Treasury head Martin Parkinson put the GST back on the agenda this week in his speech to the Sydney Institute. The point he was making was that based on Treasury modelling, if left unchecked (read: no personal income tax cuts), income taxes paid by Australians would rise as a result of “fiscal drag” pushing Australian tax payers into higher income tax brackets.
Fiscal drag arises as government revenue increases because taxpayers are pulled into higher tax brackets as their wages rise. In 2015-16, the average full-time employee is expected to pay 39 cents in income tax for each dollar they earn.
In contrast, over the period 2001-02 to 2009-104, these employees paid only 31.5 cents in income tax for every extra dollar they earned.
By 2023-24, without any return of fiscal drag, the average tax rate for a taxpayer earning the projected average full-time wage will increase to 28 per cent, from 23 per cent this year – a rise in the tax burden for those individuals of almost one quarter.
These comments have prompted the Australian to commission research by University of Canberra National Centre for Social and Economic Modelling which quantifies the number of Australians who will be impacted by fiscal drag.
The research shows that:
In the absence of tax cuts, the number of people paying the top tax rate of 45c in the dollar would soar by 134 per cent over the next decade to just under 900,000 as they were pushed into higher tax brackets by inflation and wage rises — so-called bracket creep.
The number of Australians paying the second-highest rate of 37c in the dollar would leap 85 per cent to 3.7 million.
And the effect of people being pushed into higher tax brackets would increase total personal income tax by 21 per cent or $32.5 billion, before allowing for growth in the population and workforce.
Which The Australian says “underlines the urgent need for tax reform.”
Parkinson will be pleased that the debate has begun.
You can read more here