A Fairer Taxation and Welfare System 2025

Every day the St Vincent de Paul Society’s National Council (the Society) assists thousands of Australians through emergency relief, housing and social support services. We are very aware that one in six children is living in poverty out of a total of almost four million people (unadjusted). Recently, we are also seeing more working families who are seeking our help for the first time.

Creating a more dynamic and resilient economy through strengthening budget sustainability

Lifting people out of poverty is not just good for them, it’s good for the economy as evidenced during the pandemic, a period when income support was substantially increased. Research found that recipients spent the money judiciously and locally, paying for essentials and injecting funds back into the economy. A higher unemployment benefit provided a supercharged boost to the economy.
Living in poverty also makes it hard to get the right start in life. Physical, social/emotional and language/cognition development in early childhood strongly influence school success, economic participation, social citizenship and health (AIHW, 2024). Lifting people out of poverty reduces costs associated with joblessness and poor health and improves access to training and education which, in turn, increase employability and productivity.

The latest Intergenerational Report highlights that changes are needed to pay for the services required to support our ageing population. It also shows that younger generations will be shouldering an unfair tax burden into the future. And they are less likely to benefit from tax-advantaged methods of savings and investments.
Tax systems are effective at reducing inequality. There are adverse economic and social consequences in societies where there is a widening gap between rich and poor. Social problems include poverty and instability, and countries that have less equal distribution of income have slower growth. Decreasing inequality improves wellbeing and the economic growth of a country, increasing employment and incomes. (Grudnoff, 2022)

A Fairer Taxation and Welfare System 2025

In 2021, the Society first commissioned Australian National University (Centre for Social Policy Research) to review Australia’s taxation and welfare system. Three reports have been developed, with the most recent being the subject of this submission and is accessible on our website (from Friday 25 July 2025).

In A Fairer Tax and Welfare System (2025), four budget neutral proposals are outlined. Three of the four proposals generate revenue by moderately reducing superannuation taxation concessions. One proposal generates savings by changing eligibility thresholds for the assets test of the Age Pension and the Child Care Subsidy. We propose that these savings be used primarily to increase working age payments.

This is because poverty rates are highest for households relying on JobSeeker, those on other government payments, single parents, lone persons and renters. Meanwhile, tax concessions for high-income earners cost the budget around $50 billion annually. Yet working-age payments such as JobSeeker and Youth Allowance remain well below the poverty line (at around $600pw as per survey based half-median measures) despite recent increases. The lowest 20 per cent of households receive just 5 per cent of all income.

The four models proposed are progressive and reduce inequality, as most gains go to the bottom two income quintiles, with annual increases of between $1,550 and $3,800 per household. Gains also remain positive across moderate income households. Actual superannuation tax paid by most taxpayers would be either similar or less than their current rate. Further, it is estimated that 90 per cent of retirees in Australia would be better off via a larger superannuation balance while those with very high balances would be modestly worse off. The reforms would have greatest impact in regions with high welfare reliance and lower household wealth. For instance, outer suburban areas and regional and remote electorates are among the biggest winners, especially in Western Sydney, outer Melbourne, Brisbane’s fringe, the Northen Territory, and parts of South Australia and Tasmania.

The spending associated with these models is between about 3 and 7.5 per cent of the current welfare budget and less than 1.5 per cent of the overall Federal Budget and follows similar recommendations by the Economic Inclusion Advisory Committee. These outlays are highly targeted and provide the best available return on that investment in terms of poverty reduction and could lower poverty by up to a third.

Model 1: Increases JobSeeker to 90 per cent of the Age Pension, with proportional increases to Youth Allowance and Parenting Payment (Partnered). Indexation is linked to the Age Pension, not CPI. It lifts 95,000 people out of poverty and lowers the adjusted poverty rate across all households from 10.2 per cent to 9.8 per cent. The annual cost of $4BN would be covered with the tax rate on superannuation calculated by subtracting 22 percentage points from an individual’s top marginal tax rate and including the Medicare levy.

Model 2: As for Model 1, plus Parenting Payment (Single) is raised to the Age Pension rate. Rent Assistance is increased by 15 per cent. Disability Support Pensioners receive (as per EIAC recommendation) +$100/fortnight supplement. Family Tax Benefit (FTB) Part A is increased for children aged 0–12 (+$66.78/fortnight). FTB indexation is linked to wage growth. It lifts 584,000 people out of poverty and lowers the adjusted poverty rate across all households from 10.2 per cent to 8.2 per cent. The annual cost of $11.2BN would be covered as for Model 1 with the tax on superannuation calculated by subtracting 20 percentage points from an individual’s top marginal tax rate.

Model 3: As for Model 2 but costs are covered by lowering the Age Pension assets test for the full pension (from $470,000 to $200,000) and the income threshold for high income families with children in childcare (from $530,000 per year to $300,000 per year). It also lifts 584,000 people out of poverty.

Model 4: Guaranteed Minimum Income (GMI). This is a means-tested top-up for all low-income households, not just those receiving income support. It includes deemed income from investments. It removes complexity of mutual obligations and eligibility hurdles and is cost-effective compared to the universal basic income. It lifts 1.03 million people out of poverty and lowers the adjusted poverty rate across all households from 10.7 per cent to 6.6 per cent. The annual cost of $8.2BN would be covered as for Model 1 with the tax on superannuation calculated by subtracting 21 percentage points from an individual’s top marginal tax rate.

Goods and Services Tax (GST)

The Society opposes any broadening or increasing of the GST. The ANU paper finds that the GST is regressive relative to gross household income and highly regressive relative to disposable income. Currently the GST constitutes 5.4 per cent of disposable income for low-income households and 2.6 per cent for high-income households. If the GST is increased to 15 per cent, this increases to 8.0 per cent for low-income households and 4.0 per cent for high-income households. If the GST base is broadened, it decreases slightly to 7.9 per cent for low-income households and 3.5 per cent for high-income households.

Adding CPI based compensation still leads to low-income households being worse off on average. And progressivity is worsened for middle-income households, who are less likely to benefit from welfare payment indexation. Further, CPI indexation alone would not fully compensate low-income households and other forms of compensation would be required (such as lower personal income taxation or taxes reduced elsewhere). Production taxes are also highly regressive for low-income households. Overall, the tax system as a whole is progressive but including a broader range of tax (including production and GST taxes) greatly lessens that progressivity.

Housing

Models 2 and 3 above include a 15 per cent increase to Commonwealth Rent Assistance, as per EIAC recommendations. The Parliamentary Budget Office estimates that negative gearing and capital gains tax discounts are projected to cost the Australian budget $165BN over 10 years. Small changes to both would generate significant revenue which could be reinvested into the housing sector, such as by increasing funding of the Housing Australia Future Fund, homelessness services or A Better Deal for Renters. Secure housing makes economic sense. The cost-benefit ratio of investing in more affordable housing is double the cost outlay — every $1 invested produces $2 in benefits.

Prosper Australia’s latest report on speculative vacancies shows 5.2 per cent of homes in Melbourne are vacant or barely used and this could house all those on the public housing waitlist twice over. They call for tax reform to undermine the incentive to speculate on rising housing and land values.

Energy Affordability

Deloitte research has also found that Australia’s economy would increase by up to $17 billion with an accelerated rollout of ‘moderate’ home energy upgrades to low-income housing. This could create an average of 12,700 full-time equivalent jobs annually across the construction, installation, manufacturing and services sectors, peaking at 22,550 in 2028. It would also shave $3,350 off the average household’s annual energy bill.

Mr Toby oConnor
Chief Executive Officer