Tax Incidence Australia: Who Really Pays Taxes in 2025?

When the government announces a new tax or adjusts an old one, the question on everyone’s mind is: who really ends up paying? The answer isn’t always as simple as ‘the taxpayer’. Enter the concept of tax incidence—a critical, often misunderstood pillar of public finance that determines who shoulders the true cost of a tax. Whether you’re a business owner, employee, or everyday consumer, understanding tax incidence in 2025 is key to making smarter financial decisions.

What Is Tax Incidence and Why Does It Matter?

Tax incidence refers to how the burden of a tax is distributed between different groups in the economy, such as producers and consumers. While a tax might be levied on one party, the actual economic burden (who pays more or earns less) can shift depending on market dynamics.

• Statutory incidence: Who the law says must pay the tax (e.g., a business collects GST).

• Economic incidence: Who really feels the pinch—often quite different from the statutory payer.

Why does this matter in 2025? Because with shifting government priorities—think climate levies, superannuation tweaks, or state-based housing taxes—understanding where the true burden lands helps you plan for the future.

Real-World Examples: Tax Incidence in Action

Let’s bring this concept home with some current Australian examples:

• GST (Goods and Services Tax): While businesses collect the GST, most of the cost is ultimately passed onto consumers in the form of higher prices. In competitive markets, businesses have little wiggle room to absorb the tax themselves.

• Petrol Excise: The federal government collects an excise on fuel, but as fuel suppliers raise prices to cover the tax, both consumers and businesses (via higher transport costs) share the burden. With the recent 2025 increases to road user charges, transport-heavy sectors are particularly affected.

• Superannuation Tax Changes (2025): The government’s new caps on concessional super contributions sound like a hit to high-income earners, but some of the cost can be shifted onto workers through lower wage growth as employers adjust their compensation structures.

What Determines Who Bears the Tax?

The key to tax incidence is elasticity—how much buyers and sellers can change their behaviour in response to price changes:

• If consumers have few alternatives (inelastic demand), they’ll bear most of the tax.

• If suppliers can easily switch to other markets (elastic supply), they’ll pass the tax along.

Case study: The 2025 State Land Tax Increases

Several states have raised land taxes to fund infrastructure. While the tax is levied on property owners, in tight rental markets with high demand, landlords have passed much of the cost onto tenants through higher rents. However, in areas with abundant vacant properties, landlords have had to absorb more of the tax themselves.

Policy Shifts in 2025: What’s Changing?

This year has seen a flurry of tax reforms impacting incidence:

• Stage 3 income tax cuts: While designed to reduce the tax burden for middle and high-income earners, economic models suggest that some benefits may be eroded by bracket creep and wage negotiation dynamics, shifting some gains to employers or offsetting higher living costs.

• Climate levies: New emissions-related taxes on large polluters are intended to change business behaviour, but the ultimate incidence depends on how much firms can pass costs to consumers versus absorbing them in profits or wages.

Staying on top of these changes is crucial as they can affect everything from your weekly grocery bill to your retirement savings strategy.

How to Use Tax Incidence Insights

Understanding tax incidence helps you:

• Negotiate smarter: If you know a tax is likely to be passed on, you can factor it into wage or price negotiations.

• Make investment choices: Anticipate which sectors may benefit or lose from new taxes, shaping your portfolio decisions.

• Budget effectively: Recognise when a tax ‘on business’ will hit your hip pocket so you can adjust spending ahead of time.