No compelling case for an income tax cut to reduce the impact of bracket creep: new analysis

New Australia Institute analysis of the long term impacts of bracket creep shows that taxpayers are being over compensated for bracket creep at all income levels.

The government has used bracket creep as a key reason why it needs to implement its income tax cuts package as outlined in the 2019 Budget.

Key Findings:

  • The report analysed the impact of bracket creep from 00-01 to 24-25 to create a bracket creep baseline that is a hypothetical tax rate if bracket creep had been removed and compared that to the current rate of tax
  • Comparing the proposed income tax rates in 2024-25 to the bracket creep baseline, shows all income levels are over-compensated for bracket creep.
  • If the government’s proposed stage 3a tax cuts are implemented, overcompensation would rapidly rise for those earning more than $95,000 per annum
  • Someone earning $60,000 a year is $1,919 a year better off when compared to the bracket creep baseline. Someone on $200,000 is $19,785 better off than the bracket creep baseline.

“There is no compelling case for an income tax cut to reduce the impact of bracket creep,” said Matt Grudnoff, Senior Economist at The Australia Institute.

“The government’s income tax plan gives most of the tax cut benefit to the highest tax brackets. These high income individuals are already the most overcompensated.

“Given that bracket creep is regressive, these top tax brackets require the least compensation, not the most.

“Claims by the government that its income tax cuts package is designed to reduce the impacts of bracket creep are simply not supported by the data.”

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    Anna Chang Communications Director

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    anna@tai.org.au