Economists call for significant tax reform in wake of Intergenerational Report

The enormous challenges confronting the country detailed in the Intergenerational Report, including an ageing population, spiralling demand for care and a narrowing tax base, have reignited concerns about how the government will pay for the services people will need in coming decades.

Prominent organisations and economists including the Business Council of Australia, former Treasury secretary Ken Henry, Angela Jackson from Impact Economics and Committee for Economic Development of Australia chief economist Cassandra Winzar, are urging the Albanese government to commit to ambitious tax reforms in order to sustain government services and support, safeguard growth and ensure the long-term viability of the taxation system.

Dr Henry, who led the last comprehensive review of the nation's tax system in 2010, told ABC radio current arrangements would damage the nation's economic performance and "worse than that, its sets up an intergenerational tragedy".

Intergenerational Report projections reveal government payments are set to grow significantly over the next four decades to reach 29 per cent of gross domestic product, but at the same time the tax base will narrow and personal income taxpayers will bear an increased share of the cost burden.

Dr Henry said personal income tax was the only growth tax in the budget and "it is doing the heavy lifting".

"People who are going to be the workers of the future, who are going to be weighed down with HECS debt, who are going to have to repay a mountain of public debt, who are dealing with the consequences of climate change, who have diminishing prospects of ever being able to afford a home of their own, these poor buggers are also the ones who are going to be facing ever-increasing average rates of income tax," he said.

"It's a tax system that damages our economic performance and sets up intergenerational tragedy."

Ms Jackson echoed Dr Henry's concerns.

"It's been true for an extended period of time that wage-earners are carrying an uneven amount of the tax burden," she said.

Australia relies more heavily on income taxes than comparable countries. "Is that efficient, fair and sustainable?" Ms Jackson asked. "Most economists would say, 'No, no and no'."

Treasurer Jim Chalmers, who on Thursday released the Intergenerational Report, has so far baulked at calls for major tax changes.

Dr Chalmers said the report's projections on income tax were made on the assumption the overall tax take would stay constant at 24.4 per cent of GDP and receipts from fuel and tobacco excise would reduce over time, leaving personal income tax carrying a bigger share.

"We shouldn't assume over a 40-year period that there are no more changes to tax," he said.

"Governments of both political persuasions will find ways to return some of this bracket creep."

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The Treasurer has reiterated the government is not contemplating any personal income tax changes beyond next year's stage three tax cuts and has instead referred to the government's current reforms to increase taxation of multinationals, the offshore gas industry and high balance superannuation accounts.

"These are meaningful tax changes [worth] billions of dollars a year," Dr Chalmers said.

In its response, the opposition accused the government of promising "more spending, more tax and more migration, which will only make cost-of-living pressures worse".

The Business Council has added its voice to calls for change.

It said the current system was "suboptimal" and did not raise enough revenue, created barriers to investment, discouraged people from working more and exacerbated intergenerational issues.

"The current tax mix is too reliant on income taxes such as personal and company tax," the council said, warning by 2061 there will be just 2.7 workers for every person aged 65 or older, up from 3.8 today.

Ms Jackson said tax reform was not about taxing more but changing the composition, urging the introduction of wealth taxes like inheritance taxes as a way to broaden the tax base.

Ms Winzar from CEDA said the interaction between different taxes meant a broad approach to reform was needed, including the states and territories.

She said although the Henry Tax Review needed to be updated, many of the ideas it contained were still applicable.

While tax reform could be politically difficult and may take years to achieve, Ms Winzar said there was an urgent need to "start the conversation".

"It's going to take a long time to get the community support and the political will," she said.

"What is urgent is starting the conversation."