The Australian Parliamentary Budget Office has recently released a budget explainer on Australia’s tax mix, which explains the roles played by different taxes and how they have changed over time.

Australia’s Tax Mix: Executive summary

Australians pay a variety of taxes, at different stages of their economic life. Some are taxes on income, some are taxes on what we consume, and some are taxes designed to reflect the economic impact of what we do.

Most of the time, Australians discuss particular taxes, like income tax and what it means for them. But how do the different types of taxation relate to each other? Do some play a bigger role than others in generating revenue?

The common term for thinking about the taxes taken together is the ‘tax mix’. It is ultimately the ‘tax mix’ that determines what we pay.

But many readers are less familiar with the ‘tax mix’ than they are with individual taxes. They also know that the tax system can work differently in other countries. They sometimes wonder if Australia’s tax system could be different to what it is now. Could we have a different tax mix?

Some readers may be interested in the level in which individual taxes should be set, as they have varying beliefs about the role and size of government. Nevertheless, given any target level of tax revenue, it is likely that a combination of taxes will be needed to reach that amount.

This paper provides background information about how Australia’s taxes work, and about what it would mean to change the tax mix in a significant way.

Changing the tax mix is not easy, and this paper shows that only very large policies would significantly change the relative shares of taxes within the mix.

We start by reviewing the composition of Australia’s tax mix since Federation, introducing the major taxes that have funded Australian governments’ expenditure over time.

Chapter 2 looks at the interplay between taxes, transfers (such as social assistance payments) and ‘tax expenditures’ (concessions) as tools governments can use to achieve policy outcomes.

Following this we describe several common methods for assessing the relative efficacy of taxes. Chapter 3 explains how any system of taxation involves trade-offs between multiple objectives and illustrate the various roles that taxes play within the overall mix.

Chapter 4 suggests other lenses for looking at taxes, particularly personal income tax, such as through industries, age and gender.

Finally, we consider some scenarios which illustrate what these trade-offs mean for the mix of taxation in Australia.

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