The 2015 Intergenerational report released today contains analysis on the impact of bracket creep, that process by which you start paying proportionally more tax over the years as your income naturally slips into higher tax brackets.
While wages tend to grow — very slowly at the moment — tax thresholds do not automatically keep pace with inflation or that growth in pay.
“While bracket creep exists because of the progressivity of the individuals income tax system, unchecked bracket creep affects lower and middle income earners proportionally more than higher incomes earners,” says the analysis.
This chart shows how someone an average earnings will soon move into a new tax bracket:
In 2013-14, average ordinary full time earnings were about $75,000 and the average tax rate 22.7%. Without any tax cuts, average earnings will be around $104,000 by 2023-24 and the average tax rate 27.4%.
By contrast, someone with only half that income earned $37,500 in 2013-14, increasing to $52,000 in 2023-24. However, their average tax rate will rise to 17.8% from 10.3%.
Someone earning $150,000 — about twice the average full time wage — will see their pay rise to $208,000 in 2023-24 but their average tax rate will only increase to 34.3% from 30.5%.
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