Australia Faces Growing Pressure for Tax Reform Ahead of Federal Budget
BGA Australia Managing Director Michael “Mick” McNeill wrote a client update on mounting pressure for tex reform in Australia.
Context
- Australia’s Labor government, led by Prime Minister Anthony Albanese, is under pressure to deliver meaningful tax reform in its May 12 budget that lifts productivity while addressing intergenerational inequality. Additionally, there are calls for the government to reduce spending growth amid a resurgence of inflation and tightening of monetary policy. The Reserve Bank lifted the March 17 cash rate for the second time this year. The banking sector is trying to shift the focus to taxes paid by Big Tech, and unions have called for changes that would see oil and gas exporters pay more tax. This comes as middle Australia faces anxiety about the impacts of artificial intelligence (AI) and the Middle East conflict on the cost of living and fuel security.
- The 2026-27 budget, Treasurer Chalmers’ fifth, will be handed down May 12. The prime ministerial aspirant and former political staffer is a slick media performer but knows that he has yet to deliver an economic reform legacy akin to that of Labor’s greatest treasurer, Paul Keating, who served in that position from 1983-1991. Chalmers believed he had delivered a “soft economic landing” that had reduced post-COVID-19 inflation while maintaining low unemployment. Following Labor’s thumping election victory in May 2025, Chalmers declared productivity his priority for this term of Parliament and pointed to the growing contribution of the private sector to economic growth. However, sluggish productivity, inflation and white-collar anxiety (partly related to AI) have arguably made this budget Chalmers’ most important.
Significance
- The corporate sector wants a more internationally competitive corporate tax rate, streamlined foreign investment approvals, flexible labor laws, reduced government spending, a higher education system more geared toward economic needs and a more orderly energy transition. The government’s economic advisory body, the Productivity Commission, has recommended a cut to the headline corporate tax rate for all firms, replaced with a net cashflow tax of 5 percent on all firms
- Treasury is working on tax reform options, with intergenerational equity at their core. Chalmers faces considerable pressure to reduce the capital gains tax discount that applies to housing, which has been heavily criticized for contributing to investor-driven property price increases. The treasurer is caught between the highly mortgaged who do not want their on-paper wealth to decline and young Australians who are increasingly priced out of the housing market. Australia’s income tax rates are widely viewed as punitive, but the government would need to find savings or raise taxes to fund income tax cuts. Furthermore, the government is under pressure from its paramount security partner, the United States, to boost defense spending. An increase would be reflected in the next iteration of the National Defense Strategy, to be released before the budget.
- The Australian Banking Association (ABA) argues that multinational payments platforms are using complex accounting structures to minimize taxes paid in Australia. The ABA asserts that “large foreign multinationals generate revenue from Australia’s economy without making comparable contributions,” citing payment companies such as Apple Pay, Google Pay, PayPal, Stripe, Block’s Square and Afterpay, and Zip. Apple’s digital wallet is in the sights of the ABA. “They enjoy the benefits but avoid the obligations: no equivalent regulation, no duty to invest back in the system that enables their operations.” Meanwhile, Commonwealth Bank Chair Paul O’Malley has warned the dominance of a few American AI companies is creating a “geoeconomic risk” for Australia. He has urged the government to develop plans to regulate and tax the platforms. AI had “the potential to shift economics offshore, concentrate risk and weaken the domestic institutions Australia relies on.
Implications
- While union coverage has drastically fallen over the last 40 years, unions have institutional clout in the Labor Party, and the peak union body is now led by left-wingers skeptical of market forces. Unions representing public sector and “care economy” workers are influential in the Labor Party, which will hold its national conference in July 2026. At the last election, Albanese said he wanted his political legacy to be universal access to childcare, but he has been criticized for subsidies that go to upper-middle class families. The National Disability Insurance Scheme is another proud Labor legacy, but it is one of the fastest-growing items in the budget and widely viewed as not having strict enough eligibility.
- The underlying criticism of the Albanese government’s economic approach is that it too often chooses the politically easy option of more social spending and industry subsidies, under the cover of social equity, global volatility and sovereign capability. Albanese, a product of Labor’s socialist left faction and historically critical of the Keating reforms, instinctively favors interventionist economic policies. At the core of the government’s economic agenda is the net-zero transition, which has been underpinned by taxpayers and coincided with a sharp rise in electricity prices. There are signs that the rollout of large-scale renewables, despite favorable policy settings and subsidies, has slowed and that gas and coal will remain essential for keeping the lights on and accommodating the data center boom, at least for the next decade.
We will continue to keep you updated on developments in Australia as they occur. If you have any questions or comments, please contact BGA Australia Managing Director Michael “Mick” McNeill at mmcneill@bowergroupasia.com.
Best regards,
BGA Australia Team
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