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It’s official: Howard government abolishes bracket creep!

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Joel Fitzgibbon MP

Acting Shadow Treasurer Shadow Minister for Revenue Shadow Minister for Small Business and Competition 16 January 2006

It’s official: Howard government abolishes bracket creep!

The Howard government has abolished bracket creep - by decree! But the bad news is that the government has really just chosen to define bracket creep away.

On Saturday 14 January 2006, Acting Treasurer Nick Minchin issued a media release in response to bracket creep calculations released by Labor MP Craig Emerson which says in part:

"Bracket creep occurs when wage growth pushes a taxpayer into a higher income tax bracket. A taxpayer on $50,000 faces a tax rate of 30 cents in the dollar. They will not be subject to a higher rate of tax until their income exceeds $63,000 (in the current financial year) or $70,000 from 1 July 2006. A taxpayer on $50,000 would not face a higher marginal income tax rate in the next two years under Treasury's nominal wage growth forecasts”.

The Government’s tailor made definition would mean: 1. no bracket creep for taxpayers on the top marginal rate who cannot cross another tax threshold; 2. no bracket creep for low and middle income earners unless they cross a

higher tax threshold.

But bracket creep can occur when a taxpayer’s income does not enter a higher tax bracket. It is also caused by more income being subject to the current marginal rate (rather than a lower rate).

A taxpayer on $50,000 with a 3 per cent pay rise this year just to cover inflation pays an extra $450 a year in tax, reducing real disposable income. The government pretends this is not bracket creep.

A taxpayer on $50,000 who gets a 3 per cent pay rise each year for a decade would pay a lot of extra tax without crossing a higher threshold. That taxpayer’s real disposable income would end up falling by more than $1,000 a year just because of extra tax paid.

This government is so out of touch that it thinks it can pull a swifty like this on taxpayers!

Contact: Joel Fitzgibbon 0418 293 372 Brendan Long 0408 421 447

16 January 2006