$7,000 ‘stealth tax' hitting Aussies every year: ‘Will become worse'
Australian couples are paying an extra $7,000 in income tax each year due to bracket creep. Tax experts say the 'stealth tax' is already hitting Aussies hard, with lower and middle-income earners bearing the brunt.
Workers paid $3,500 more in tax last financial year due to bracket creep, with dual-income households paying an extra $7,000 despite the government's revised Stage 3 tax cuts. That's according to a new analysis of Parliamentary Budget Office and ATO figures prepared by the Liberal Party.
H&R Block director of tax communications Mark Chapman told Yahoo Finance bracket creep came about when rising wages and inflation pulled people into higher tax brackets, even where there had been no changes to tax rates and thresholds.
RELATED
Accountant's ATO warning after $20,000 tax refund is refused: 'Getting stricter'
Centrelink change to see thousands more Aussies eligible for age pension
Coles, Woolworths trick to get $100 off grocery bill every month: 'Beat them at their own game'
'If we look at somebody who's on a salary of say $130,000, that person's marginal tax rate is currently 30 per cent, which is the rate that applies up to $135,000,' Chapman said.
'Say the $135,000 threshold remains fixed over the course of the next few years, but she enjoys an annual pay rise of 3 per cent each year.
'In the second year, she'll be earning more than $135,000, which means her top marginal tax rate will now be 37 per cent.'Chapman said the argument was the worker was 'doing the same job" and "hadn't received a promotion' but because there hadn't been changes to tax rates or thresholds, she would be paying tax at a higher rate on part of her income.
'That will continue for each year and it will become worse for each year. For each year thereafter, she'll pay an increasing proportion of her wages at the 37 per cent rate as long as she gets a pay rise each year and providing the threshold doesn't change,' he said.
Forecasts by economist Chris Richardson, released by the Australian Financial Review, found bracket creep could push the average Australian full-time worker from the 30 per cent bracket into the 37 per cent bracket by 2031.
Chapman said both governments tended to leave tax thresholds the same as a kind of 'stealth tax' with most taxpayers not noticing they're paying more tax due to their salary increasing.
Chapman said high-income earners were not affected by bracket creep 'at all' if they had already hit the tax threshold of $190,000 for the highest tax rate of 45 per cent.
'It is certainly an issue for lower and middle-income taxpayers because there are three tax brackets in between the tax-free threshold and $190,000 which people can potentially go through,' he told Yahoo Finance.
'It is certainly a real problem because people's incomes are increasing and therefore they're potentially moving into a higher tax bracket.
'Obviously it's better than not having a wage increase or a wage increase that is less than inflation. You've got to choose the lesser of two evils.'
The federal government's revised Stage 3 tax cuts cut the 19 per cent tax rate to 16 per cent, and the 32.5 per cent tax rate to 30 per cent.
The 37 per cent rate was retained with the threshold increased from $120,000 to $135,000, while the 45 per cent rate was retained with the threshold going from $180,000 to $190,000.
Chapman said this was a 'substantial' increase to tax thresholds but it was a 'one-off hit' when bracket creep was happening 'every year'.
Raising the tax brackets in line with annual inflation could be a 'sensible' step to take, he said, and would effectively give workers a nominal tax cut on July 1 each year.
'The problem is that governments do like fixed tax brackets because each year they drag in more and more people into the higher tax brackets and by and large many of those people don't notice and don't make an issue of it unlike other forms of tax increases which are far more visible,' Chapman said.
Neither Labor nor the Coalition have committed to income tax cuts this upcoming federal election.
Treasurer Jim Chalmers has hit out at shadow treasury spokesperson Angus Taylor's 'dodgy numbers' and said they 'don't include more than $20 billion in tax cuts that Australian workers are receiving in 2024-25 alone'.
Eight independent MPs, including all the Teals, have written to Chalmers to urge the government to index income tax thresholds to inflation.
They argued this would "protect the wages of future generations of Australian workers while removing the bracket creep safety net which governments of both sides fall back on to raise revenue".
Australia is among the 21 OECD countries, out of 35, that don't increase tax brackets to account for inflation or wage growth each year.
