Hard working wage earners to fund the Government’s Budget recovery — and be penalised for it

‘GET out there and have a go’, Hockey says. Well, there are two little words you probably missed in his Budget speech last night that should make you think twice.

HARDWORKING middle-class Australia is in danger of becoming the cash cow funding the Government’s economic recovery program.

Wage earners who land a promotion will find themselves effectively punished rather than rewarded for their efforts, and it’s all thanks to bracket creep.

The Government expects to collect more tax revenue in 2015-16 and close to half of it will come from individual income tax payers.

Many will be subjected to bracket creep, which occurs when wage increases push workers into a higher tax bracket without the buying power of their pay packets keeping pace.

Their personal spending power goes backwards and they are effectively penalised for the work which earned them the pay rise.

About one million Australians are expected to be affected.

The Government expects to collect more tax revenue in 2015-16 and close to half of it will come from individual income tax payers.

It is a consequence of the Government relying more on revenue gains than spending cuts. Government outlays as a proportion of gross domestic product — national output — will reach 25.9 per cent in 2015-16, compared to 26 per cent during the crisis spending of the global recession in 2009-10.

Last night’s Budget also showed who would be paying for this.

Government revenue is expected to rise to $398 billion next financial year — 24 per cent of GDP compared to 23.5 per cent in 2014-15.

The bulk of that, $194.3 billion, will come from income tax. Many of these income tax payers will also contribute to the $61 billion to come from sales tax, the $18 billion from fuel excise, and the $7 billion from other excise.

Treasurer Joe Hockey admits he’s worried about bracket creep, despite his rosy outlook.

The burden on the ordinary PAYE worker is expected to increase even more in later years.

Wage growth has been slow, but a worker who gets a promotion which puts their pay over $37,000 would land in a higher tax bracket — paying 33 cents in the dollar instead of 19 cents. The same applies for a worker whose wages go over $80,000. Their tax rate would jump from 33 cents to 37 cents in the dollar.

Treasurer Joe Hockey could rejig the tax brackets to prevent the creep phenomenon, but can’t at the moment, promising today to put it up for discussion in an upcoming government White Paper.

“I would love to hand back some of the bracket creep, I am concerned about bracket creep,” Mr Hockey said last night.

“If bracket creep continues, ultimately it will slow down the economy.

“Why? Because middle income Australia paying more tax means they have a disincentive to work more. So this is an issue that has to be addressed.”

Originally published as Hard working wage earners to fund the Government’s Budget recovery — and be penalised for it