You may hear the term Bracket Creep from time to time.
Politicians love to give you money and expect gratitude for their largesse. Always conveniently forgetting it was your money they took in taxes.
As expected, no changes were announced to tax rates for 2023-24 financial year. Does this mean we all pay the same amount of tax as in the 2023 financial year? Not necessarily.
Inflation is a wealth killer and it particularly hits in the area of tax.
Consider a young salary and wage earner on $45,000 per year last year. As a result of wage rises necessitated by our high inflation rate, the worker receives a 7% pay rise or $3,150, to help cover increased expenses.
Below $45,000, every extra dollar earned was taxed at 19%, but this pay rise “creeps” into the next tax bracket. The entire $3,150 pay increase will be taxed at 32.5%, meaning the Treasurer is actually taking a third of this low-income earners wage rise!
So, cost of living rises by $3,150, but the worker receives a little over $2000 to cover this.
The combination of high inflation and corresponding high wage increases, together with static tax brackets is great for balancing Federal budgets, but the worker’s budget has a big hole in it.