Canada, for example, changes its tax brackets every year to adjust for inflation, while European countries like Belgium, Norway and France adjust their tax brackets yearly.Sign in to access your portfolio
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Time Business News
2 hours ago
- Time Business News
Health Department Awards Optus $33M Contract for Medicare Communications Infrastructure
The Department of Health has awarded Australian telecommunications giant Optus a $33 million contract to provide critical communications services underpinning Australia's Medicare and e-health systems, marking a significant vote of confidence in the carrier following recent cybersecurity challenges. The three-year deal, with potential extension to six years, was confirmed through a contract notification posted on the government's AusTender procurement website. The agreement consolidates Optus's position as a strategic telecommunications provider to the federal government. Under the arrangement, Optus will deliver what the company describes as 'a fully managed Network-as-a-Service (NaaS) solution for the Department of Health, Disability and Ageing, supporting its digital transformation.' The contract represents a consolidation of various telecommunications services previously spread across multiple arrangements. Optus has historically maintained substantial portions of the Health Department's carrier contracts, but the new deal brings together disparate services under a unified framework. The award comes as the Albanese government prioritizes securing core digital infrastructure supporting Medicare and broader e-health services. The telecommunications backbone provided under the contract will underpin the delivery of essential health services to millions of Australians. The deal also signals renewed government confidence in Optus following a turbulent period for the carrier. The company was among several major Australian corporations targeted by Russian-linked ransomware attacks, drawing criticism from former Home Affairs Minister Clare O'Neil. The cyberattacks resulted in the application of sanctions following what officials described as malicious raids on critical infrastructure providers. Despite these security challenges, the Health Department's decision to award the substantial contract to Optus suggests the government views the carrier as having adequately addressed previous vulnerabilities. The Network-as-a-Service model allows the Health Department to access telecommunications infrastructure without the need for significant capital investment in physical network equipment, while ensuring reliable connectivity for critical health system operations. The contract timeline provides flexibility for both parties, with the initial three-year term allowing for performance evaluation before potential extension to the full six-year period. This structure enables the government to maintain service continuity while preserving options for future procurement decisions. TIME BUSINESS NEWS
Yahoo
3 hours ago
- Yahoo
Trump tariffs live updates: US, China agree on plan to ease trade tensions as US appeals court allows tariffs to remain in effect
The US and China agreed to a framework and implementation plan to ease trade tensions on Tuesday. 'We have reached a framework to implement the Geneva consensus,' US Commerce Secretary Howard Lutnick said. The commerce secretary indicated the deal should resolve issues between the two countries on rare earths and magnets. Representatives will now take the proposal to their respective leaders for approval. The progress comes after two days of trade talks between the US and China in London. The high-stakes negotiations follow Trump's call with Xi Jinping last week, which both leaders framed as positive. Tensions between the two countries had been rising since they reached a temporary truce in mid-May in Geneva. Both countries accused the other of breaching the agreement while ratcheting up pressure on other issues. Meanwhile, though Trump's most sweeping tariffs continue to face legal uncertainty, on Tuesday, the president received a favorable update. A federal appeals court held a decision saying his tariffs can temporarily stay in effect. The US Court of International Trade had blocked their implementation last month, deeming the method used to enact them "unlawful." Read more: What Trump's tariffs mean for the economy and your wallet The latest twists and turns in Trump's trade policy come as the president pushes countries to speed up negotiations. The US sent a letter to partners as a "friendly reminder" that Trump's self-imposed 90-day pause on sweeping "reciprocal" tariffs is set to expire in early July. White House advisers have for weeks promised trade deals in the "not-too-distant future," with the only announced agreement so far coming with the United Kingdom. US and Indian officials held trade talks this week and agreed to extend those discussions on Monday and Tuesday ahead of the July 9 deadline. New tariffs are coming into play: Effective Wednesday, June 4, Trump doubled tariffs on steel and aluminum from 25% to 50%. Here are the latest updates as the policy