PBO warns budget surplus relies on ‘unrealistic’ bracket creep

The news: Australia’s Parliamentary Budget Office says a return to budget surplus is unlikely over the medium term if the government cuts income taxes, as it has in the past.

The context: The PBO’s medium-term budget outlook, published on Tuesday, shows the government’s fiscal position improving over the coming decade. However, the forecast assumes inflation pushes the average income tax rate from 24.9% to a record high 28.6% by 2036, largely due to bracket creep. Any move to index tax thresholds to inflation or deliver further income tax cuts would come at the cost of the projected surplus. The budget watchdog also assumes temporary spending programs expire and the public service shrinks, which it describes as an “optimistic bias” in the projections.

What they said: “Should the government provide future personal income tax cuts similar to those of the past absent other policy changes, a return to surplus would become unlikely over the medium term,” the PBO said.