How does the Australian tax system work?

Australian governments collected $839.0 billion in tax revenue in 2024–25, according to the ABS. The Commonwealth collected 80.5% of that total, compared with 16.6% for state and territory governments and 2.9% for local government.

Land tax was the fastest-growing major tax shown in the article’s ABS series, rising 177.8% between 2015–16 and 2024–25. Separately, capital gains tax (CGT) and negative gearing changes passed into law in June 2026, with the main measures starting from 1 July 2027.

The Commonwealth composition chart shows why Commonwealth tax revenue is broader than income tax alone. Personal income tax was the largest single category, accounting for 46.8% of Commonwealth tax revenue in 2024–25. Company tax, GST and other Commonwealth taxes, including tax paid by superannuation funds, accounted for the remaining share.

Why the Commonwealth collects most tax

Income taxation has been mainly a Commonwealth function since the Second World War. States and territories now rely on narrower tax bases, including property, payroll and transaction taxes. Local government’s tax base is narrower again, with taxation revenue recorded as property tax under the ABS classification.

On a per-person basis, total tax revenue across all levels of government was $30,633 in 2024–25. This comprised $24,652 collected by the Commonwealth and $6,023 collected by state, territory and local governments combined. These are population averages, not estimates of how much an individual taxpayer paid.

The practical effect is modest but measurable. For anyone earning more than $45,000, the rate cuts on the second bracket are worth up to $268 a year from 2026-27 and $536 a year from 2027-28, compared with 2024-25 settings. These cuts do not include the Medicare levy, which sits on top at 2% of taxable income for most residents, or any offsets a taxpayer may be entitled to.

The Medicare levy, and how the thresholds apply

Most residents pay an additional 2% Medicare levy on top of income tax. Lower-income earners pay a reduced levy or none at all. For 2025–26, a single person pays no Medicare levy on taxable income up to $28,011. The levy then phases in before the full 2% rate applies above the upper phase-in threshold.

The 2025–26 Medicare levy low-income threshold is higher for people eligible for the seniors and pensioners tax offset, increasing to $44,268. Family thresholds also apply, depending on household circumstances and dependants.

Bracket creep, in plain terms

The $18,200 tax-free threshold has been fixed since 2012-13. Wages have risen substantially since then, so a larger share of most people's income now falls above that threshold than did a decade ago. This effect, known as bracket creep, can increase the average tax rate paid on a given real income over time, even when no bracket rate changes at all.

The Commission's job is to work out how much GST each state needs to fund a broadly similar standard of services, given differences in population, costs and each state's own capacity to raise revenue. A state with strong mining royalties, for instance, is assessed as needing less GST support than it otherwise would.

Why Western Australia's GST share changed in 2026–27

In 2018, the Commonwealth legislated a floor under Western Australia's GST share after years of the state receiving a shrinking slice due to its mining royalties. That floor was phased in gradually, with the Commonwealth making additional payments during the transition so other states and territories were not worse off under the revised GST distribution arrangements. The 2026-27 distribution marks the end of that six-year transition period. From this year, no state's relativity can fall below the lower of New South Wales or Victoria, and Western Australia now receives the same per-person share of the pool as New South Wales.

Queensland is set for the largest year-on-year increase of any state in 2026-27, driven by falling coal prices reducing its own revenue-raising capacity in the Commission's assessment, which increases its calculated need for GST support.

Note: figures show the standard rate or scale for each tax. Concessions, surcharges and first home buyer treatment can change the amount actually payable.

Key differences in state and territory taxes

• The Northern Territory has the highest payroll tax threshold and the only jurisdiction with no land tax at all. Its $2.5 million payroll threshold is the highest in the country, and from 1 July 2026 a new 6.5% rate applies to very large employer groups.
• Victoria has the lowest land tax threshold among the states, at $50,000. That is down from $300,000 before 2024, after the state added a COVID-19 debt levy for the 2024 to 2033 land tax years.
• Tasmania has the lowest top marginal transfer duty rate among the states, at around 4.5%. Western Australia also has one of the lower top rates, at around 5.15%, while the ACT has been gradually reducing conveyance duty since 2012 as part of its broader tax reform programme.

The most recent quarterly figure shows some short-term movement within that long upward trend. In the March 2026 quarter, ABS Government Finance Statistics recorded taxation revenue of $220.6 billion, down 4.5% from the December 2025 quarter. Quarterly figures can move for reasons including payment timing and changes in transaction-based taxes, so one quarterly fall does not, by itself, show a change in the long-run trend.