reverberates around the world. Bloomberg reports: Read more here. Yahoo Finance's Rick Newman reports: Read more here. US-China talks stretched on Tuesday, and they may continue into Wednesday, US Commerce Secretary Howard Lutnick told reporters outside of Lancaster House in London, where delegations from both countries are meeting. "I think the talks are going really, really well," Lutnick said. "We're very much spending time and effort and energy — everybody's got their head down working closely." "I hope they end this evening," he added, "but if they need be, we'll be here tomorrow." The teams from China and the US, including Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, have been holding negotiations since Monday. The London summit followed a phone call between President Trump and Chinese President Xi Jinping. Stocks rose to near session highs following Lutnick's comments on an otherwise fairly muted day in markets. Read more here. From Reuters: Read more here. Banking fees and trading revenue for one of the world's largest investment banks is expected to climb this quarter despite the concerns that surround US tariffs, Citigroup's (C) head of banking Vis Raghavan said on Tuesday. Raghaven added, that M&A activity continues to be active but the IPO market has been "stagnant." Reuters reports: Read more here. The World Bank cut its global growth forecast for 2025 on Tuesday by 0.4 percentage point to 2.3%. The international financial institution, which provides loans to governments said that high tariffs and uncertainty were a "significant headwind" for nearly all economies. Reuters reports: Read more here. Yahoo Finance's Alexis Keenan reports: Read more here. On Tuesday, US Commerce Secretary Howard Lutnick said trade negotiations with China were going well, as the two sides met in London for a second day of talks. Reuters reports: Read more here. The CEO of Freeport-McMoRan Inc. (FCX), North America's top producer of copper has warned that tariffs could hurt an industry that President Trump is trying to help. Bloomberg News reports: Read more here. Reuters reports: Maruti Suzuki has cut near-term production targets for its maiden electric vehicle e-Vitara by two-thirds because of rare earths shortages, a document showed, in the latest sign of disruption to the auto industry from China's export curbs. India's top carmaker, which said on Monday it had not seen any impact yet from the supply crisis, now plans to make about 8,200 e-Vitaras between April and September, versus an original goal of 26,500, according to a company document seen by Reuters. It cited "supply constraints" in rare earth materials that are vital in making magnets and other components across a range of hi-tech industries. Read more here. Both the US and China are finding new tools to use as bargaining chips within trade negotiations. Here's an example of just some of them: Bloomberg News reports: Read more here. The de-escalation in trade tensions likely contributed to an improvement in US small-business confidence in May. However, uncertainty remained due to the overall economic outlook. Reuters reports: Read more here. Chinese stocks fell on Tuesday ahead of the second day of trade negotiations between the US and China. Investors are cautious as the two biggest economies seek to resolve some contentious issues. Bloomberg News reports: Read more here. As US-China trade negotiations resume in London on Tuesday, both sides are eager to rebuild the truce established in May. While, the US has tightened controls on AI chip exports, China may be holding the most valuable card in these talks. CNN reports: Read more here. Advertising firm, WPP said on Tuesday that global advertising revenue is expected to grow 6% this year, lowering its earlier target of 7.7% due to the uncertainty surrounding US trade policies. Reuters reports: Read more here. Bloomberg reported that trade talks between the US and China will resume tomorrow morning at 10 a.m. in London after six hours of negotiations on Monday. US officials were looking for a "handshake" on Monday, National Economic Council director Kevin Hassett told CNBC, as the two sides look to ease tensions over tech and rare earths. President Trump weighed in on the progress, telling reporters on Monday: "We are doing well with China. China's not easy. ... I'm only getting good reports.' Treasury Secretary Scott Bessent, meanwhile, said it was "good meeting" and Commerce Secretary Howard Lutnick called the talks "fruitful," sending an upbeat signal on the talks' progress. The Chinese delegation, led by Vice Premier He Lifeng, did not comment on the talks. From Bloomberg: Read more here. The number of ocean containers from China bound for the US fell precipitously in May when President Trump's 145% tariffs on Chinese goods were in effect. Supply chain technology company Descartes said Monday that seaborne imports from China to the US dropped 28.5% year over year, the sharpest decline since the pandemic, per Reuters. Overall, US seaborne imports fell 7.2% annually in May to 2.18 million 20-foot equivalent units. The decline snaps a streak of increases fueled by companies