Australian Government's Record Tax Revenue Impacts Citizens Despite Easing Inflation

Australians face substantial tax surge, with personal tax bills up 30%, despite easing inflation and government's tax cut plans. Economic stability and household well-being hang in the balance.

Geeta Pillai
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Australian Government's Record Tax Revenue Impacts Citizens Despite Easing Inflation

Australian Government's Record Tax Revenue Impacts Citizens Despite Easing Inflation

The Australian government's record tax revenue has had a significant impact on citizens, despite the expected easing of inflation pressures. Australians endured the most substantial tax surge in the world in 2023, with single people on two-thirds of the average income now paying 20.2% of their wage in tax, a 17% jump from 2022. "The tax burden increase was due to the cessation of the low and middle income tax offset and nominal earnings increasing while tax thresholds remained the same," according to recent reports.

While the Labor government has said its stage 3 tax cuts will provide tax relief to all Australians, with the average tax rate falling from 25.4% to 23.9%, the current effect on households is considerable. The surge in personal tax bills, up almost 30% to $278 billion in the year to June 2023, has been driven by the abolition of the Low and Middle Income Tax Offset and bracket creep. This has occurred despite a 1.6% decline in real wages, which track worker pay adjusted for rising prices, worse than major economies like Japan, the UK, and the US.

Why this matters: The record tax revenue and its impact on Australian citizens highlight the delicate balance between managing inflation and supporting households through economic challenges. The government's ability to handle this situation will have far-reaching consequences for the nation's economic stability and the well-being of its citizens.

Inflation has started to ease, with the March-quarter inflation figure of 3.6% slightly above predictions, diminishing prospects for an interest rate cut. However, certain sectors like petrol, cooking oils, construction, and insurance have driven up the cost of living. The Reserve Bank of Australia (RBA) will likely give more weight to how quickly inflation can drop back to its target range of 2-3%, rather than making a major change to interest rates.

The government's budget, expected to be in surplus, is also a factor in inflation. Economists warn that any additional discretionary public spending may be seen as unwarranted by a household sector hoping for rate cuts. The opposition has criticized the government's economic management, stating that Australians are being 'smashed' by higher prices, mortgage repayments, and taxes.

Despite the challenges, the overall economic outlook remains relatively stable. The RBA's current forecasts have inflation dropping to 3.3% by June and 2.8% by December 2025. Borrowers may be concerned about rising transport fuel costs and a potential rapid rise in unemployment, but economists are still convinced the next move is down, perceiving no possibility of RBA rate relief and pushing back the timing of the likely first rate cut by six months to late 2024.

Key Takeaways

  • Australia saw record tax revenue in 2023, with single people paying 20.2% of wages in tax.
  • Tax burden increase due to end of low/middle income tax offset and bracket creep.
  • Inflation easing, but certain sectors drive up cost of living; RBA unlikely to cut rates soon.
  • Government budget in surplus, but additional spending may be seen as unwarranted by households.
  • Overall economic outlook stable, with inflation forecast to drop to 2.8% by Dec 2025.