Australia's Tax Burden: Bracket Creep's Hidden Impact

Australians are facing the highest average income tax rates in over two decades, sparking concerns about the tax burden on the workforce. The phenomenon of 'bracket creep' is identified as the key factor, as income thresholds in Australia aren't indexed to inflation, causing effective tax rates to rise over time.

Australians are now paying the highest average rate of income tax in more than two decades, according to the latest HILDA survey report. The trend, known as 'bracket creep,' emerges because fixed tax thresholds aren't adjusted for inflation, leading to rising effective tax rates as wages increase.

Income tax for individuals over 15 rose to 11.7% in 2022-23, driven entirely by increasing nominal incomes. Bracket creep particularly affects full-time workers, elevating their tax contributions significantly, with those aged 35 to 54 bearing the highest burden.

Although the government periodically modifies the tax schedule to address bracket creep, these changes have not eliminated its impact. Experts suggest alternatives to ensure a fairer tax system, including reducing tax concessions for non-labor income and considering other revenue sources.