frontloading goods to avoid higher duties, which has kept US seaports, such as the Port of Long Beach, busy. "The effects of U.S. policy shifts with China are now clearly visible in monthly trade flows," Descartes said in a statement. Read more here. In today's Chart of the Day, Yahoo Finance's Josh Schafer writes that tariff headlines have been rattling markets to a lesser degree than they did in April, despite an escalation of trade tensions recently: Sign up for the Morning Brief newsletter to get the Chart of the Day in your inbox. US import costs of steel and aluminum are expected to rise by more than $100 billion after President Trump doubled tariffs on the metals to 50% this week. That is expected to impact automakers such as Ford (F), as well as importers for a variety of goods, from baseball bats to aircraft parts. The Financial Times reports: Read more here. Tariffs have brought challenges for many, but Century Aluminum (CENX) and top recycler Matalco stand to benefit from President Trump's metal import duties as domestic prices rise. Reuters reports: Read more here. Bloomberg reports: Read more here. Yahoo Finance's Rick Newman reports: Read more here. US-China talks stretched on Tuesday, and they may continue into Wednesday, US Commerce Secretary Howard Lutnick told reporters outside of Lancaster House in London, where delegations from both countries are meeting. "I think the talks are going really, really well," Lutnick said. "We're very much spending time and effort and energy — everybody's got their head down working closely." "I hope they end this evening," he added, "but if they need be, we'll be here tomorrow." The teams from China and the US, including Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, have been holding negotiations since Monday. The London summit followed a phone call between President Trump and Chinese President Xi Jinping. Stocks rose to near session highs following Lutnick's comments on an otherwise fairly muted day in markets. Read more here. From Reuters: Read more here. Banking fees and trading revenue for one of the world's largest investment banks is expected to climb this quarter despite the concerns that surround US tariffs, Citigroup's (C) head of banking Vis Raghavan said on Tuesday. Raghaven added, that M&A activity continues to be active but the IPO market has been "stagnant." Reuters reports: Read more here. The World Bank cut its global growth forecast for 2025 on Tuesday by 0.4 percentage point to 2.3%. The international financial institution, which provides loans to governments said that high tariffs and uncertainty were a "significant headwind" for nearly all economies. Reuters reports: Read more here. Yahoo Finance's Alexis Keenan reports: Read more here. On Tuesday, US Commerce Secretary Howard Lutnick said trade negotiations with China were going well, as the two sides met in London for a second day of talks. Reuters reports: Read more here. The CEO of Freeport-McMoRan Inc. (FCX), North America's top producer of copper has warned that tariffs could hurt an industry that President Trump is trying to help. Bloomberg News reports: Read more here. Reuters reports: Maruti Suzuki has cut near-term production targets for its maiden electric vehicle e-Vitara by two-thirds because of rare earths shortages, a document showed, in the latest sign of disruption to the auto industry from China's export curbs. India's top carmaker, which said on Monday it had not seen any impact yet from the supply crisis, now plans to make about 8,200 e-Vitaras between April and September, versus an original goal of 26,500, according to a company document seen by Reuters. It cited "supply constraints" in rare earth materials that are vital in making magnets and other components across a range of hi-tech industries. Read more here. Both the US and China are finding new tools to use as bargaining chips within trade negotiations. Here's an example of just some of them: Bloomberg News reports: Read more here. The de-escalation in trade tensions likely contributed to an improvement in US small-business confidence in May. However, uncertainty remained due to the overall economic outlook. Reuters reports: Read more here. Chinese stocks fell on Tuesday ahead of the second day of trade negotiations between the US and China. Investors are cautious as the two biggest economies seek to resolve some contentious issues. Bloomberg News reports: Read more here. As US-China trade negotiations resume in London on Tuesday, both sides are eager to rebuild the truce established in May. While, the US has tightened controls on AI chip exports, China may be holding the most valuable card in these talks. CNN reports: Read more here. Advertising firm, WPP said on Tuesday that global advertising revenue is expected to grow 6% this year, lowering its earlier target of 7.7% due to the uncertainty surrounding US trade policies. Reuters reports: Read more here. Bloomberg reported that trade talks between the US and China will resume tomorrow morning at 10 a.m. in London after six hours of negotiations on Monday. US officials were looking for a "handshake" on Monday, National Economic Council