ALP stands firm despite bracket creep

Labor is standing firm in its opposition to the Coalition’s planned tax cuts for higher income Australians.

Opposition Leader Bill Shorten in Melbourne yesterday. Picture: Kym Smith

Labor will not shift on its opposition to Scott Morrison’s planned tax cuts for higher income Australians, as the government yesterday piled pressure on Bill Shorten, warning bracket creep would take between $500 and $4000 off nurses, teachers and police officers ­unless the Coalition’s tax plan was adopted.

Government figures, based on an average wage rise of 2 per cent between now and 2024-25 when the third stage of its income tax plan would take effect, show a public school teacher in Tasmania earning $60,000 could pay an extra $540 unless its tax plan is adopted.

At the upper end of the income scale, a nurse and midwife manager on $176,000 a year would end up paying an extra $3850 in tax without any further reform to marginal tax rates.

Josh Frydenberg unveiled plans in this month’s budget to cut the marginal tax rate for workers earning up to $87,000 from 32.5 per cent to 30 per cent. That is in addition to last year’s tax cut measure to abolish the 37 per cent marginal rate for workers earning up to $180,000 in favour of the current 32.5 per cent rate. That would mean 70 per cent of taxpayers would be in the same tax bracket.

A measure scheduled for 2022 would lift the salary taxed at a 19 per cent marginal rate from $41,000 to $45,000. With these changes, 94 per cent of taxpayers would pay a marginal tax rate of 30 per cent or less. The Treasurer said workers earning more than $40,000 would be better off under the government’s plan.

“It means school teachers, nurses, bus drivers and emergency service workers right across the country will have more money in their pocket,” Mr Frydenberg said.

The Prime Minister yesterday labelled bracket creep — whereby wage inflation shunts workers into higher and higher rates of marginal tax — as “obnoxious” and a “sneaky” tax.

“We’re not only just reducing income tax for lower- and middle-income tax earners now, we’ve got to plan to reduce and get rid of bracket creep,” Mr Morrison said.

However, even with the government’s tax plan, bracket creep will remain a feature of the system, albeit with fewer brackets, because successive governments have failed to peg the tax system to wage ­inflation. Mr Frydenberg did not comment as to why the government had chosen not to abolish bracket creep by indexing tax brackets.

Labor has indicated it would not support the budget proposals, arguing the benefit would overwhelmingly flow to higher income earners. According to the Grattan Institute, the plan would be of most benefit to the highest 6 per cent of income earners in 2024-25.

“The fact is that if you earn $125,000 or less, you’ll be equal or better off under Labor’s plan over the life of the next parliament,” ­opposition Treasury spokesman Chris Bowen yesterday said.

“Everything after that is on the never never,” Mr Bowen said.

“Labor opposes the government’s income tax cuts that start in 2022 and 2024 because they are in the never never and are fiscally reckless. No one knows what the economy will be doing then, I don’t, you don’t, and Scott Morrison and Josh Frydenberg certainly don’t,” he said.

According to the Grattan Institute, high-income earners would receive the largest tax cuts when the brackets are abolished. More than half the benefit would go to the top 20 per cent of earners.