If Australia needs substantially more revenue, the options include taxing carbon and resource profits, taxing wealth more heavily and reforming the GST.
In Part One of this article I made the case that the Australian government needs to raise more revenue to ensure adequate service provision and restore the budget balance. My rough estimate is that the extra revenue needed is equivalent to about 4 per cent of GDP, or around $115–120 billion.
So far, however, the Albanese Government has only sought additional revenue by reducing unwarranted tax concessions by adjusting the capital gains discount, negative gearing, and the taxation of family trusts. These changes were paired with promised new tax relief for workers: a $1,000 instant deduction from 2026–27 and a $250 tax offset from 2027–28. In short, this extra income tax revenue will make no contribution to ensuring adequate service provision and a balanced budget.
Instead, we need to consider other much more substantial sources of additional government revenue.
A carbon tax
The most obvious and best source of additional revenue would be to introduce a carbon tax, which would not only raise more revenue, but most importantly would also act to ensure that Australia can achieve its net zero targets for carbon emissions, and much more effectively and cheaply.
As documented by the Superpower Institute, present policies are unlikely to allow Australia to meet its net zero commitments. Renewable energy is reducing the reliance on carbon-based electricity, but “sectors representing nearly 40 per cent of Australia’s emissions in 2005 have not even begun to reduce. Transport emissions have risen by more than 20 per cent, industry by about 7 per cent and stationary energy by more than 20 per cent. Almost all progress has come from land-use change.”
The present government policies, such as the Safeguard Mechanism and Capacity Investment Schemes, are quite expensive and will never achieve the necessary reductions in carbon emissions.
Instead, the Superpower Institute has proposed a Polluter Pays Levy (PPL) that would charge companies for the carbon pollution associated with fossil fuels extracted or imported for use in Australia, with some revenue returned to households to help ease cost-of-living pressures.
In addition, the Superpower Institute has also proposed a Fair Share Levy (FSL), which would be a Norway-style levy to ensure that Australians receive a fair return on the very large profits earned from Australia’s publicly owned gas resources – without affecting future investment, jobs, or gas prices. But at present, Australia captures less than 30 per cent of fossil fuel profits, much less than the more than 75 per cent captured by other countries, such as Norway, the United Kingdom and Saudi Arabia.
Together, the Polluter Pays Levy and the Fair Share Levy would collect average revenue of $35.6 billion each year between 2026 and 2050. Although, the Superpower Institute suggests that about $4 billion of this annual revenue increase should be used to generously compensate households for higher energy prices.
An alternative to the FSL would be a levy on gas exports as proposed by the Australia Institute. According to the Australia Institute, their proposed export levy would raise an additional $17 billion a year – more than the $13 billion which the Superpower Institute estimates their FSL would raise, but the reason for the difference between these estimates is uncertain.
A wealth tax
Wealth inequality is growing very rapidly in Australia. If we want an equitable society there is a strong case for taxing wealth.
In 2025 the Australia Institute proposed a 2 per cent annual wealth tax on net assets over $5 million (excluding the family home and superannuation), raising $41 billion per year, and the reintroduction of an inheritance tax, raising $10 billion per year.
These two forms of wealth taxation would improve intergenerational equity and help prevent inequality from cascading through generations.
Furthermore, Australia taxes wealth more lightly than almost any other comparable country. Many OECD countries have more than one form of wealth tax, and Australia is almost the only developed country without death duties – both the UK and US have them, as did Australia until 1979.
Expand the GST and increase the rate
Recently there has been growing support amongst economists to increase the GST and use at least some of the extra revenue to reduce income taxes.
This week a specific proposal was released by the Grattan Institute (Pearls & Irritations, 20 October).
The Grattan Institute’s proposal would increase the GST rate from 10 per cent to 15 per cent and expand its coverage to include all food. This is expected to raise about $76 billion a year in additional revenue.
Of course, much of the traditional opposition to increasing the GST has been because it is expected that it will increase inequality, as high income households typically spend a lower proportion of their income. But presumably to counter this opposition, the Grattan Institute proposal would involve using $33 billion of the extra GST revenue for personal income tax cuts – the largest for nearly 20 years – and about $25 billion a year to boost Australia’s welfare system.
As a result, according to the Grattan Institute, “the poorest 40 per cent of households would be better off, while wealthier households would pay modestly more tax.”
There are some obvious attractions in this proposal, but a major difficulty in achieving what has been proposed is that under present arrangements all the revenue raised must be transferred to the states. Also, there are good reasons for wanting to maintain those arrangements.
But that means that the Grattan Institute proposals are really only viable if the Commonwealth government is prepared and able to negotiate with the states that there will be an offsetting cut in payments to the states for all the other state programmes that the Commonwealth is funding through specific purpose funding under Section 96 of the Constitution.
These negotiations will not be easy, and it is also quite likely that the Commonwealth will not want to reduce its involvement in and influence over at least some of these state-run services.
Finally, the net amount raised by the Polluter Pays Levy, the Fair Share Levy and wealth taxation, discussed above, is only around $80–85 billion – well short of the $115–120 billion that I estimate is needed to ensure adequate government services and restore the budget balance.
It may be that the extra GST funding that the states could receive under the Grattan Institute’s proposed expansion of the GST would result in some of the service improvement being sought. For example, it could help achieve the Gonski school funding targets.
But if all the extra GST revenue is used as the Grattan Institute proposes, it is unlikely that adequate service provision and budget balance can be restored. Instead, in addition to carbon and wealth taxation, achieving those goals may well require using some of the additional GST revenue for those purposes and less on income tax reductions or improvements in the income support system.
Michael Keating is a former Secretary of the Departments of Prime Minister and Cabinet, Finance and Employment, and Industrial Relations. He is presently a visiting fellow at the Australian National University.