Let’s Invent a New Tax System
A socialist and a business owner walk into a bar and start discussing tax.
A socialist and a business owner walk into a bar and start discussing tax.
It ends in a fight.
But we both drink whiskeys and smoke cigars, so it’s fine.
That is more or less the dynamic between me and one of my best friends. He is, lovingly, a hardcore socialist. I am a business owner. On paper, we should probably annoy each other to death. In reality, he is one of my favourite people in the world, and we spend a lot of time arguing about politics, economics, tax, fairness, business, workers, and whether society is broken or just badly managed.
And honestly, that is how it should be.
People are not meant to agree on everything. We are heterogeneous. We have different lives, different incentives, different risks, different fears and different ideas of what “fair” actually means. A healthy society is not one where everyone nods along to the same script. It is one where disagreement helps us build something that works for more than one type of person.
So this article is not me pretending I have solved tax. It is me asking a simpler question.
If we could invent a better tax system for Australia, what would it look like?
Not a perfect one. Perfect systems do not exist. But a better one. A tax system that is fairer to workers, less hostile to productive businesses, less obsessed with political villains, and more honest about where the money actually comes from.
The Easy Villain Problem
Right now, the political climate is full of easy villains.
Tax the gas companies. Tax the supermarkets. Tax the multinationals. Tax the banks. Tax the rich. Tax the landlords. Tax whoever the crowd is angry at this week.
Sometimes the anger is justified. There are bad actors. There are companies that play games. There are monopolies and duopolies. There are executives who earn absurd money while ordinary people cannot afford rent. There are multinational structures that make perfectly profitable-looking operations magically appear unprofitable in Australia.
But a villain is not the same as a solution.
That is the trap.
A politician can point at a big company and say, “They made billions and paid no tax,” and most people understandably get angry. But that headline often hides the actual mechanics. Company tax is not charged on revenue. It is charged on taxable income, which is broadly assessable income minus allowable deductions. Deductions include ordinary business expenses, depreciation, losses, and other rules designed to recognise that running a business costs money. The government’s own business guidance explains income tax for businesses this way: taxable income is calculated from assessable income less deductions. (business.gov.au)
That does not mean every zero-tax headline is innocent. It also does not mean every zero-tax headline is corruption.
Both things can be true.
The ATO’s corporate tax transparency report for 2023–24 found that 72% of entities in the corporate transparency population paid tax, while 28% did not. (Australian Taxation Office) Some of that is losses. Some of it is prior-year losses. Some of it is investment. Some of it is deductions. And yes, some of it can be aggressive tax planning that should be scrutinised hard.
The problem is that public debate usually skips the hard part. We go straight from “big number” to “evil company” to “new law,” and then everyone feels like something has been done.
But has anything actually improved?
That is the question we should be asking.
Business Tax Is Not as Simple as “Make Them Pay More”
My socialist friend would say companies need to pay their fair share.
I agree.
The argument is over what “fair share” actually means.
A company should not be able to extract money from Australia, use Australian workers, Australian customers, Australian infrastructure, Australian courts, Australian roads and Australian stability, and then contribute nothing back. That is not capitalism. That is freeloading.
But there is another side.
Do not bite the hand that feeds you is a crude phrase, but there is a truth in it. Private-sector jobs require viable private-sector businesses. Investment requires confidence. If you make Australia too hostile to investment, capital can go elsewhere. Not every business can leave overnight, of course. A gas field cannot be packed into a suitcase. But future investment, headquarters, intellectual property, skilled labour, expansion plans and risk capital can absolutely move.
Australia already has a two-tier company tax system. The full company tax rate is 30%, while the lower company tax rate is 25% for base rate entities, generally companies with aggregated turnover under $50 million and no more than 80% passive income. (business.gov.au) That is not nothing. Company tax is not “minuscule” either. In the 2026–27 Budget, company tax was estimated at $154 billion, compared with $382.4 billion from individuals and other withholding taxes and $103.2 billion from GST. (Australian Government Budget)
So company tax matters.
But personal income tax matters more.
That is where the public debate gets weird. We spend so much time yelling about companies that we miss the quiet machine taking more and more from workers every year.
That machine is bracket creep.
Bracket Creep: The Sneaky Tax Nobody Voted For
Before we talk about bracket creep, we need to talk about inflation.
Inflation is not the value of the dollar going up. It is the opposite. Prices rise, so the same dollar buys less. The RBA’s target is to keep annual consumer price inflation between 2% and 3%, because low and stable inflation helps people make decisions and avoids the damage caused when purchasing power gets eaten too quickly. (Reserve Bank of Australia)
A little inflation is normal in the system we have built. Too much inflation is painful. No inflation or negative inflation can also be a sign of a broken economy. The current issue is that inflation has been running above target. The ABS reported annual CPI inflation of 4.0% in the 12 months to May 2026, while wages rose 3.3% over the year to the March quarter 2026. (Australian Bureau of Statistics)
That means a lot of people are not imagining the squeeze. Prices have been rising faster than wages.
