Australia, Strangled by Tax
More than sixty years ago, George Harrison wrote one of the Beatles' most enduring political songs, Taxman. It was a furious little protest against a British tax system that Harrison had discovered could take an extraordinary proportion of a successful person's earnings: https://www.youtube.com/watch?v=gMdcE8jdz70. The song belonged to another country and another age, but an Australian listening to it today might reasonably wonder whether Harrison had somehow been given an advance copy of our economic future.
Australia has developed a tax problem that can no longer be dismissed as the predictable grumbling of people who would simply prefer to keep more of their money. The problem is increasingly structural. Governments are taking an expanding share of the fruits of work, investment and property while an extraordinarily complicated collection of federal, state and local imposts reaches into almost every significant economic transaction Australians undertake.
The latest figures assembled by Macrobusiness (link below), make the trend difficult to ignore. Since the beginning of the COVID era, tax collections across Australian governments have surged. Income tax receipts have risen dramatically, company tax collections have increased, payroll taxes have climbed, GST collections have expanded and stamp-duty revenues have exploded alongside property prices. Some of that increase naturally reflects inflation, population growth and a larger nominal economy, so raw dollar increases should never be mistaken for increases in the tax burden dollar-for-dollar. Nevertheless, the broader direction is unmistakable: Australians are handing an enormous amount of money to government, and personal income tax is set to become still more important to the system.
This is where Australia's version of Taxman is particularly ingenious. The government does not necessarily need to announce a tax increase at all. Inflation and nominal wage growth can do much of the political dirty work through bracket creep. Suppose a worker receives a pay rise intended merely to compensate for rising prices. He may be no richer in real terms. His supermarket bill has increased, electricity costs more, insurance has increased and housing consumes more of his income. Yet his nominal income has risen, potentially exposing more of it to higher rates of tax. The government consequently becomes richer while the worker wonders why his pay rise disappeared.
This is not merely an anti-tax talking point. Australia's Parliamentary Budget Office explicitly identifies bracket creep as the principal reason personal income taxation is projected to increase as a proportion of the economy over the medium term. Personal income taxes are projected to account for almost 48 per cent of Commonwealth revenue in 2026–27 and almost 54 per cent by 2036–37. Even more strikingly, the PBO projects that, without further personal income-tax changes, the average personal income-tax rate will climb from 24.9 per cent in 2026–27 to 28.6 per cent by 2036–37, which would be a historical high.
There is something politically remarkable about this mechanism. Parliament does not have to gather for a dramatic vote announcing that Australians will henceforth surrender a larger proportion of their earnings. No Treasurer needs to stand before the cameras and declare a five-per-cent tax increase. The thresholds remain where politicians left them while nominal incomes gradually move upwards. The Taxman simply waits, which is why the periodic announcement of a "tax cut" should sometimes be treated with caution. Governments can allow bracket creep to increase the burden for years and then return part of the accumulated increase to taxpayers while announcing that they have generously put money back into people's pockets. Whose pockets did the money come from in the first place?
Australia's problem is compounded because income tax is only the beginning. Spend what remains of your income and GST appears. Employ people and payroll tax may enter the equation. Buy property and state governments can collect stamp duty. Own property and there are council rates and, depending upon circumstances, land tax. Fill a vehicle and fuel excise forms part of the price. Run a business and an entire architecture of taxation and compliance waits for you.
Not every one of these taxes is economically borne entirely by the person who writes the cheque. Payroll tax, for example, can ultimately affect wages, prices and employment. Company taxation is distributed through complicated effects upon shareholders, workers and consumers. But that is precisely the point: taxation does not vanish merely because its economic incidence is hidden. Eventually somebody pays.
Stamp duty illustrates the madness particularly well. Australian governments have benefited enormously from soaring house prices because transaction taxes rise with property values. Governments therefore collect larger amounts when Australians are already struggling with some of the least affordable housing in the country's history. A young family trying to buy a home encounters a government demanding thousands or tens of thousands of dollars merely because ownership changes hands. There is an almost medieval quality to it: the citizen crosses the economic bridge and discovers a government toll collector standing in the middle.
The defenders of Australia's tax burden have an obvious response. Taxes purchase civilisation. They pay for hospitals, roads, defence, aged care, pensions, schools, policing and innumerable other public services. The important question is not whether government requires revenue. It plainly does. The question is how much government can extract before taxation begins materially damaging the productive activity upon which government itself depends.
