Weak tax revenue is a national security issue
Of the two things in life that are certain, defence and national security concern themselves with death but need to pay more attention to taxes.
Australia’s national security, defence and domestic policy obligations all need more money. Neither party is putting forward plans to increase revenue through tax reform. Labor put forward a budget dangling minor tax cuts to boost its election campaign, while the Coalition is now promising to increase Defence spending by $21 billion—without explaining where the money will come from.
Neither are connecting Australia’s budget to broader recognition of our deteriorating security environment, an increasingly unreliable US ally, and fracturing international trade. Without more tax revenue, we further run the risk of unsustainable national debt.
Australia can afford higher taxes to improve our security. In our ratio of tax to GDP—29.4 percent in 2022—Australia ranks 29th among 38 countries in the Organisation for Economic Cooperation and Development.
Securing our future will undoubtedly be expensive. Australia needs to improve infrastructure and national resilience, protect against and recover from climate disasters and invest in economic projects, including the multi-billion-dollar Future Made in Australia scheme. Defence and the Department of Foreign Affairs and Trade need more funds but are stuck making cuts and reallocating existing funding. Our intelligence agencies will continue to need investment to meet growing strategic uncertainty and a myriad of international and domestic challenges.
At the same time, the government cannot ignore important domestic policy areas. The public, and experts, expect more spending on education, health and industry.
We cannot do any of this, let alone all of it, without more spending. While various strategies and government documents recognise our security challenges, we are yet to translate this recognition into comprehensive budget and tax reform.
Lowering taxes is an Australian political norm, particularly around elections, and it comes at significant cost to the budget. The stage-three tax cuts passed in 2024 cost the budget an estimated $69.6 billion over the forward estimates (to 2026-27) and $308.7 billion over the medium term (to 2033-34). This is more than $50 billion higher than originally estimated.
Labor’s new cuts, announced in March, are expected to cost a further $17.1 billion over the forward estimates (to 2028-29).
So, at a time when Australia is expecting heightened risk of crises—and crises are notoriously expensive—we are cutting billions out of the budget. In the event of conflict or significant economic coercion, Australia will need to spend. In World War II, for example, Australia tripled income taxes while also borrowing massively.
Our defence, foreign and development policy and national security strategies are all designed to prevent, or prepare for, crises. With appropriate funding, we could achieve these objectives, saving lives and money.
While borrowing can help, it cannot be our only funding solution. Net federal debt is historically high at 33.6 percent of GDP. While low compared to some nations, such as the United States and China, interest on that debt is already squeezing the budget. Projections from the 2025–26 budget already have interest payments as the fastest growing annual payment over the medium term (see chart below). Current estimates show net federal debt peaking at 37.0 percent of GDP in June 2030.
Source: Australian Federal Budget 2025-26
As Australia saw with COVID-19, crises require significant spending which will likely deepen the national debt. The unsustainable US federal debt, now at 123 percent of GDP, was notably driven by war, the 2008 global financial crisis, and a lack of political will to raise taxes.
Australia can expect to face a range of possible crises—including climate or military crises—in the future. We can bolster national security while balancing the budget in peacetime if we increase taxes. Paying for security through debt should be the emergency measure, and we’re not in an emergency yet.
Higher government income is therefore a national economic security issue. While economic security is broadly underdiscussed in Australia, the 2024 Independent Intelligence Review surprisingly recommended a Treasury-led national economic security review. This review must consider tax reform on national security grounds.
In 2025-26, the government will collect an estimated $676 billion in tax revenue, of which 51 percent will be personal income tax and 20 percent company tax. Progressive tax reforms on Australia’s highest earners, capital gains, or superannuation contributions above high thresholds could add significant amounts to the budget, enabling us to quickly raise defence and security spending without drawing from elsewhere.
Large reform will be challenging, but necessary. Governments will need to carefully navigate pain points—notably more personal income tax—and focus on reforms that won’t affect most Australians, likely requiring a focus on wealthier demographics. Australia’s most significant unclaimed tax revenues are on superannuation contributions and earnings, valued at $49 billion, followed by the exemption of main residences from capital gains tax, estimated at $48 billion in 2023-24. The value of both has grown significantly faster than the overall economy in the last few decades.
No politician wants to introduce taxes, but it is becoming a national security necessity. Spending to meet security challenges and maintain government services—and standard of living—is not optional. There is room to reform taxes and shore up our prosperity, resilience and security, while avoiding burdening younger generations with massive national debt in the process.