im Chalmers is on track to become the highest-taxing treasurer in Australian history, as new budget figures reveal tax revenue as a share of the economy has surpassed the previous Coalition government’s ceiling and sits just shy of the record held by the Howard government.

In a revelation likely to reignite calls for tax cuts, the[ final budget outcome](https://archive.li/o/9QSCW/https://archive.budget.gov.au/2025-26/fbo/download/00_fbo_2025-26.pdf) for the 12 months to June 30 shows tax receipts as a proportion of GDP jumped from the 23.6 per cent forecast in the May budget, to land at 24.1 per cent.

Treasurer Jim Chalmers insists the fuel price spike caused by the war against Iran is the key driver of inflation. Alex Ellinghausen

This surpasses the self-imposed ceiling of 23.9 per cent set by former Coalition finance minister Mathias Cormann – [a cap Labor never adopted – ](https://archive.li/o/9QSCW/https://www.afr.com/link/follow-20180101-p5aav0)and nudges the 24.2 per cent mark reached in 2004 and 2006, at the height of the mining boom.

Government spending is also on a record-breaking run with payments as a percentage of GDP hitting 26.9 per cent – the highest spending outside the pandemic for four decades.

With the Reserve Bank of Australia all but certain to increase interest rates on Tuesday, and money markets pricing in up to two further increases, the fresh budget data has added fuel to the row over Labor’s economic management and an escalating cost-of-living crisis.

While Chalmers insisted the fuel price spike caused by the war against Iran was now the key driver of inflation, Opposition Leader Angus Taylor said the budget and the economy were in no shape to absorb the global shock in the first place.

“If they had just offset their extra spending since they’ve come to government, we’d be in surplus right now,” Taylor said.

“This is pretty simple stuff, but this is a treasurer who just doesn’t get it. You’ve got a treasurer here who’s just a media adviser. It’s all just spin.”

The Final Budget Outcome showed a deficit of $22.3 billion for the last financial year, which is $6 billion healthier than predicted at the May budget.

The $6 billion came from $1.9 billion more than expected in superannuation taxes, and $2.3 billion more in tax receipts from individuals. Company tax was up by $700 million, while tobacco excise was down another $200 million.

A defensive Chalmers said that while there was an increase in taxes collected from individuals, it was not PAYG tax levied on wages.

“The higher receipts are really a function of two things: investor returns being higher than anticipated in the budget, and better superannuation outcomes,” the treasurer said. “The superannuation funds have done a good job hedging all of this uncertainty.”

Chalmers also maintained the blowout in spending was a result of a lower-than-expected nominal GDP. He contended it would be worse if the Coalition were in power, given the extra cost of its promises to spend 3 per cent of GDP on defence and automatically index income tax brackets.

“Our political opponents have racked up more than $110 billion in new commitments just over the forward estimates since the election, and more than half a trillion dollars in new commitments over the next decade just since the election,” he said.

“So, by their own logic, inflation would be higher and interest rates would be higher if their policies were put in place.”

Just before Labor was elected in 2022, Chalmers dismissed adopting the Coalition’s 23.9 per cent tax-to-GDP ratio, saying it was an arbitrary concept that was more about politics than sound economics.

“We’re not attracted to the government’s tax cap, and the reason we’re not  
attracted to it is because it seems to us like quite an arbitrary cap  
imposed for political reasons rather than good economic reasons,” Chalmers said at the time.

“Clearly, as the economic conditions evolve, we take advice from the  
Treasury and from elsewhere about the most appropriate settings.”

But the growing tax take will drive pressure for more income tax cuts.

Chalmers hinted about the prospect of tax cuts just before the 2028 election, by increasing the size of the promised $250 Working Australians Tax Offset (WATO) that salary earners will first receive at the end of 2027-28 as a one-off payment, and which will be funded from some of the proceeds from the increase to capital gains tax and curbs on negative gearing.

The *Intergenerational Report* released last week assumed a 24.2 per cent tax-to-GDP ratio should be the trigger for tax cuts. Based on the current trajectory, that would be surpassed before 2028, when the WATO is first due to be paid.

Westpac senior economist Pat Bustamante agreed the budget could be in surplus if not for the Albanese government’s run on spending.

“\[The deficit\] confirms that tax as a share of the economy is close to a historical high. Without spending pressures, the government would be running significant surpluses, in line with the outcomes recorded under the Howard government,” he said.

“Importantly, given that the tax measures in the May budget increase tax receipts, the government is signalling that bigger government is here to stay.”

Independent economist Chris Richardson warned that the government had painted itself into a corner with elevated spending – a bind set to worsen as interest payments on cheap pandemic-era debt begin to soar.

The only choices would be to tax more or let the deficit worsen, he said.

Jim Chalmers on track to become highest-taxing treasurer in Australian history as revenue hits 24.1 per cent of GDP