Parliamentary Budget Office report reveals bracket creep will force up taxes

MORE than 1.6 million Australians will be slugged higher taxes in the next five years — and middle income workers will be hardest hit.

MORE than 1.6 million Australians will be slugged higher taxes in the next five years as bracket creep causes more hip-pocket pain for workers.

The Parliamentary Budget Office has revealed that the average tax rate will climb 2.3 per cent over the next five years.

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Middle income workers earning an average of $46,000 will be the hardest hit, with their average tax rate expected to leap from 14.9 per cent to 18.2 per cent.

The alarming new figures could set the stage for pre-election tax cuts as early as next year, with Treasurer Scott Morrison having warned in the past that bracket creep was a “silent tax” which eroded incentives to work.

Treasurer Scott Morrison. Picture: Brendan Esposito (AAP)

The PBO report, released today, pointed out that the government’s promised return to surplus in 2020/21 relied mainly on increasing income tax revenue.

It said the largest driver of the predicted tax rate increase was the “projected growth” in people’s incomes, causing widespread bracket creep which will affect at least 11 per cent of taxpayers.

About 900,000 people are expected to move from a marginal tax rate of 32.5 per cent to 37 per cent.

Another 700,000 people face moving from a 19 per cent marginal rate to 32.5 per cent.

Low-income workers will see their average tax rate rise just 0.2 per cent because most of their income remains below the tax-free threshold.

The government’s plan to increase the Medicare Levy from 2019/20 was also cited as a reason for average tax rates rising.

The PBO said the government would need “an unspecified change to its tax policy” from 2022/23 to stop the tax-to-GDP ratio rising above the 23.9 per cent cap.

Twitter: @tminear