We are being bombarded with debate over tax reform. This should be good… but much of this debate appears to be ill-informed. Take bracket creep as a case in point.
One commentator has stated that bracket creep only happens when you move up a tax bracket. So if my income goes from $90,000 to $91,000 I won’t be hit by bracket creep. This is wrong. Bracket creep hits all taxpayers, whether or not they go into a higher bracket, because lower tax brackets form a smaller fraction of their income as their income goes up. We confirmed this in the modelling in the CIS research report Exposing the Stealth Tax: the Bracket Creep rip-off — see the interactive snapshot released with the report.
Another commentator, after getting the definition of bracket creep right (as above), goes on to welcome the tax hike if it meant he was getting a pay rise. However, bracket creep can actually mean taxpayers lose money after inflation. In the CIS research report (pages 4-5), there is a worked example of a taxpayer receiving a wage increase equaling inflation, but going backwards after tax. And our modelling is that around 90% of the tax hike is due to inflation, not wages growth (see page 8).
Along these lines, the Minister for Finance, Matthias Cormann, argued that bracket creep isn’t a substantial problem because wages growth is slow. However, our updated modelling indicates that an average full-time worker will be getting a tax increase of $36 per week ($1,885 per year) due to bracket creep in 2018-19, and the total cost is $16.5 billion in that year. And taxpayers facing slow wages growth have less money to pay this tax hike. So much for it being a small problem.
And finally, The Australia Institute modeled one possible solution to bracket creep: lifting the $80,000 tax bracket, finding this will only benefit the wealthy. This result is incredibly obvious and un-newsworthy. It also ignores our modelling showing that if bracket creep is fully addressed, then people on low incomes (around $37,159) will obtain the greatest benefit.
I am ever an optimist, but my expectations for informed discussion of bracket creep might be completely misplaced.
Home > Commentary > Opinion > Bracket creep: still waiting for sensible discussion
Bracket creep: still waiting for sensible discussion
One commentator has stated that bracket creep only happens when you move up a tax bracket. So if my income goes from $90,000 to $91,000 I won’t be hit by bracket creep. This is wrong. Bracket creep hits all taxpayers, whether or not they go into a higher bracket, because lower tax brackets form a smaller fraction of their income as their income goes up. We confirmed this in the modelling in the CIS research report Exposing the Stealth Tax: the Bracket Creep rip-off — see the interactive snapshot released with the report.
Another commentator, after getting the definition of bracket creep right (as above), goes on to welcome the tax hike if it meant he was getting a pay rise. However, bracket creep can actually mean taxpayers lose money after inflation. In the CIS research report (pages 4-5), there is a worked example of a taxpayer receiving a wage increase equaling inflation, but going backwards after tax. And our modelling is that around 90% of the tax hike is due to inflation, not wages growth (see page 8).
Along these lines, the Minister for Finance, Matthias Cormann, argued that bracket creep isn’t a substantial problem because wages growth is slow. However, our updated modelling indicates that an average full-time worker will be getting a tax increase of $36 per week ($1,885 per year) due to bracket creep in 2018-19, and the total cost is $16.5 billion in that year. And taxpayers facing slow wages growth have less money to pay this tax hike. So much for it being a small problem.
And finally, The Australia Institute modeled one possible solution to bracket creep: lifting the $80,000 tax bracket, finding this will only benefit the wealthy. This result is incredibly obvious and un-newsworthy. It also ignores our modelling showing that if bracket creep is fully addressed, then people on low incomes (around $37,159) will obtain the greatest benefit.
I am ever an optimist, but my expectations for informed discussion of bracket creep might be completely misplaced.
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