Regressive Tax in Australia: Definition & Key Types (2025 Guide)

When it comes to taxes, not all are created equal. Some put more strain on low- and middle-income earners, while others are designed to distribute the burden more fairly. In Australia, the term regressive tax has been making headlines as governments look to balance budgets and fund essential services. But what exactly is a regressive tax, and which taxes in Australia fall into this category in 2025? Let’s break down what you need to know, why it matters, and what’s changing in the current policy landscape.

What Is a Regressive Tax?

A regressive tax is a tax that takes a larger percentage of income from low-income earners than from high-income earners. Unlike progressive taxes—where the tax rate increases as your income rises—regressive taxes have a disproportionate impact on those with less money to spare.

• Example: If a flat $1,000 car registration fee is charged to everyone, that fee is a much bigger chunk of a $30,000 salary than of a $300,000 salary.

Regressive taxes often show up as fixed fees or consumption taxes. Because everyone pays the same amount or rate, those on lower incomes end up spending a higher portion of their earnings.

Types of Regressive Taxes in Australia (2025)

Here are the main taxes in Australia considered regressive in 2025, along with recent developments and real-world examples:

1. Goods and Services Tax (GST)

The GST is a 10% tax on most goods and services sold in Australia. Since everyone pays the same rate, regardless of income, the GST takes up a larger slice of a low-income earner’s budget. In 2025, there’s renewed debate about expanding the GST base or raising the rate to help fund health and education, but critics warn this could worsen inequality.

• Example: Both a barista earning $45,000 and a CEO earning $500,000 pay the same 10% GST on their groceries and clothing. But the barista spends a greater proportion of their income on these essentials.

2. Excise Taxes (Fuel, Tobacco, Alcohol)

Excise taxes are specific levies on products like petrol, cigarettes, and alcohol. These are classic regressive taxes because everyone pays the same tax per litre or pack, regardless of their income. The 2025 Federal Budget included an increase in tobacco excise, with revenue earmarked for health initiatives, but this move has drawn criticism from public health advocates worried about the impact on low-income Australians.

• Fuel excise: As of July 2025, the fuel excise is 48.8 cents per litre. For tradies and regional Australians who drive more, this can add up quickly.
• Tobacco excise: The average price of a packet of cigarettes is now over $50, with more than half of that cost going to tax.

3. Flat Government Fees and Charges

Many state and local government fees are flat charges—think car registration, driver’s licence renewals, and council rates. These fees don’t scale with income, so they hit lower earners harder.

• Car registration: In NSW, a standard private vehicle registration is over $400 per year in 2025. That’s a big chunk out of a casual worker’s pay packet compared to a high-income professional.
• Driver’s licence renewal: Whether you’re a uni student or a company executive, the renewal fee is the same.

Why Do Regressive Taxes Matter?

The impact of regressive taxes isn’t just theoretical—they shape everyday life for millions of Australians. Here’s why understanding regressive taxes matters in 2025:

• Cost of living pressure: With inflation still above target and real wages only starting to recover, every dollar counts for households on lower incomes.
• Economic fairness: As governments look for ways to raise revenue, there’s intense debate about whether to rely on regressive taxes or to shift the burden toward wealthier Australians.
• Policy focus: The 2025 Intergenerational Report highlighted the risks of over-relying on regressive taxes as Australia’s population ages and income inequality rises.

Some experts argue for targeted rebates or exemptions to soften the blow. For example, GST doesn’t apply to basic fresh food and health services, and there are fuel tax credits for some regional businesses. But critics say more needs to be done to ensure tax policy doesn’t widen the wealth gap.

Looking Ahead: The Debate Continues

Regressive taxes will remain front and centre in Australia’s policy debate as cost of living remains a top concern. Any changes to GST, excise, or government fees will have ripple effects for household budgets and broader economic fairness. As the 2025-26 Budget cycle kicks off, expect calls for reform and smarter, more equitable tax design.