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Bracket creep hits low-earners

Low-income earners are the biggest losers from bracket creep and not middle Australia, one of Australia’s top economists says.

And increasing the GST would deliver billions of extra dollars in revenue while leaving enough to shield poorer households from the impact of higher prices, according to Deloitte Access Economics.

The financial consultancy group will today release a new report on “mythbusting” tax reform ahead of the Government publishing its options paper this year for an overhaul of the tax system.

Treasurer Joe Hockey has identified the need for income tax cuts to counter bracket-creep, which has workers pushed into a higher tax bracket when their wages rise.

To push his case for reform, Mr Hockey has highlighted how average full-time wage earners will soon be pushed into the second highest bracket when their income hits $80,000.

But Deloitte Access Economics partner Chris Richardson said though it was true 800,000 taxpayers earning between $70,000 to $80,000 faced their tax rate rising 4.5 percentage points, more people earning less than that would be hit with an even bigger rise.

About 1.3 million taxpayers earning between $30,000 and $37,000 would see their tax rate rise 13.5 percentage points to 32.5 per cent, while also losing government benefits.

“Although middle Australia feels this pain, the share of income lost to tax is set to rise far faster for lower income earners,” Mr Richardson said.

His report challenged claims the failure to deliver tax cuts would do much to help repair the Budget bottom line.

The Opposition has argued 80 per cent of the rise in revenue comes from bracket creep, also known as fiscal drag, but Mr Richardson said it would only contribute 10 per cent of the increase by 2018-19 because of low wage growth.

Mr Richardson said rejecting a GST rise because it would punish the poor “ignores the bleeding obvious” that welfare payments could be increased and taxes cut.

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