Tax Reform Outlook 2025: Lower Income Tax or Higher GST?

Australia’s most likely medium-term tax reform direction is a rebalancing away from personal income tax (at least at the margin) and toward broader consumption taxation (GST) or GST-like base broadening, because bracket creep, an ageing population, and structural spending pressures make it increasingly difficult to fund services primarily through personal income tax. In practical terms for Australian accounting practices, the “lower income taxes vs higher GST” debate usually resolves into incremental income tax relief (or threshold indexation) paired with either a GST rate rise, a broadened GST base, or tighter integrity measures elsewhere, rather than a single dramatic switch.

What does “lower income tax vs higher GST” actually mean in Australia?

It means shifting the tax mix from direct taxes (especially personal income tax collected under the Income Tax Assessment Acts) toward indirect taxes (principally GST, legislated under the A New Tax System (Goods and Services Tax) Act 1999).

From a practitioner standpoint, it also means the compliance burden shifts:

• Lower income tax (or slower growth in income tax): Typically affects PAYG withholding variations, payroll settings, tax estimates, and individual tax planning.
• Higher GST (or broader GST base): Usually affects BAS coding, pricing, invoicing, tax clauses in contracts, margin analysis, and cash-flow timing.

Why is tax reform even on the agenda in 2025?

Tax reform is being driven by structural and administrative realities that are well-established in public policy and routinely observed in practice.

Key pressures relevant to Australian tax settings include:

• Bracket creep: Nominal wage growth pushes taxpayers into higher marginal tax brackets, increasing average tax rates without an explicit policy decision.
• Revenue concentration: A large share of Commonwealth revenue comes from personal income tax, making budgets sensitive to labour market changes.
• Long-run spending: Health, aged care, disability, and defence pressures tend to rise faster than GDP over time.
• State vs Commonwealth funding tensions: GST is distributed to states and territories, while many spending obligations are shared or pressured at the state level.

Practically, accounting practices see the symptoms before reforms occur: rising effective tax burdens for individuals, growing BAS audit activity, and increasing integrity focus.

Is Australia more likely to lower income taxes?

Yes, but usually only in targeted or staged ways, because large permanent cuts require replacement revenue or spending restraint.

In Australia, “lower income taxes” generally shows up as:

• Changes to tax brackets and rates (legislated through the Income Tax Rates Act and related amending Acts).
• Adjustments to offsets and thresholds.
• Integrity measures that broaden the base while lowering rates (for example, limiting deductions, tightening eligibility, or increasing compliance focus).

What should practices watch for in personal income tax policy?

From an Australian accounting practice perspective, the most relevant “watch items” are:

• Medicare levy and surcharge thresholds: These can materially affect marginal outcomes and client behaviour.
• Offsets and deductions changes: Small rule changes can shift outcomes for large populations (work-related expenses, rental deductions, private health interactions).
• Superannuation settings and Division 293/cessation of concessions (policy risk): While not “income tax rates”, they change effective tax outcomes for higher-income clients.

ATO administration also matters. For example, ATO guidance on substantiation and deductions (including general deduction principles under s 8-1 of the Income Tax Assessment Act 1997) continues to drive practical tax return risk and review activity.

Is Australia more likely to increase GST?

A GST increase is politically difficult, but it remains one of the most frequently proposed structural reforms because GST is a broad-based consumption tax with comparatively stable revenue characteristics.

In practice, “higher GST” would occur via either:

• GST rate increase (for example, from 10% to a higher rate), and/or
• GST base broadening (reducing exemptions or concessions), and/or
• Reduced carve-outs and more consistent application across supplies.

Any of these options has significant consequences for BAS reporting, systems, pricing, and client communications.

What legislation governs GST mechanics?

The operational rules accountants apply daily are primarily under:

• A New Tax System (Goods and Services Tax) Act 1999 (core liability and credit rules)
• A New Tax System (Goods and Services Tax) Regulations 2019 (technical detail)
• Tax Administration Act 1953 (administration, penalties, interest, running balance accounts)
• ATO public guidance including GST rulings and determinations (used to interpret how supplies are treated)

It is established that GST classification errors are among the most common BAS issues seen in reviews, particularly around mixed supplies, financial supplies, property, and cross-border services.

