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Bracket creep: Tax increases by stealth

Crawford School of Public Policy | Tax and Transfer Policy Institute

Event details

Seminar

Date & time

Friday 07 June 2024
3.30pm–4.30pm

Venue

Molonglo Theatre JG Crawford Building

Speaker

Matthew Taylor, Centre for Independent Studies, and ANU Crawford PhD Candidate

Contacts

Diane Paul

The previous Coalition government’s Stage 3 income tax cuts have been mired in controversy ever since they were announced — in their final form — in 2019. The controversy surrounding this third stage of the Personal Income Tax Plan (PITP) culminated in the current Labor government’s announcement in January this year to reconfigure the cuts, largely retaining their overall magnitude. Some of the commentary surrounding the tax cuts, as originally envisioned, included claims that the cuts were “$9,000 gifts to the rich”. Others argued the cuts would over-compensate high income earners for bracket creep, relative to the tax rates that would prevail had tax thresholds been indexed since some earlier financial year deemed preferable. This research presents a definition of bracket creep and clarifies what it means to be compensated for it. It finds that claims of overcompensation for high income earners arising from the Stage 3 tax cuts are false, as such claims ignore the cumulative impact of bracket creep and income tax policy since the beginning of the PITP in 2018-19. When the cumulative effects of bracket creep and discretionary tax cuts are taken into account, the main beneficiaries of tax policy since 2017-18 have been those with taxable incomes between $50,000 and $224,000 – even under the Coalition’s original plan. Far from “$9,000 gifts to the rich”, those with incomes above $224,000 would have been left slightly worse off over the period had they received the original Stage 3 tax cuts in full. The implications of the failure of Australian governments – past and present – to index personal income tax thresholds for income tax policy, and for tax policy more generally, will also be explored.

Matthew Taylor is the Director of the Intergenerational program at the Centre for Independent Studies (CIS). The Intergenerational program focuses on intergenerational inequality and the fiscal burden of government policy on future generations. In addition to his role at CIS, Matt is a PhD candidate at the Crawford School of Public Policy at the Australian National University (ANU). He was previously at CIS from 2014 to 2015 working on paid parental leave and age pension policy. Matt has over a decade of experience in economic modelling and data analysis. Prior to joining CIS he worked for a number of government agencies and universities including the ANU Centre for Social Research and Methods, the National Centre for Social and Economic Modelling at the University of Canberra, the Commonwealth Department of Employment and the Australian Institute of Family Studies.

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