Campaign to end bracket creep
A key priority for the Australian Taxpayers’ Alliance over the coming year is to remove so-called “bracket creep”, which is an insidious hidden tax increase that occurs every year without any new legislation or public debate.
The problem — What is Bracket Creep?
This story starts with inflation. The immediate and obvious problem with inflation is that it pushes up the prices of nearly everything. Some people are lucky enough to have wage rises that cover those price rises, but many others are falling behind… working hard and yet going backwards in our stagnant economy.
That is only half the problem. If you get a wage rise to make up for price rises, then you are not actually getting any richer, but the government treats you as though you have extra money. Your higher nominal wage will push you into a higher tax bracket, which means you’ll be paying extra income tax, even though your real wage stayed the same.
This hidden tax increase is called “bracket creep”, which is a boring name for a disastrous policy that is politically dishonest, grossly unfair, economically destructive, and politically perverse.
The Solution — Index tax brackets
There is a simple solution to bracket creep. If the tax brackets were indexed to changes in price or average wages, then people would not be pushed into higher tax brackets by inflation, and the hidden tax increase would be removed. This would create four benefits:
Fairness = it is absurd and unfair that a person should have to pay higher income taxes when they are not getting any richer.
Transparency = if politicians want to increase taxes they should campaign on that policy and pass it through parliament honestly, instead of relying on a hidden tax increase.
Productivity = our income taxes are already too high, creating a disincentive against investment, innovation, and hard work. The consequence has been a decade of stagnant productivity and declining living standards. Bracket creep is making this situation worse every year, creating an ever-larger handbrake on our economy.
Politics = the current system creates perverse political incentives, where politicians benefit from high inflation and can ignore budget discipline. By removing bracket creep, our politicians would have greater incentive to be fiscally responsible and keep inflation low.
This is not a new idea. Tax bracket indexation already exists in the USA, Canada, Germany, France, Belgium, Denmark, Finland, Norway, Netherlands, Sweden, Switzerland, Austria, Iceland, and elsewhere. We should do the same.
The Campaign — Awareness & Pressure
We will have a two-pronged approach to this campaign.
The first step is to raise public awareness and support for the idea of indexing tax brackets, so as to increase the pressure on politicians to react to that public support. We will be doing this through engagement with media, alternative media, events, and social media.
The second step is to engage with politicians directly and convince them that this idea is both good politics and good policy. Several independents and One Nation have already come out in support of tax bracket indexation. If we can convince the Liberal & National Parties to also take on this position before the next federal election, then there should be enough votes to eventually succeed.
We have already had some success. Over a year ago the ATA proposed that the government should (at a minimum) include bracket creep estimates in the budget papers. Earlier this year Angus Taylor announced his support for that position. We want to keep up the momentum and keep up the pressure to end bracket creep entirely.
This is a winnable campaign, but we need your help.