Now add tax.
If you earn $70,000 and get a 4% pay rise, you might feel like you should be keeping up with inflation. But if prices are also up around 4%, you are not really richer. You are just earning more dollars that are worth less.
But the tax system sees the higher number.
If tax brackets do not move with inflation, more of your income can be taxed at higher rates over time, even if your real purchasing power has not improved. That is bracket creep. The Parliamentary Budget Office describes bracket creep as rising incomes causing people to pay an increasing proportion of their income in tax even when tax settings have not changed. (Parliamentary Budget Office)
This is one of the most important fairness problems in the whole tax system.
It is not loud. It does not arrive as a new tax. Nobody announces it at a press conference. It just happens quietly in the background. You get a pay rise, the government gets a bigger cut, and then later politicians announce tax relief as if they are giving you a gift.
The government is currently reducing the 16% tax rate on income between $18,201 and $45,000 to 15% from 1 July 2026, then to 14% from 1 July 2027. Every taxpayer gets a tax cut of up to $268 from July 2026 and up to $536 from July 2027 compared with 2024–25 settings. (Australian Government Budget) That helps. I am not going to pretend money back in people’s pockets is bad.
But it does not fix the machine.
The machine remains: inflation pushes incomes up in dollar terms, brackets stay still, and workers gradually pay more.
The PBO has also pointed out that bracket creep has been a major reason personal income tax grows as a share of revenue. Personal tax has been the largest source of Australian Government revenue since 1942–43, and bracket creep increases reliance on it even further. (Parliamentary Budget Office)
That is why my first rule in a new tax system is simple.
No more bracket creep.
Index income tax thresholds to CPI automatically.
Not as a political promise. Not as a temporary election policy. Not as a one-off tax cut. Automatically.
If the government wants to raise more tax, fine. Make the case. Put the law forward. Vote on it. Defend it. But do not let inflation do the dirty work in silence.
The Funny Thing About Inflation and Fairness
Here is what makes this even more frustrating.
The government is already comfortable talking about inflation when it comes to capital gains. In the 2026–27 Budget, the government said it would replace the 50% capital gains tax discount with an inflation-based discount and introduce a minimum 30% tax on gains from 1 July 2027, with the stated logic that investors should only pay tax on real capital gains. (Australian Government Budget)
That principle is good.
But if we accept that investors should be taxed on real gains after inflation, then why should workers be taxed more heavily because their nominal wages rose with inflation?
That is the inconsistency.
If inflation matters when taxing assets, it should matter when taxing wages.
A fair system should distinguish between getting richer and merely needing more dollars to buy the same groceries.
Where the Money Actually Comes From
One of the best things we could do for public debate is force everyone to look at the tax split.
In 2026–27, the Budget estimated total taxation receipts of $737.1 billion. Of that, individuals and other withholding taxes were estimated at $382.4 billion, company tax at $154 billion, GST at $103.2 billion, superannuation fund taxes at $31.6 billion, and petroleum resource rent tax at $1.9 billion. (Australian Government Budget)
Put that into rough “per tax dollar” terms and the picture becomes clearer.
About 52 cents comes from individuals and withholding. About 21 cents comes from company tax. About 14 cents comes from GST. Around 4 cents comes from superannuation fund taxes. Petroleum resource rent tax is tiny in comparison.
That does not mean gas and resource tax should never be reformed. It does mean “tax the gas companies and everything will be fine” is not serious by itself.
Resource taxes can be smart. Economic rents should be taxed properly. If a company is making money from a resource that belongs to Australia, the public deserves a fair return. But pretending one villain tax will fix housing, wages, hospitals, roads, deficits and cost of living is just political theatre.
The budget is too big and the problems are too structural.
Tax Write-Offs Are Not Magic Free Money
As a business owner, I see this confusion all the time.
Someone hears “tax write-off” and thinks it means the government bought you something for free.
That is not how it works.
If a business buys a car, computer, server, camera, machine, tool or piece of equipment, that asset is used to generate income. It also wears out. It depreciates. The tax system recognises that because the business is not just sitting on pure profit. It is spending money to operate or grow.
Australia has specific small-business incentives for this. The 2026–27 Budget permanently extended the $20,000 instant asset write-off from 1 July 2026 for small businesses with turnover up to $10 million, allowing eligible assets costing less than $20,000 to be immediately deducted. (Australian Government Budget)
That is not a loophole.
The government wants businesses to invest. A business that buys productive equipment can make more money, hire people, serve customers, pay GST, pay wages, pay super, and eventually pay more tax.
Of course people abuse systems. Of course some deductions are questionable. Of course there should be enforcement. But the existence of deductions is not automatically proof of corruption. It is proof that profit is not the same thing as revenue.
