What taxation powers does the Federal government have?

The federal government has extensive taxation powers under the Australian Constitution. Section 51(ii) gives the Commonwealth Parliament power to make laws on taxation (with the limitation that taxation must not discriminate between states or parts of states). Section 90 gives the Commonwealth exclusive power to impose customs and excise duties. Section 87 of the Constitution and subsequent High Court interpretations have produced an effective monopoly for the federal government on income taxation since the Uniform Tax Case of 1942.

Income tax is the largest single federal revenue source, raising about 280 billion dollars a year. Personal income tax operates on marginal rates of 0 per cent up to 18,200 dollars, 16 per cent on income from 18,201 to 45,000 dollars, 30 per cent on income from 45,001 to 135,000 dollars, 37 per cent on income from 135,001 to 190,000 dollars, and 45 per cent on income above 190,000 dollars (rates from 1 July 2024 under the Stage 3 tax cuts). Company tax is 30 per cent for large companies and 25 per cent for small and medium businesses with turnover below 50 million dollars.

The Goods and Services Tax (GST) is a 10 per cent value-added tax introduced in 2000, raising about 91 billion dollars a year. GST is constitutionally a Commonwealth tax but the revenue is distributed to the states and territories under the Intergovernmental Agreement on Federal Financial Relations. The Commonwealth Grants Commission recommends the distribution formula each year, with smaller states (particularly Tasmania and the Northern Territory) receiving more per capita than larger states.

Other federal taxes include fringe benefits tax (paid by employers on certain non-cash employee benefits), capital gains tax (paid on profits from selling investment assets), the Petroleum Resource Rent Tax (PRRT) on offshore oil and gas projects, the Major Bank Levy on the five largest banks, the Medicare Levy of 2 per cent, and the Medicare Levy Surcharge for higher-income earners without private hospital insurance. Excise duties apply to fuel, alcohol, and tobacco. Tariffs apply to most imports but have been reduced through successive free trade agreements. The Australian Taxation Office administers federal tax collection and compliance. The Productivity Commission, the Henry Tax Review of 2010, and ongoing academic debate have produced many proposals for tax reform including replacing stamp duty with broader land tax, lifting the GST rate or scope, and reforming negative gearing and the capital gains tax discount.