Australia Tax Brackets: Wage Earners Near Top Face Biggest Creep
Australian workers earning about $45,000 or $190,000 would bear the largest tax increases from bracket creep over a decade, new analysis found. The federal opposition has pledged to index tax brackets to inflation, while economist Saul Eslake questioned whether governments could fund the change through spending cuts.
Australian workers earning about $45,000 or $190,000 would be hit hardest by bracket creep over a decade from 2028, according to new analysis, as the federal opposition pledges to link tax brackets to inflation. The findings point to uneven tax increases for wage earners near top income levels and workers close to the full-time minimum wage.
Bracket creep occurs when tax brackets stay fixed while wages rise with inflation, pushing some people into higher brackets and increasing the share of their income taxed. Analysis by the e61 Institute and economist Richard Holden found the effects would be most pronounced for people whose earnings sit near higher tax thresholds.
A worker currently earning $45,000 would face an increase of more than five percentage points in their average tax rate over the decade. That income is close to the full-time minimum wage, and many part-time workers also earn in that range.
Someone currently earning $190,000 would face an increase of more than four percentage points. In both cases, more than half of real income growth would be taxed, the analysis found.
The impact would extend beyond those two groups. Most taxpayers would face an increase of at least two percentage points in their average tax rate and have at least a quarter of their real income growth taxed.
“Taxing workers more without explicit policy change is neither an equitable nor a credible mechanism for [raising revenue],” e61 chief executive Michael Brennan said. He added: “The tax increase falls unevenly across the income distribution.”
The analysis assumes no income tax cuts for a full decade, a scenario the researchers say is unlikely. Governments have typically introduced tax cuts every few years, often near elections, returning some or all of the revenue raised through bracket creep.
But the researchers said budget projections also use the assumption that bracket creep continues. Parliamentary Budget Office analysis found that without it, the budget would have a deficit equivalent to 0.7 per cent of gross domestic product by the end of the decade, rather than the officially projected 1 per cent surplus.
“Bracket creep should not be treated as a serious long-run funding strategy,” the authors wrote. “Fiscal projections that implicitly assume it will repair the budget are not credible.”
Opposition Leader Angus Taylor has pledged to index tax brackets to inflation if elected, with the change phased in over two years from 2028. Under the proposal, taxpayers would receive the bracket-creep adjustment as a lump sum at the end of each tax year, based on inflation.
The opposition says it would cover the cost in the first three years through proposed cuts to Labor climate and housing policies and industry subsidies, as well as by scrapping Labor’s $250 tax offset for wage earners. Taylor has said longer-term costs would be met by limiting government spending.
Economist Saul Eslake said he supported indexing tax brackets in principle but doubted governments could find enough spending cuts to offset the cost.