director Kevin Hassett told CNBC, as the two sides look to ease tensions over tech and rare earths. President Trump weighed in on the progress, telling reporters on Monday: "We are doing well with China. China's not easy. ... I'm only getting good reports.' Treasury Secretary Scott Bessent, meanwhile, said it was "good meeting" and Commerce Secretary Howard Lutnick called the talks "fruitful," sending an upbeat signal on the talks' progress. The Chinese delegation, led by Vice Premier He Lifeng, did not comment on the talks. From Bloomberg: Read more here. The number of ocean containers from China bound for the US fell precipitously in May when President Trump's 145% tariffs on Chinese goods were in effect. Supply chain technology company Descartes said Monday that seaborne imports from China to the US dropped 28.5% year over year, the sharpest decline since the pandemic, per Reuters. Overall, US seaborne imports fell 7.2% annually in May to 2.18 million 20-foot equivalent units. The decline snaps a streak of increases fueled by companies frontloading goods to avoid higher duties, which has kept US seaports, such as the Port of Long Beach, busy. "The effects of U.S. policy shifts with China are now clearly visible in monthly trade flows," Descartes said in a statement. Read more here. In today's Chart of the Day, Yahoo Finance's Josh Schafer writes that tariff headlines have been rattling markets to a lesser degree than they did in April, despite an escalation of trade tensions recently: Sign up for the Morning Brief newsletter to get the Chart of the Day in your inbox. US import costs of steel and aluminum are expected to rise by more than $100 billion after President Trump doubled tariffs on the metals to 50% this week. That is expected to impact automakers such as Ford (F), as well as importers for a variety of goods, from baseball bats to aircraft parts. The Financial Times reports: Read more here. Tariffs have brought challenges for many, but Century Aluminum (CENX) and top recycler Matalco stand to benefit from President Trump's metal import duties as domestic prices rise. Reuters reports: Read more here.
Yahoo
3 hours ago
- Yahoo
Average Australian homes tops A$1m amid housing crisis
The average price of an Australian home has surpassed A$1m ($652,000; £483,000) for the first time, as the nation grapples with a housing affordability crisis. Figures released by the Australian Bureau of Statistics (ABS) this week estimate the average home was worth A$1,002,500 in the March quarter, up 0.7 per cent from the previous quarter. The nation is home to some of the least affordable cities on Earth, where buying or renting a place is increasingly out of reach for many Australians. Experts say the crisis is being driving by a lack of homes, a growing population, tax incentives for property investors, and inadequate investment in social housing. The country's most populous state, New South Wales (NSW), continues to have the priciest homes on average, at A$1.2m, followed by Queensland at A$945k, according to the ABS. The agency's Mish Tan said the states of Western Australia, South Australia and Queensland were the "main drivers of the rise". While the average price of homes climbed in all states and territories in the March quarter, the annual growth rate is slowing, she added. The figures take in Australia's 11.3m dwellings - including the full gamut of property types, from freestanding homes, to terrace houses and apartments. Michael Fotheringham, head of the Australian Housing and Urban Research Institute, is not surprised to see the $1m benchmark crossed. Though a "daunting" and "compelling" statistic, he says it is the result of a years-long national trend of home prices outpacing wages and leaving the housing system "very strained". "This isn't just an affordability problem for lower income households - this is very much a problem for medium-income households as well," he said. "Globally we're seeing the term housing crisis being used in many developed countries," he added, "[but] our housing prices have risen sharply so it's one of the less affordable countries overall." Rental availability has also been a problem in recent years, and there isn't enough social housing to meet demand either. Australia's looming election brings housing crisis into focus The year the Australian Dream died Canada is facing similar challenges, Dr Fotheringham said, but the UK was markedly different as it has more council estates and social housing in the mix. However, the UK and Australia do share what he called "ambitious housing targets" with Australia hoping to build 1.2m homes and the UK 1.5m homes within the next five years. Australia's Prime Minister Anthony Albanese - who won a second term last month at an election where housing was a top issue - on Tuesday said his government was looking to further reduce red tape for developers. They have long complained that planning laws prevent them from building enough homes. "One of the things that we have to do is to make it easier," he said, according to the Sydney Morning Herald, adding "developers say that it's just too complex [and it] adds to costs as well".