National accounts show Albanese government reaping 40 per cent more tax than two years ago

Jim Chalmers faces increased pressure to deliver the stage-three tax cuts in full as new data reveals Canberra is taking 40 per cent more from workers than two years ago — due to bracket creep.

Bracket creep has delivered the federal government an incredible 40 per cent surge in personal income tax revenue compared to two years ago, new official data reveals, as fears mount that the economy is on the brink of recession.

The national accounts released by the Australian Bureau of Statistics show households paid $91 billion in income tax in the three months to the end of September, up from $65bn in the same period of 2021.

By comparison, quarterly mortgage repayments rose from $11bn to $29bn over the same time.

“Income tax has taken more out of aggregate household income in the last two years than the RBA rate hikes – that’s because of bracket creep,” Judo Bank economist Warren Hogan, formerly principal adviser to the Treasury in Canberra, told The Daily Telegraph.

Warren Hogan, at the launch of Judo Bank. Picture: Supplied

Mr Hogan said that unlike countries such as the US, Australia does not “index” its tax rates, which means as wages rise, people pay higher rates of tax.

The income tax surge was the key reason the federal budget position had improved so much, Mr Hogan said.

“It’s not because commodity prices are up, it’s because you are taking more money out of our pockets,” he said.

“That’s a really tricky issue that the Treasurer has got to face now.

“That’s why a lot of people are going to say ‘you need the stage three tax cuts to give some of that back’,” Mr Hogan said.

The surge in income tax receipts was the most surprising aspect of the national accounts, he added.

Treasury’s gain has delivered the most pain for people whose annual earnings have risen above $120,000, pushing them out of the 32.5 per cent tax rate and into the 37 per cent band.

Bracket creep has helped to fill Treasurer Jim Chalmers’ coffers. Picture: NCA NewsWire / Martin Ollman

The government has also increased its revenue by ending the low and middle income tax offset, which returned up to $1500 to workers on less than $126,000.

Elsewhere, the national accounts showed the economy is running out of puff and at risk of slipping into recession.

Over the past four quarters, the economy has grown by 0.9 per cent, then 0.5 per cent, 0.4 per cent and most recently, an anaemic 0.2 per cent.

“You don’t need too much lower than 0.2 to print negative,” CommBank’s head of Australian economics Gareth Aird told The Telegraph.

“There’s a key risk that GDP goes backwards” in the final three months of 2023, he added. “We are in a per capita recession (already) and there’s a risk that if things slow too quickly that we go into an outright recession, albeit a shallow one.”

Mr Aird said the most important thing was that the unemployment rate didn’t go too high.

He is tipping it to rise from 3.7 per cent now to 4.5 per cent by the end of next year. CBA forecasts the Reserve Bank of Australia will be cutting interest rates by that stage to spur economic growth and limit job losses.