Australia world leader in income tax surge, OECD data reveals

With bracket creep fuelling record tax collections, fresh data has revealed Australia’s personal income tax burden grew faster than any other advanced economy last year.

Australians’ personal income tax burden, already among the highest in the world, grew faster than any other advanced economy last year, as bracket creep fuelled record Commonwealth tax collections.

According to a fresh report published by the Organisation for Economic Co-Operation and Development (OECD) on Thursday evening, a single, average wage-earner without children paid approximately $24,791 in personal income taxes last year — up 7.6 per cent on 2022 levels.

In comparison, Luxembourg, which recorded the second-largest increase in personal average tax rate rose by just five per cent.

Former finance minister Mathias Cormann, currently serves as the OECD’s secretary-general. Picture: AFP

With 24.9 per cent of gross wages devoted to incomes taxes, Australia was behind only Denmark (36 per cent), Iceland (27.3) per cent, and Belgium (26 per cent), and well ahead of the OECD average of just 15.4 per cent.

As high inflation has encouraged workers to seek out pay increases to keep up with the escalating cost of living, a greater proportion of their pay has been pushed into higher tax brackets where earnings are taxed at a higher rate. Economists call this bracket creep.

Among the 21 OECD member countries, just four countries, including Australia, do not automatically adjust their tax brackets in line with the inflation rate to neuter the impact of wages growth.

The OECD report also cited the cessation of the low and middle income tax offset, which additional bolstered the income tax take.

Otherwise known as “the lamington”, the Morrison-era offset provided taxpayers with a lump-sum payment of up to $1080 after they had filed their annual tax return with the Australian Taxation Office.

The cessation of the low and middle income tax offset, otherwise known as “the lamington”, also helped drive the increase in the income tax take. Picture: Supplied

The offset was extended at the Coalition’s final budget before the 2022 election and ultimately expired mid-2022 when Labor chose not to extend it.

The recent surge in income taxes, which jumped to a record $304.8bn last year according to separate analysis by the Australian Bureau of Statistics, has prompted the government to tweak personal income tax rates by offering more lucrative stage three tax cuts.

Responding to the figures, a spokesperson for Treasurer Jim Chalmers said the pending tax cuts were a better way to combat bracket creep than the previous settings legislated by the former Morrison government.

“Under Labor, every Australian taxpayer will get a tax cut from July and because of our tax cuts, the average tax rate will fall from 25.4 per cent to 23.9 per cent,” he said.

“Under our plan, the average taxpayer will pay less of their income in tax for at least the next decade.”

The tax overhaul will take effect from July 1.

While Treasurer Jim Chalmers (left) has pointed to the pending relief via the stage three tax cuts, his opposition counterpart Angus Taylor (right) said the rise in income taxes to date had resulted in dwindling living standards. Picture: NCA NewsWire

However, Dr Chalmers’ counterpart Angus Taylor said the rise in the income tax take had contributed to a “collapse” in Australians’ standard of living.

“Hardworking Australians are being smashed by higher prices, higher mortgage repayments and higher taxes as a result of Labor’s economic mismanagement,” Mr Taylor said.

“To add insult to injury, the Albanese Labor government has broken every promise on tax since the last election – from the Coalition’s stage three tax cuts to super tax and even their multinational tax crackdown which was so badly designed, it taxed Australian companies and industries.”

The federal budget is forecast to increasingly rely on personal income taxes, with its proportion of the overall Commonwealth tax base expected to soar to almost 60 per cent by 2063, up from its current level of 49 per cent, according to the latest Intergenerational Report.