Research shows value of stage 3 tax cuts will soon disappear 06:33

Well, we just spoke to the Treasurer, Jim Chalmers, before the news, and we are receiving a tax cut today. That means your pay will increase a little. For instance, if you are on a salary of $50,000 a year, you'll receive an extra $929 extra a year. It's about $17 a week. If you make double that, say $100,000, that's an extra $2,179 a year, or $40 a week if you're on $150 a

You'll receive an extra $3,729. That's $70 a week. But there's also some research from the Australian National University, and it shows that for 80% of us, by 2027, based on average tax rates, we'll be back to their current levels, if not higher. It's because of bracket creep.

Now, I spoke to Dr Chalmers just before the news, and he acknowledged bracket creep hits our incomes, but he's confident the federal government's doing enough. Well, I think obviously governments of the future will look at the budget and look at the tax settings, and typically governments of both political persuasions have tried to cut taxes where they can. I guess the point that I'm making about that research, and I don't dismiss that research, either. That's a serious crowd issue.

And it's a serious newspaper that reported it. So, you know, I don't dismiss it. But I guess the point I'm making is, you know, absent what we changed in January, the situation would be a little bit worse than that. And we're doing what we can. We're returning bracket creep where we can. You know, we're cutting a couple of rates. We're lifting a couple of thresholds. And we're providing cost of living relief right up and down the income scale. So what about inflation? It is higher than we want.

is the cost of living relief he's announced today. So there's $300 in energy bill relief. Won't that just drive up inflation? Well, the Treasury disputes that. He says the government is bringing inflation down. We know that that monthly number can be a bit volatile. The other thing which is really important here...

If you look at what happened around the world, in a lot of countries where their inflation peaked higher than ours and where it peaked earlier than ours, what you see is the last percentage point or so before you get into the target is often the most difficult. And inflation has come off pretty substantially, but it doesn't always come off in a perfectly straight line. And that's what we're seeing here. We want to see inflation lower significantly.

We want to see it moderate further and faster, but we've made a heap of progress and we know that our policies are helping. Yes, inflation's come down since COVID, but it was at record, well, recent historic record levels. It is now going in the wrong direction. Associate Professor Ben Phillips is the Principal Research Fellow at ANU's Centre for Social Research and Methods. He is the man behind this research into bracket creep and he joins us on the program. Professor, thank you for your time. Good afternoon, Clinton. Can you take us through the research? What's it essentially show?

Yeah, so what we've looked at is we've looked at the tax rates of households in the past and where they are now, where they're going effectively today and where they're going into the future. And what we really find is that

is that tax cuts, what are happening right now, pretty much makes up for the tax bracket creep that we've had over the past sort of two or three years. And if you move forward about sort of three or four years into the future, we'll be pretty much back to where we are just prior to the tax cuts if there's no further tax cuts. And that's pretty much, I think, in a nutshell what we've found. So does it mean that governments, and it doesn't matter which political persuasion group,

we're living under, they all face this dilemma. Do they have to keep changing those tax brackets, changing those tax rates?

Yeah, so if I say something like welfare, like say the age pension, every single year, every six months, we index the rate of payment. So that sort of overcomes this issue around inflation and wages increasing. But for the tax system, we don't do that. So you get this thing called bracket creep where every year or every couple of years, people pay a higher rate of tax because they're moving into higher brackets. So we have to overcome that. And what treasurers tend to do or governments tend to do is every couple of years, they change the system a little bit.

to overcome that and they call it tax cuts and technically I'd say really it's just sort of adjusting the system to keep it where it was in the past. So it's not reform as such is it? No it's well frankly it's a little bit of a charade look every treasurer every government's done it since since I can remember since pretty much year dot so look it's really just making some small adjustments that they're important adjustments but they're really small adjustments that just keep things in line with inflation really.

Did your research look at potentially what needs to happen to address this longer term? Because surely, you know, three or three years, it's going to happen again. Yeah, look, this is something that often gets debated. And you can, but governments could potentially just increase the tax thresholds or the tax brackets every year or every couple of years with inflation or wages. That's something that many people think could be done. We didn't look into whether that sort of needs to be done or not. The current system, it tends to pretty much work, obviously.

But it does sort of mean that every couple of years, governments do make some pretty big claims that they're making big tax cuts. And in reality, they're really just sort of adjusting things with inflation. So, yeah, you could argue that maybe that you could index it every couple of years or every year. But the governments have typically not done that in the past. Do you think they've not done this for political reasons? Because if they're indexing, they're then tied to changing those rates every year.

Probably the argument for not doing it, there's pros and cons with it, but the argument for not doing it really, I think, is that

Government does face different fiscal situations and fiscal pressures. There's concerns with what you do in terms of fiscal policy, just like we do. We change monetary policy with regard to the economic cycle. So it's not necessarily a bad thing to leave them as they are and adjust them on an ad hoc basis. But look, they do, of course, make claims and they're a bit political that they're making big tax cuts and I'd probably argue that it's not really what the kind of claim that it is. It's a very fair analysis. Thank you, Ben.

My pleasure. Professor Ben Phillips, who's from the ANU's Centre for Social Research and Methods. So he's the man behind this research. And Jim Chalmers himself told me before the news he actually respects the research because it's a body, it's not a fly-by-night organisation that Ben leads.

But I've got a message here from Nick, and we just touched on that with Ben, and Nick made a great point. It's easy to eliminate it completely. Our government should do what they do in the United States. It is index the tax scale thresholds upwards every year to account for inflation. It's actually a no-brainer. But I think there then comes to be the political side of it, that they will have different obligations, but then they'll have different motivations when it comes to the politics of the matter.