An average tax of 20 cents in the dollar of wages and salaries is set to be paid in the 2021-22 financial year, according to projections by Deloitte Access Economics.
This tax rate would be the second-highest in Australian taxation history, beaten only by the tax of the 1999-00 financial year, which was just before the GST (goods and services tax) was first introduced.
In the firm’s March Budget Monitor, Director of Deloitte Access Economics Chris Richardson said Australia’s weak wage growth and low inflation is still high enough to see the taxman grab a growing slice of pay packets thanks to bracket creep.
“Inflation gradually pushes people into higher tax brackets,” Mr Richardson said.
“We forecast bracket creep to lift to $3.7 billion in 2019-20, $6.6 billion in 2020-21, and then to reach $9.9 billion in 2021-22.
“Despite 2018’s tax cuts, PAYG collections this year would have been $1.3 billion less if the 2014-15 thresholds had simply been indexed to the CPI [consumer price inflation].”
Tax cuts are currently legislated for 1 July 2022 and 1 July 2024, with the 2022 cut set to raise the threshold of the 37% tax rate from $90,000 to $120,000.
This would mean every dollar earned over $90,000 up to $120,000 would be taxed at 32.5% instead of the current 37%.
Mr Richardson said the prospect of 20-cents per dollar taxes in 2021 suggests we haven’t heard the last of tax cuts ahead of the coming election.
Deloitte estimated a surplus of $10 billion in the upcoming budget – more than twice the size initially forecast by Treasury in December.
In its review of the budget outlook, the firm suggested the 2022 tax cut could be brought forward in next month’s budget.
“There’s a reasonable chance that the government will spend most of the windfall on accelerating tax cuts … or maybe even more than its total windfall,” Deloitte said.
In a final note, Mr Richardson said the budget is about more than just budgets or surpluses.
“We need taxes that don’t hurt prosperity and spending that ensures fairness,” he said.
“On the latter front, this nation has one epic fairness fail – the continuing crush we’re putting on the living standards of the unemployed.
“History won’t judge our record kindly.”
The 2019-20 Budget will be released at 7.30pm (AEST) on Tuesday 2 April 2019 in 15 days.
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