Which option is “better” from an economic and practice management perspective?

“Better” depends on objectives (equity, efficiency, simplicity, revenue stability), but from a practice and compliance lens the trade-offs are predictable.

How does lower income tax compare with higher GST for clients?

• Revenue stability: Higher GST = generally more stable; lower income tax without replacement revenue = budget pressure.
• Equity outcomes: Higher GST can be regressive without compensation; income tax is progressive by design.
• Compliance burden: Higher GST/base broadening = higher BAS complexity; lower income tax can be administratively simpler if achieved via thresholds/rates.

Practical “winner” indicators for accounting practices (compliance impact)

• Day-to-day compliance workload: Higher GST = usually increases workload more than lower income tax.
• System and process disruption: Higher GST = more invoicing and POS changes, contract review, re-pricing; income tax changes = payroll and estimate adjustments.
• Client confusion risk: Higher GST = higher confusion risk for micro and small business, particularly cash versus accrual GST and pricing displays.

What would change in BAS and bookkeeping if GST rises or broadens?

If GST changes, the effect is immediate across invoicing, coding, and BAS controls.

Areas most likely to be impacted:

• Point-of-sale and invoicing configurations: Tax codes, product tax treatments, and displayed pricing.
• Contract clauses: “GST inclusive/exclusive” pricing clauses, change-in-law provisions, and timing of supply.
• Mixed supplies and apportionment: More disputes over what is taxable, GST-free, input taxed, or mixed.
• Cash-flow and working capital: GST collected increases with the rate; businesses holding GST until the BAS due date carry larger GST liabilities.

• A retailer on quarterly BAS has stable turnover but thin margins.
• If GST increases, the client must decide whether to increase gross prices or absorb the increase.
• If the client absorbs GST, margins compress; if they pass it on, demand may soften.
• The practice’s BAS review time rises due to reconfiguration and exception handling (discounts, refunds, gift cards, mixed bundles).

ATO’s BAS and GST administration (including record-keeping expectations) becomes more consequential under a broadened base. According to ATO guidance on GST record keeping and reporting, businesses must retain tax invoices and support for input tax credits and GST collected, and demonstrate correct reporting in approved forms.

What would change in payroll and individual tax planning if income taxes fall?

Income tax reductions typically change outcomes through PAYG withholding schedules, effective marginal rates, and estimated tax liabilities.

Key flow-ons include:

• Payroll updates: Employers must implement updated withholding schedules; errors create under/over withholding issues and employee dissatisfaction.
• Individual tax planning: Timing of deductions, salary packaging, and discretionary trust distributions may shift depending on new marginal rates.
• PSI/alienation risk remains unchanged: Income tax rates changing does not remove the operation of integrity provisions for personal services income.

• A contractor operating through a company/trust structure asks whether lower personal rates reduce the benefit of discretionary distributions.
• The answer depends on the spread of marginal rates, Division 7A exposure if funds are accessed, and family group income.
• Consideration must be given to Division 7A rules (ITAA 1936) where private-company funds are used personally without compliant arrangements, regardless of rate changes.

Would a GST increase require compensation measures?

Yes, if GST rises or broadens, governments typically face strong pressure to introduce compensation to address regressivity and cost-of-living impacts.

Compensation can include:

• Increases to transfer payments and concessions
• Income tax relief targeted at lower and middle incomes
• Adjustments to thresholds (e.g., Medicare levy thresholds) to reduce “tax-on-tax” effects

From a practice viewpoint, compensation measures create a second layer of advisory work: clients want to know not only “what’s my BAS impact?” but also “how does my household budget change?”

How should accounting practices prepare clients for either pathway?

Practices should prepare by building a repeatable advisory and implementation workflow that covers compliance, pricing, contracts, and systems.

What should you do now if GST change risk is rising?

