Aussies in world of pain over tax

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 federal tax collections.

A fresh report published by the Organisation for Economic Co-Operation and Development (OECD) on Thursday evening said a single, average wage-earner without children paid about $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 5 per cent.

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 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.

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 offset was extended at the Coalition’s final budget before the 2022 election and 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, has prompted the government to tweak personal income tax rates by offering more lucrative stage three tax cuts.