We mentioned in the last newsletter the insidious nature of “bracket creep”. This occurs as wage rises take taxpayers into higher taxation brackets.
If these brackets are not adjusted, workers are receiving much less of any hard-earned pay increase. Instead, the Government receives a windfall and often attributes this to ‘sound economic management’!
The Department of Finance recently reported that personal income tax in July and August was $3.3 billion higher than expected! Easy to balance the Federal Budget – but harder for families to balance the household budget!
It is pleasing to see that we have seen no political desire to roll back the currently legislated stage 3 tax cuts which will commence from 1 July 2024. These changes will see the impacts of bracket creep reduced for high income earners. The recently released 2023 Intergenerational Report provided a humbling forecast for the future. As excise taxes (such as fuel excise) are forecast to decline, the heavy lifting by taxpayers continues to rise with income tax becoming the primary source of government revenue.
The Intergenerational Report highlights that the following five key forces will continue to shape and challenge the Australian economy going forward:
- population ageing
- technological and digital transformation
- climate change and the net zero transformation
- rising demand for care and support services
- geopolitical risk and fragmentation.
Whether there is the political desire and will to put forward more comprehensive tax reform in response to the above challenges and to reduce the reliance on personal income tax is unclear. At least in the short term, some relief is not far away.