Taxes alter incentives. Tax work heavily enough and additional effort becomes less rewarding. Tax investment heavily enough and capital seeks alternatives. Impose enough costs upon businesses and marginal businesses cease expanding or never begin. Tax housing transactions heavily and people become less willing to move. Add sufficient compliance costs and productive people spend increasing amounts of time satisfying bureaucracies rather than producing things other people want. The Taxman eventually begins eating the economy from which he obtains his dinner.
Australia is particularly vulnerable because governments face enormous expenditure pressures. The population is ageing. Health and aged-care expenditure are increasing. The NDIS has become one of the Commonwealth's great structural spending commitments. Defence expenditure faces upward pressure. Interest on government debt consumes resources before a single new service has been delivered. Meanwhile governments discover that increasing expenditure is politically easy while cutting established expenditure is extraordinarily difficult. Taxation becomes the path of least resistance, and bracket creep makes that path easier still because it provides increasing revenue without requiring governments continually to legislate explicit increases in income-tax rates. Inflation pushes nominal wages upwards, the tax system takes its additional share, and Treasury receives the proceeds.
There is a deeper cultural consequence to this. A society should want people to work, save, invest, establish businesses, purchase homes and accumulate enough capital to become independent. Those activities create the economic surplus from which both private prosperity and public services ultimately arise. Yet Australians increasingly encounter government at every stage of that process: earn and you are taxed; spend and you are taxed; employ and you are taxed; invest and you are taxed; buy property and you are taxed; sell property and you may be taxed; own property and you are taxed; drive somewhere and tax is embedded in the fuel. Then complete the paperwork proving that you have complied with all the taxes. One begins to understand George Harrison's irritation.
The danger is not merely that Australians have less disposable income. It is that an economy subjected to continually increasing extraction can become less dynamic. People respond to incentives, even when governments prefer to pretend otherwise. Some work less. Some invest elsewhere. Some abandon business ideas. Some arrange their affairs primarily around minimising taxation rather than maximising productive activity. The distortion becomes part of everyday economic life.
Australia should be an extraordinarily wealthy country. It possesses enormous natural resources, an educated population, stable institutions, vast agricultural capacity and proximity to the world's most dynamic economic region. Yet ordinary Australians increasingly report the sensation that they are running faster simply to remain where they were. Housing absorbs more, energy absorbs more, insurance absorbs more, food absorbs more and interest payments absorb more. Government takes its share before much of that expenditure even begins.
This is where the modern Australian Taxman differs from the caricature of a government simply confiscating the fortune of a millionaire rock star. The Australian version works quietly across an entire economy. It does not need a spectacular 1960s British marginal rate to make itself felt. It has bracket creep, transaction taxes, consumption taxes, employment taxes and an expanding expenditure machine requiring ever more revenue.
The Parliamentary Budget Office's projections should therefore be treated as a warning rather than an accounting curiosity. If personal income taxation continues rising as a share of the economy largely through bracket creep, Australia is making a policy choice even when politicians pretend no choice has been made. Doing nothing is itself the policy.
The alternative is not abolishing government or pretending that hospitals can be financed with good wishes. It is imposing upon government the discipline routinely demanded of households and businesses: priorities must be established, ineffective spending must be eliminated, programs must be tested against results, and governments should have to justify taking an additional dollar from citizens rather than assuming that the additional dollar belongs to Canberra by default. There is also a strong case for addressing bracket creep systematically rather than periodically allowing it to inflate the tax burden before governments announce politically convenient tax cuts. A tax system should not depend upon inflation quietly increasing the government's claim upon people's real earnings.
George Harrison's Taxman was funny because it exaggerated a relationship everyone immediately recognised: earn something and the state appears with its hand out. For Australians in 2026, the joke is becoming uncomfortable. The country does not face the absurd marginal rates that inspired Harrison's song, and pretending otherwise would weaken the argument. Australia's problem is more mundane and therefore perhaps more dangerous: the steady normalisation of an ever-hungry revenue system embedded throughout economic life.
The Taxman no longer needs to kick down the door. He is already in the payroll system, the property transaction, the petrol bowser, the business accounts and the supermarket receipt. Australia cannot tax itself into prosperity. A government ultimately depends upon the productive society beneath it, and there comes a point at which continually extracting more from that society begins weakening the thing being taxed.
The Beatles supplied the soundtrack decades ago. Australia is now supplying the sequel.
https://www.macrobusiness.com.au/2026/09/proof-australians-are-drowning-in-taxes/
