Why the average Aussie worker will be paying more in tax in the coming decade under Labor

The average Australian worker will be paying more tax in the coming decade thanks to bracket creep, despite Labor’s stage three tax cut changes, a Treasury official has conceded.

Dr Louise Rawlings, the first assistant secretary of Treasury’s tax analysis division, told a Senate economics committee an Australian earning an average salary of $80,200 will shell out a higher proportion of their income in tax — or about 3 per cent more — by 2035-36.

They would go from paying 20.6 per cent of their income in tax in 2025-26 to 23.6 per cent within a decade. Pay levels would naturally rise to keep up with inflation, pushing workers on to higher tax brackets.

This is despite Labor’s re-jigged stage three tax cuts giving the average worker an extra $268 in 2026-27 and $536 extra a year by 2027-28 compared with the 2024-25 financial year.

However, Dr Rawlings said that the stage three tax cuts reduced the speed of bracket creep.

“The tax cuts that were given reduced the time period that it would grow,” she said in response to Liberal frontbencher James Paterson, “That’s assuming that there is no further bracket creep.”

Industry Minister Tim Ayres, representing Treasurer Jim Chalmers, interjected to point out former Opposition leader Peter Dutton had opposed Labor’s plan to give more back to lower and middle-income earners.

“I’ll resist the urge, of course, to point out, Senator, that you went to the election with a higher personal income tax requirement. The modern Liberal Party went to the election arguing for higher personal income tax,” Senator Ayres said.

“That is going to be hard to defend, and it’s going to get harder every day. I wouldn’t be drawing attention to it if I were you ... without any sense of shame or self-awareness.”

Opposition housing frontbencher Andrew Bragg raised a point of order.

“I wonder if these political speeches are really necessary, chair?”

Labor has declined to automatically have tax brackets indexed for inflation to tackle the issue of bracket creep.

Personal income taxes made up 51.4 per cent of Commonwealth revenue with Treasury’s Final Budget Outcome released last month revealing $338.3 billion was collected out of the $657.8 billion in all tax receipts.

The Treasury update also showed revenue from personal income taxes was $3.4b better for 2024-25 than forecast in the March pre-election Budget.