Exposing the Stealth Tax: the Bracket Creep rip-off

Robert Carling, Michael Potter
13 December 2015 | Research Report 8
Exposing the Stealth Tax: the Bracket Creep rip-off

View Interactive Snapshot

Bracket creep occurs when taxpayers pay a higher tax rate as their incomes increase due to inflation and economic growth. The tax increase due to bracket creep is $6 billion this year and the annual cost will hit $17 billion in 2018-19.

The impact of bracket creep is largely regressive, hitting low income earners harder. Taxpayers in the decile from $37,500 to $46,500 are worst hit, facing a $1,300 reduction in take home pay (a 3.3% cut) in 2018-19. Bracket creep is causing 2.5 million taxpayers to face higher marginal tax rates, but the impost causes average tax rate to go up for all taxpayers.

Most of this impact is caused by inflation, with real wages growth causing a smaller but still important increase in tax rates.

Bracket creep discourages employment, innovation and skills acquisition, and encourages tax avoidance. Bracket creep also harms budget transparency, and the flexibility it provides to governments often result in stealth tax increases. The government is also inconsistent in refusing to index tax thresholds, while still indexing excise on alcohol, tobacco and fuel.

To address this issue, the government should index tax thresholds to wages growth, or set thresholds at a fixed proportion of average wages, with no discretion. Discretion is fraught with risks, and is likely to result in tax increases based on Australian and overseas evidence.

Buy Hardcopy
Latest Publications

Why childcare is not affordable
Eugenie Joseph
29 August 2018 | RR37

Childcare fees and out-of-pocket costs in Australia have been growing above inflation in recent years, at the same time that more parents are using formalised childcare to support their participation in the workforce. Childcare has been subject to growing and evolving regulation for many years, culminating in the introduction of the National Quality Framework in 2012. However, the quality regulations…

Why We Need NAPLAN
Blaise Joseph
13 May 2018 | RR36

The National Assessment Plan – Literacy and Numeracy (NAPLAN) is a crucial national assessment, but is coming under increasing criticism. There are three major benefits of NAPLAN: Tool to improve schools and teaching. NAPLAN results enable the identification of problems in the school system over time, and are a means for evaluating potential solutions, from the national level all the…

Risky business: the problems of Indigenous business policy
Charles Jacobs
29 November 2017 | RR35

The Commonwealth’s Indigenous Procurement Policy (IPP) has put Aboriginal owned small businesses at the heart of a renewed approach to Indigenous economic development. The IPP has irrevocably changed the space, and the Indigenous business sector has grown exponentially since its introduction in 2015. While the policy has achieved its targets, there are some issues with its structure – namely, the…

Life Before Death: Improving Palliative Care for Older Australians
Jessica Borbasi
19 November 2017 | RR34

The notion that the problems associated with modern death and dying can be solved simply by allowing more Australians to die at home is an oversimplification. Moreover, the myth that most people want to die at home, but don’t, has also unhelpfully reinforced the popular fear that grim, distressing, painful and undignified “natural death” in hospital should be avoided at…

Resetting the Pendulum: Balanced, Effective, Accountable Child Protection Systems and Adoption Reform in Australia
Jeremy Sammut
11 November 2017 | RR33

The national significance of the NSW child protection and adoption reforms cannot be overstated. The changes to child protection services in NSW not only constitute a blueprint for genuine systemic change across the full service spectrum, designed to address the unsustainable trajectory of OOHC services. The balanced, effective and accountable system being pioneered in NSW also marks a turning point…