Australian taxpayers have been overcompensated for bracket creep and there is no need for further income tax cuts to reduce its effects.

The government uses bracket creep to justify the income tax plan outlined in the 2018 Budget. The government claims that bracket creep is having a negative impact on the economy and income tax needs to be cut, particularly for those on high incomes.

Our analysis of the long term impacts of bracket creep shows that Australian taxpayers at all income levels have received more in tax cuts than they have lost through bracket creep – in other words, they have already been overcompensated for bracket creep. Further income tax cuts cannot be justified by arguing that they will reduce the impact of bracket creep. In addition, the government’s tax plan would further overcompensate those who have already been most overcompensated for bracket creep.

This paper analyses the impact of bracket creep from 2000-01 to 2017-18. It compares a bracket creep baseline (i.e. hypothetical tax rates if tax cuts had just accounted for bracket creep) to current rates of tax for various income levels.