Tax bracket creep costing every Australian worker more than a decade ago, new ATO figures show

Almost every Australian taxpayer is being slugged a higher proportion of their income in tax than a decade ago because of entrenched bracket creep, costing a worker earning $100,000 nearly $1500 more per year, compared with 2011-12.

Analysis of newly released statistics from the Australian Taxation Office shows a decade of bracket creep has silently eaten away at workers’ take-home pay.

Labor is resisting mounting pressure to axe the stage three tax cuts, due to come into force from July 1, 2024, which will create a single 30 per cent tax bracket for workers earning between $45,000 and $200,000.

Prime Minister Anthony Albanese on Friday said Labor has no plans to axe or wind back the package, but did not rule out taking a different position to the next federal election.

Asked if his heart was really in keeping the Coalition's cuts, Mr Albanese told a News Corp event in Sydney that Labor had tried to amend the cuts, worth $69 billion over the first four years.

Bracket creep is real, and no treasurer wants to give it up as it means they cannot play Father Christmas at budget time.

— Tony Greco, Institute of Public Accountants

"They’re legislated," Mr Albanese said, not responding to a question about whether the tax cuts could be a central fight in the next election campaign. "We’ve said that we haven't changed our position."

Stage three will abolish the 37 per cent bracket that applies to income between $120,000 and $180,000, and apply a 30 per cent rate to all earnings between $45,000 and $200,000, covering 95 per cent of workers.

The new analysis by AFR Weekend found a taxpayer at the 80th percentile of the income distribution earned between $104,818 and $107,105 in 2020-21. They paid an average of $26,329 in net tax that financial year, or 24.8 per cent of their taxable income.

A taxpayer at the 80th percentile in 2011-12 had an effective tax rate of 23.4 per cent, or 1.4 percentage points less.

That 1.4 percentage point difference equates to an additional $1485 in tax in 2020-21.

A median earner – someone who earned between $62,544 and $63,510 in 2020-21 – paid an extra $492.54, even after accounting for the low and middle income tax offset.

A worker at the 90th percentile (a taxable income from $136,956 to $142,424) paid an extra $1,673.50 in income tax. Their effective tax rate increased to 28.1 per cent from 26.9 per cent over the decade to 2020-21.

Tony Greco, the Institute of Public Accountants’ general manager for technical policy, said governments were reliant on bracket creep to fund costly promises.

"Bracket creep is real, and no treasurer wants to give it up as it means they cannot play Father Christmas at budget time," he said.

"Essentially every extra dollar is taxed at a higher rate than the previous dollar until a taxpayer hits $180,000. Thereafter, every extra dollar is taxed at the highest marginal rate.

"Our tax system is heavily reliant on personal taxation which accounts for nearly half of the total tax pie."

Last month's budget papers showed more than 50 per cent of total Commonwealth tax revenue will be paid by individual taxpayers in 2023-24.

Mr Greco said this over-reliance becomes more burdensome when wages rise and there is no relief from bracket creep.

"Even if the stage three tax cuts go ahead, the over-reliance on personal taxation will continue and this is the real mischief that needs addressing.

"Treasury has acknowledged this for some time and has warned respective governments for many years that our tax system is not fit for purpose as the tax base is too narrow."

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