1. Stress-test GST coding quality
2. Review contract pricing clauses
3. Model cash-flow timing
4. Upgrade BAS controls

What should you do now if income tax changes are likely?

1. Monitor payroll compliance
2. Update tax projections
3. Revisit remuneration structures
4. Document advice

How does technology reduce compliance risk when tax settings change?

Technology reduces risk by enforcing consistent coding, improving audit trails, and speeding up reconciliations—especially when changes create higher transaction volumes, more exceptions, and more client questions.

From an Australian accounting practice perspective, the most valuable automations during tax reform are:

• Automated bank reconciliation
• GST enforcement at transaction level
• BAS reconciliation and variance explanations
• Working papers automation for year-end impacts (including Division 7A where relevant)

This is precisely where AI accounting software Australia solutions can materially reduce reform friction—particularly where compliance pressure shifts from ITR work to BAS/GST work.

How does MyLedger help practices manage GST and compliance disruption?

MyLedger (by Fedix) is designed to automate the work that typically expands during GST and income tax transitions—reconciliation, BAS support, and working paper production.

Key advantages relevant to tax reform readiness include:

• Automated bank reconciliation: MyLedger’s AutoRecon reduces reconciliation from 3–4 hours to 10–15 minutes per client (about 90% faster), which becomes critical when GST changes increase BAS workload.
• GST enforcement and tracking: GST handling is built into transaction workflows, reducing miscodes that can trigger BAS adjustments.
• ATO integration accounting software: MyLedger supports direct ATO portal integration for importing ATO statements and transactions, which strengthens compliance evidence and speeds issue resolution.
• Automated working papers: Year-end files can be produced with less manual Excel handling, supporting faster turnaround when tax settings change.
• Division 7A automation: Where reform changes influence remuneration/distribution decisions, MyLedger’s Division 7A tools support compliant tracking, MYR schedules, and journals.

Competitive context (why this matters if reform increases compliance pressure):

• Reconciliation speed: MyLedger = 10–15 minutes per client, Xero/MYOB/QuickBooks = commonly 3–4 hours in manual-heavy workflows.
• Automation level: MyLedger = AI-powered reconciliation and bulk categorisation, many competitors = partial automation with more manual review.
• ATO integration: MyLedger = direct ATO portal integration, many competitors = limited ATO connectivity or reliance on external tools.
• Working papers: MyLedger = automated working papers suite, many competitors = manual Excel working papers remain common.

These advantages matter because the first-order impact of GST reform is operational: more coding decisions, more reconciliations, more BAS reviews, and more variance explanations.

Next Steps: How Fedix can help your practice stay reform-ready

Fedix helps Australian accounting practices operationalise reform readiness by reducing the manual workload that typically spikes when tax settings change. Learn more about how MyLedger can support automated bank reconciliation, BAS reconciliation software workflows, and ATO-integrated compliance processes so your team can respond quickly to GST or income tax changes without adding staff.

If you are currently using a Xero alternative evaluation process (or considering a MYOB alternative), prioritise a platform that reduces BAS friction and improves audit trails—because that is where GST reform workload concentrates.

Conclusion: What is the most realistic tax reform outlook?

The most realistic outlook is incremental personal income tax relief paired with some form of GST strengthening (rate and/or base), because Australia’s fiscal position and revenue composition make an exclusive reliance on income tax increasingly difficult. Accounting practices should prepare for GST-driven operational change first, because it affects BAS systems, pricing, and transaction-level processes immediately, while income tax changes tend to be simpler to implement but still significant for payroll and planning.

Disclaimer: This material is general information only and does not constitute legal or tax advice. Tax laws and ATO views can change, and outcomes depend on specific facts. Professional advice should be obtained for client-specific circumstances.

Frequently Asked Questions

Q: Is a higher GST more likely than lower income tax in Australia?

Q: If GST increases, what should small business clients do first?

Q: Does changing GST change income tax deductions?

Q: How does this affect BAS reconciliation and ATO audit risk?

Q: What is the most practical way for an accounting practice to prepare for reform?