Taxation increases for workers amid bracket creep

The government’s proposed budget deficit levy will hit those earning just over $80k a year the hardest and more workers will fall into a higher tax bracket says Chris Evans, who has analysed the impact of the debt levy on workers' salaries. 

“A new budget levy of 1% would hit workers paid just above the mooted $80,000 threshold hard,” says Professor Evans. 

“However, for many tax payers, the most significant issue is that they will have a larger tax bill through bracket creep and the ramped up Medicare Levy.”

Professor Evans has calculated how the proposed budget deficit levy would impact on workers’ salaries and estimates that a worker earning just over $80k a year would pay the most as a percentage of their salary, as a result of paying an extra $800 or more a year.

“Virtually all of the income tax reductions of the past decade would be immediately reversed by this new ‘levy’, if the coalition imposes it, but I rather doubt they would really take this step. If they do it seems odd not to consider phased steps for this levy, because effectively if they earn between $79,999 and $80,800 they will be paying much more to the government, although the politicians have avoided calling it a new tax,” he says.

“Also, this effective new tax would come on top of the scheduled 0.5% increase of the Medicare Levy, which rises to 2% on July 1 2014.”

However, Professor Evans argues that bracket creep is a much more serious problem for workers who face paying much more in tax as a result of the 2014 Federal Budget.

“Inflation means that many more taxpayers are now in a higher tax bracket. In 2004 a worker on $80k would pay $15,610 in tax. Now they would pay $19,947 including the increased Medicare and new deficit levy. A worker on 120k paid $29,861 in tax in 2004, whereas now they would pay $35,947.”

The speculation about a new ‘deficit reduction levy’ comes two weeks before this year’s Federal Budget. Honorary Professor Raja Junankar says while Australia might be a little way off a budget surplus at the moment, Australia is still doing far better than most other OECD countries. 

“If we listen to the politicians, it appears that the Australian economy is suffering from a major crisis of ballooning government debt and we need an emergency deficit levy. That is patently not the case,” says Professor Junankar. 

A number of Australian School of Business experts are available to give commentary on the budget. The Australian School of Business will also broadcast a live podcast with expert analysis of the budget the following morning.

Media contact: Professor Chris Evans, 9385 9546, 0430 20 60 63 or cc.evans@unsw.edu.au 

Australian School of Business media contact: Julian Lorkin, 9385 9887, j.lorkin@unsw.edu.au