Income tax out-paced wages as rates and inflation started to bite

Working Australians’ tax bills grew faster than their wages in the first full year of the Albanese government, as even the most well-heeled endured a dip in their incomes as the froth came off the nation’s property market.

Data from the Australian Taxation Office released today, covering the 2022-23 financial year, reveal the hit many people suffered as their wages were eaten away by both inflation and the tax system, especially women who suffered most from the end of the low and middle income tax offset.

Average tax payments grew faster than incomes during the first year of the Albanese government.Credit: Matthew Absalom-Wong

The data also showed that the number of landlords dropped across the nation, but that those who had negatively geared properties increased in every state and territory.

Across all workers, average income was $74,240, an increase of $1913 or 2.6 per cent over 2021-22. Women did the best with their average income growing by 3.3 per cent or $1992 to $62,046 compared to men whose average lifted 2.2 per cent to $86,199.

Much of that increase was eaten up by higher tax, partly due to the end of the low and middle income tax offset. The offset had been super-sized to $1500 by the Morrison government as it sought to cling to power, but it was always due to finish for the 2022-23 financial year.

By ending the offset, the average net tax paid by all workers increased by 4.2 per cent, or $946, to $23,562.

Women, many of whom had qualified for the low and middle income tax offset, suffered a 5.8 per cent or $1009 increase in their average net tax. For men, their average tax lifted by $1000 or 3.7 per cent to $28,206.

Inflation added to the pain, up by 6 per cent through the year.

The data precedes the government’s re-worked stage 3 tax cuts that started to flow to all workers in the 2024-25 financial year. But it does mark the point at which per capita GDP and household consumption started to fall.

The tax data also revealed that as inflation accelerated and the Reserve Bank started to lift interest rates, the heat in the property market came off. That contributed to sizeable haircuts on average incomes in some of the country’s wealthiest suburb.

In 2021-22, the Sydney suburb of Double Bay had the highest average income in the country at $354,308 among is 3304 taxpayers. But in 2022-23, the average had slumped by almost $100,000 to $255,901.

In the second-wealthiest part of the country, the Perth suburb of Peppermint Grove, average income fell from $295,283 to $213,621.

Across many of the 10 postcodes with the highest incomes in the country, average incomes fell in 2022-23 including in Melbourne’s Toorak (from $266,020 to $241,511), Sydney’s Dover Heights Hill (from $239,914 to $236,750) and nearby Bellevue Hill ($245,728 to $216,363).

While average incomes fell, they were not due to people taking wage cuts. Substantial drops in capital gains hit all of these suburbs. In Double Bay alone, capital gains dropped from a cumulative $1.2 billion to $590 million.

The numbers confirmed that the cost of negative gearing will start to hit the federal budget bottom line in the coming years, even as the number of landlords dropped slightly in 2022-23.

During the COVID pandemic, record-low interest rates and higher rents meant that of the nation’s almost 2.3 million landlords, more than 1.3 million made money.

In 2022-23, there were only 26,000 more profit-making landlords than loss-making ones.

In NSW alone, there was an 80,000 increase in the number of landlords claiming a loss on their properties and a 74,000 drop in those who made a profit or broke even.

The increase in interest rates, which started in May 2022, meant landlords cumulatively claimed $23.7 billion in interest costs against their income. In 2021-22, they had claimed $15.8 billion.

There were 2.261 million people with rental properties in 2022-23, down 7000.

There was a lift in the number of people with a single rental property, to 1.6 million, but there was a fall in the number of multi-property owners. The number of people with five or more properties fell by 3.2 per cent to 38,226. Of that group, 16,002 were negatively geared, a jump of almost 16 per cent on 2021-22.

Among occupations, people working in medicine, the law or business continue to drag in the best pay.

The nation’s 4247 surgeons enjoyed an average taxable income of $472,475, a $12,000 increase over 2021-22. Anaesthetists enjoyed a $16,000 pay bump on their average taxable income, climbing to $447,193.

Only financial dealers suffered a fall in average incomes, down by $18,000, but at $355,233 they are still among the best-paid people in the country.

There were 24,350 people who had an income of more than $1 million. Of this group, 19 were able to reduce their overall taxable income to zero.

Of the 16 million people captured in the tax data, 12.3 million earned less than $100,000.

But the nation’s highest paid 5.3 per cent of the population, those with an income of more than $180,000, paid 37 per cent of total tax.

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