The US indexes income tax. Top economists say Australia should do the same.
Some of Australia’s leading economists support indexing income tax to stop workers falling prey to bracket creep and improve transparency in government spending.
Grattan Institute chief executive Dani Wood, who is due to become the Productivity Commission’s next chair in November, told Capital Brief this week that she supports the economics of indexing income tax.
There's a chorus of economists who agree.
ANU director of the Tax and Transfer Policy Institute Professor Robert Breunig said in a phone call that it was a good idea from a policy perspective. However, he warned that politicians are unlikely to want to part with their ability to announce extra tax cuts, which they do whenever they adjust the tax brackets to keep in line with inflation.
“It is true that bracket creep is the biggest single hidden tax increasingly imposed on citizens,” Breunig said, pointing out that the US indexes income tax.
The federal budget's ever-growing reliance on personal income tax is a significant concern and the lack of indexation exacerbates this problem, he said, but there needs to be a broader discussion about tax reform and other sources of revenue for the budget.
