Income taxes burning a hole in Australian wallets as inflation drives wages backwards, OECD finds

Australians have been hit harder by rising taxes than other developed nations even as inflation drove their wages backwards in real terms.

The red-hot cost of living and inflation-busting interest rate hikes have not been the only weight on wallets, with new numbers showing income tax bills have skyrocketed.

The average person’s tax rate lifted 7.6 per cent between 2022 and 2023, according to data released late on Thursday by the Organisation for Economic Cooperation and Development, one of the world’s leaders.

That was the highest rise in a list of almost 40 countries.

Real wages — which track worker pay and are adjusted for rising prices — sank 1.6 per cent over the same period, worse than major economies Japan, the United Kingdom and United States despite inflation ravaging the UK and Japan.

The numbers highlight the squeeze on households after a inflation outbreak fuelled by huge stimulus in the turbulent COVID era.

Earlier this year, the Federal Government reworked planned tax cuts and a spokesman for Treasurer Jim Chalmers said the average tax rate would fall from July.

“Our tax cuts are a better way to provide relief from bracket creep,” he said.

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

The spokesman said the sharp rise in income tax had been driven by the abolition of the Low and Middle Income Tax Offset legislated by the previous Coalition Government.

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

He said Australians were paying more personal income tax than two years ago and the Government had broken promises on stage three tax reform and superannuation.

Personal tax bills surged almost 30 per cent to be $278b in the year to June 2023, data from the Australian Bureau of Statistics released this week showed.

Revenue flat-lined during the pandemic recession but was then pushed rapidly higher as inflation and bracket creep ate into household incomes.

The big lift in the tax take helped the Government reach a surplus far earlier than expected and Dr Chalmers will next month reveal whether another is forecast for the year ahead.

Almost 30 per cent of national output is paid in taxes, the ABS data showed.