Bracket creep: Deputy Liberal leader Jane Hume says higher income taxes are Labor business model

The Federal Opposition is doubling down on its promise to index income tax brackets after the Parliamentary Budget Office warned Australian workers would be paying a record-high tax burden within a decade.

Bracket creep is expected to worsen, where workers are given pay rises to keep pace with high inflation only to end up paying a higher rate of income tax.

Deputy Liberal leader and acting shadow treasurer Jane Hume said this was the fault of Treasurer Jim Chalmers, after the Parliamentary Budget Office projected the average worker would be paying a historical high of 28.6 per cent of their pay in income taxes by 2036-37, up from 24.9 per cent now.

“This is not an accident. It is the business model. It is a choice by Labor,” she told The Nightly.

“Raising revenue through bracket creep is a choice. A choice made to steal from Australians. A choice Jim Chalmers and Labor make every single day.

“Raising revenue through bracket creep is not only sneaky, it’s Labor’s only solution to feed its spending habit.”

Senator Hume said the latest PBO predictions justified the Coalition’s promise to index income tax brackets, made by Opposition Leader Angus Taylor in his May Budget-reply speech.

“Only the Liberals and Nationals will end the silent tax on Australians’ incomes for good,” she said.

Professor Robert Breunig, the director of the Australian National University’s Tax and Transfer Policy Institute, said indexing tax brackets without pledging to slash Government spending would only lead to bigger Budget deficits.

“I worry that rather than government legislating other taxes or government cutting expenditure, that we just end up running bigger and bigger Budget deficits,” he told The Nightly.

But he backed the idea in principle of indexing tax brackets, arguing bracket creep was bad for productivity.

“The problem, of course, is that those taxes reduce the incentive for people to work hard and make money and we don’t want to do that,” Professor Breunig said.

Labor is opposed to indexing income tax brackets, arguing its $250 Working Australians Tax Offset, coming into effect in July 2027, would be permanent.

This would also be on top of $268 worth of income tax cuts, following changes to tax brackets, that rolled out on July 1 this year, to be followed by another $268 in relief on July 1, next year.

Inflation, however, was running at 4 per cent in May, which was well above the 3.3 per cent increase in wages in the year to March, meaning Labor’s tax relief would fail to properly compensate workers suffering a cut in real wages.

“If you got a 4 per cent wage rise, basically all you’re doing is keeping up with inflation but you’ll be paying a lot more tax,” Professor Breunig said.

The PBO forecast personal income taxes would be the only major source of Commonwealth revenue to increase in the coming decade, rising from 12.6 per cent of gross domestic product in 2026-27 to 14.7 per cent of GDP in 2036-37, largely due to bracket creep.

This would be occurring as revenue, as a proportion of the economy, fell for company tax, fuel and tobacco excise and superannuation taxes.

Personal income taxes already make up 47.9 per cent of Federal Government revenue but this was expected to grow to 53.8 per cent by 2036-37.

The PBO also criticised the Budget for setting aside $14.4 billion in foregone revenue for decisions taken but not yet announced from 2026-27 to 2029-30.

“Projections also include a historically large allowance for revenue ‘decisions taken but not yet announced’, adding uncertainty to the source and extent of forecast revenue improvements,” it said.