Intergenerational report forecasts further growth in income tax as share of GDP

This growth is projected to go from 12.3 per cent of GDP in 2025–26 to 14.1 per cent in 2065–66.

Further to these findings, Treasury forecast total tax receipts as a share of the economy at 23.6 per cent of GDP in 2025–26, not to exceed the historical high of 24.2 per cent of GDP across the projections.

Overall, tax receipts are estimated at 92.1 per cent of total receipts in 2025–26, projected to rise slightly to 93.5 per cent over the next 40 years as non-tax receipts decline as a share of GDP.

Economy

Despite the need for policy change for improvements to the tax balance, Treasury revealed that since the 2023 Intergenerational Report, the underlying cash balance (UCB) is projected to improve over the medium term to a deficit of 0.3 per cent of GDP in 2036–37, then widen over the long term to reach a deficit of 1.8 per cent of GDP in 2065–66.

This rise is projected to improve GDP by 1.2 percentage points by 2062–63, given stubborn fiscal pressures.

Further, gross debt as a share of GDP was forecast to fall to 22.2 per cent in the mid‑2050s, then rise to 27.4 per cent by 2065–66, an improvement of 7.2 percentage points of GDP in 2062–63 compared to the 2023 IGR.

The report also noted that the fiscal outlook has improved since the 2023 IGR, with debt and government spending lower as a percentage of GDP.

“This reflects the Government’s actions to address the fastest growing fiscal pressures, including reforms to the NDIS and aged care,” the report read.

Overall, the report predicted that Australians will live longer, healthier lives, with higher living standards and more secure retirements in 2066.

Since the previous IGR in 2023, advances in AI have been the most dramatic change, and one of the five major transitions occurring at the moment.

Geopolitical fragmentation is increasing amid conflict and competition that are flaring and broadening; an energy transition is becoming more urgent; a swiftly ageing population, accelerated by falling fertility rates, is a major challenge; and an industrial base evolving toward services as a result of AI is another major transition.

The report highlighted growing concerns about intergenerational equality, which is particularly exacerbated by the housing crisis.

“This is all about boosting productivity and resilience, cutting income taxes, boosting wages and superannuation, helping with the cost of living, improving the sustainability of the budget, helping Australians into home ownership and making investments in better services,” Treasurer Jim Chalmers said in the report.