $300bn lower over the medium term, “saving $83bn in interest costs over the next 12 years”.