The New Tax System I’d Invent
So here is my rough version of a better Australian tax system.
First, index personal income tax brackets to CPI every year. Also index the tax-free threshold, low-income offsets and relevant welfare thresholds properly. Stop pretending inflation-only wage rises are real wealth. If the government wants more revenue, make it ask openly.
Second, lower and simplify company tax for productive businesses, but get much tougher on economic rents and artificial profit shifting. I do not want a system that punishes a business for investing, hiring and growing. I do want a system that stops companies extracting monopoly profits, shifting profits offshore, abusing market power or using Australia as a customer base while pretending the profit happened somewhere else.
The Productivity Commission has been looking at this kind of trade-off. Its final corporate tax proposal involved lowering statutory company tax rates while introducing a net cashflow tax, with modelling suggesting it could increase investment, labour productivity and GDP while remaining revenue-neutral. (Productivity Commission) That is the type of thinking we need more of: not “companies good” or “companies evil,” but “how do we tax in a way that rewards productive investment and captures excess profits fairly?”
Third, make life easier for small businesses.
Right now, businesses generally need to register for GST once GST turnover reaches $75,000, and GST is 10% on most goods and services sold in Australia. (business.gov.au) That threshold is too low for the modern economy. It drags tiny operators into compliance systems before they are truly stable.
My aggressive pub-version policy would be no GST registration for businesses under $2 million in revenue.
The more realistic policy version would be: raise the GST threshold significantly, create a simplified GST option for growing small businesses, and remove as much BAS/admin pain as possible for businesses that are still owner-operated and cash-flow sensitive.
Yes, that would need modelling. Yes, it would create transition issues. Yes, you would need to stop businesses artificially splitting themselves to stay under the line.
But the principle is right.
Small business should not feel like it is being punched in the face every quarter just for trying to exist.
Fourth, stop taxing work like it is the easiest target in the room.
Work is productive. Wages are productive. Building a business is productive. Hiring someone is productive. Training someone is productive. Buying equipment is productive. Creating something useful is productive.
Our tax system should lean less on productive work and more on unproductive gains, economic rents, monopoly power, land scarcity and artificial structures that exist only to minimise tax.
That does not mean every asset owner is evil. It means the system should not punish the person working five days a week harder than the person who got rich because an asset inflated while they slept.
Fifth, give every taxpayer a receipt.
Not a vague pie chart hidden on a government website. A proper annual breakdown. You paid this much income tax. This much went to health. This much to aged care. This much to defence. This much to debt interest. This much to welfare. This much to infrastructure. This much to public servants. This much to states. This much was wasted, probably, but they will never admit that part.
The point is transparency.
People are less angry when they understand the trade-off. They are more angry when they feel robbed by a machine they cannot see.
The Real Fairness Test
The word “fair” gets abused in politics.
To government, fair often means stable revenue.
To workers, fair means being able to keep purchasing power.
To businesses, fair means being taxed on real profit without being punished for investing.
To my socialist friend, fair means companies and wealthy people contributing more so ordinary people are not crushed.
To me, fair means the system should reward productive behaviour, protect people from silent tax increases, and stop pretending that every problem can be solved by finding a villain.
So the fairness test should be brutally simple.
Does this tax change increase real wages, productivity, competition, supply, or household purchasing power?
Does it make the system simpler?
Does it make the government more honest?
Does it punish bad actors without damaging productive ones?
Does it raise revenue openly rather than by stealth?
If the answer is no, it is probably theatre.
And Australia has enough theatre.
The Point
The current Australian tax system is not completely broken. In a lot of ways, it works. We are not some failed state where nothing functions. We have institutions, watchdogs, rules, courts, auditors, tax enforcement and a mostly functioning public system.
But “mostly functioning” is not the same as fair.
Right now, workers are being squeezed by inflation, wages are struggling to keep up, and bracket creep quietly lets the government collect more without having to announce a tax rise. Businesses are told to invest, but also treated like enemies whenever politics needs a villain. Small businesses are buried in compliance. Big businesses can sometimes use complexity as a weapon. Politicians sell simple enemies because simple enemies are easier than structural reform.
So let’s invent something better.
Index tax brackets to inflation. Lower taxes on productive investment. Tax economic rents properly. Simplify GST and compliance for small business. Show taxpayers where the money goes. Stop using bracket creep as a stealth tax. Stop pretending company tax is either a magic solution or an evil burden. Stop writing laws for applause and start writing them for outcomes.
My socialist friend will probably disagree with half of this.
Good.
That is the point.
A better tax system will not be built by people who all think the same way. It will be built by people who can argue honestly, admit trade-offs, and still share a whiskey afterwards.
Because if we cannot even do that, we are not inventing a tax system.
We are just picking teams.