Do politicians really care about high inflation and the increased cost of living? Yes, they like it. Do politicians want workers to receive pay rises to keep up with higher living costs? Yes, they do.
Politicians are pleased when inflation is high and workers get large pay increases to keep up. That’s because it means Government tax collections ramp up rapidly. Our personal income tax thresholds are not indexed to inflation. They do not increase when our incomes rise.
When people receive pay rises they automatically move into higher tax brackets. More of their income is taxed at higher marginal rates. They pay a bigger proportion of their income in tax. It’s called bracket creep.
The tax-free threshold of $18,200 was last increased in July 2012, over eleven years ago. The CPI Index figure then was 100.4. At June this year it was 133.7. So the cost of living has gone up 33.2 per cent, one third, yet the bottom tax threshold has risen zero per cent.
In mid 2012 the average weekly ordinary time earnings (AWOTE) figure was 1352.7. It is now 1838.6. Wages have risen 35.9 per cent while the bottom tax threshold has remained unchanged.
Fortunately politicians like low unemployment because it means more people in jobs, paying income tax. They also like high rates of immigration. Skilled migrants entering the country mean more workers on good salaries paying tax.
Politicians like to collect more tax from us so they can spend the money on their preferred projects that will help them get re-elected.
Governments have made some occasional, one-off adjustments. They have increased some rebates including the Low Income Tax Offset and the Seniors and Pensioners Tax Offset. However these are small compared to our income increases.
The Stage One, Two and Three tax cuts were legislated in 2019 with Stages One and Two already in effect. They have given some one-off relief to low and middle earners in recent years but aren’t nearly enough to offset the extra tax on salaries now 35.9 per cent higher.
The Stage Three tax cuts for high earners come into effect from July 2024. They are overdue as high earners pay a far greater proportion of their income in tax than low earners.
These occasional adjustments by Governments, often as an election approaches, are welcome but aren’t enough. Personal income tax thresholds should be indexed to either the CPI or AWOTE. That would stop future Governments taking a bigger proportion of our incomes in tax.
Lots of other things are indexed in legislation – ASIC penalties, traffic and parking fines for example. Let’s stop bracket creep!