Jim Chalmers has strongly hinted that he has no plans to tackle tax bracket creep for workers, emphasizing that the government’s current strategy is both “responsible and affordable.” This statement came during a heated discussion.
Appearing on ABC’s Insiders on Sunday with host David Speers, the Treasurer expressed his disagreement with Opposition leader Angus Taylor’s suggestion to adjust tax thresholds according to inflation.
In his Federal Budget response, Taylor proposed a plan that would return $250 to the average taxpayer in the first year, eventually increasing to $1,000 by the fourth year.
Bracket creep refers to the situation where inflation causes wages to rise, inadvertently pushing workers into higher tax brackets. This shift results in higher tax payments, even though their actual purchasing power hasn’t improved, without any official changes to the tax rates.
Speers pressed Chalmers on why the government wouldn’t commit to a bipartisan approach to secure this change for Australians.
Chalmers responded assertively, highlighting that the government is implementing income tax cuts through five different measures, using three distinct mechanisms, as part of already legislated tax reforms.
He argued the Coalition had opposed earlier tax cuts and said it would repeal them, and that Taylor’s policies were fiscally reckless while Labor’s Budget was ‘one of the most responsible in memory’.
‘One of the reasons for that is because Angus Taylor would be adding a quarter of a trillion dollars to national debt,’ Chalmers said. ‘That would cost tens of billions of dollars in debt interest, because of these uncosted, unfunded tax announcements.’
Chalmers suggested the government would not move to end tax bracket creep
Speers, however, questioned whether the government was relying on workers forking over more money despite no official rise to taxes as one of it’s key revenue streams.
‘If it’s a quarter of a trillion dollars over the decade, then that’s a lot of bracket creep that you’re going to be relying on in budgets, is that right?’ he asked.
Chalmers rejected that premise without going into the numbers, and then declined to commit to eliminating the tax sleight of hand.
‘What we have shown, David, and not just said, is that this government is enthusiastically returning bracket creep (to taxpayers) and on more than one occasion our opponents have tried to prevent us from doing that.’
Speers pressed again: ‘So why not just lock it in and say we’re going to permanently end bracket creep?’
The Treasurer again refused to commit, arguing ‘flexibility’ was necessary with the government having the option to spend the extra haul if needed.
‘When you provide these tax cuts, you have to do it in the most responsible and affordable way, and you have to take into consideration the economic conditions at the time,’ he said.
David Speers (pictured) pressed Chalmers on the issue of bracket creep in the tax system
He warned that the Coalition’s policy would inject too much stimulus into the economy which could put upward pressure on inflation and cause interest rates to rise.
‘What Angus Taylor is proposing to do is to pump more money into the economy when inflation is already at its highest.’
Speers suggested the government was hoarding revenue from bracket creep to manage inflation.
‘No, David, I’m saying we return bracket creep and we’ve created more room to do so,’ he said.
When asked whether he was intending to return the full amount, the Treasurer again avoided a direct answer.
‘We’d be returning bracket creep as we have been, in the most responsible way we can,’ he said.
He said recent tax cuts delivered ‘about $2,800 a year for the average worker’ and that the government would determine future changes based on economic conditions.
Labor’s tax changes in its Budget – to capital gains tax and negative gearing – were also defended by Chalmers who claimed they caused a ‘massive distortion’ in the housing market that had ‘locked too many people, particularly young people, out’.
Angus Taylor said the Coalition would index tax thresholds to end bracket creep
Despite acknowledging political backlash and concerns about broken promises after Labor said it wouldn’t change those two taxes at the last election, Chalmers insisted the government was focused on long-term outcomes rather than popularity.
‘We didn’t do this to get a bounce in the polls,’ he said. ‘We did it to get a boost in first home ownership.’
Taylor on Sunday said Labor’s own figures showed heavy reliance on bracket creep.
The government has said indexing tax thresholds would cost about $35 billion over four years, compared with the Coalition’s estimate of $22.5 billion.
Asked whether he stood by his figures, Taylor said the higher costing pointed to a deliberate strategy by Labor to increase revenue through inflation-driven tax rises.
‘The government plans to raise income tax rates to the tune of $35 billion,’ he told Sky News on Sunday.
Taylor said the Coalition’s modelling was based on current economic assumptions and argued its policy would return the additional revenue directly to households.
