Angus Taylor’s reckless plan to index tax brackets would cost the government a quarter of a trillion dollars over a decade. Frankly, we need that money to fund the institutions that know how to spend it better than you do.
I was enjoying a perfectly adequate $38 avocado tartine with a Deputy Secretary at the Treasury yesterday when the subject of Angus Taylor’s latest bit of economic vandalism came up. We both shook our heads in dismay. The Shadow Treasurer has proposed indexing tax brackets to inflation, an idea so fundamentally reckless it threatens to leave a quarter of a trillion dollars languishing in the bank accounts of ordinary Australians over the next decade.
As Treasurer Jim Chalmers correctly pointed out this week, this is a quarter of a trillion dollars the government desperately needs to not give back to you. Chalmers has rightly labeled this an uncosted, unfunded thought bubble. After all, if the Treasury doesn’t quietly confiscate your cost-of-living adjustments through the elegant magic of bracket creep, where on earth is the money supposed to come from?
For those of you who haven’t had the privilege of discussing macroeconomic levers over gin and tonics at the National Press Club, "bracket creep" is one of Canberra's most beautiful and misunderstood traditions. When inflation makes your groceries 10 percent more expensive, your employer might graciously give you a 5 percent raise. This bump pushes you into a higher marginal tax bracket. You are poorer in real terms, but the government gets to tax you as if you’ve just made partner at a law firm.
It is a flawless, invisible revenue stream that entirely bypasses the vulgar, democratic process of actually legislating a tax hike. And now, Angus Taylor wants to ruin the surprise.
Taylor has the audacity to claim that Labor is "betraying" itself because Chalmers’ warning about the $250 billion "cost" is, mathematically speaking, an admission that the government is silently pocketing $250 billion. I find this framing incredibly unhelpful. It is not "your" money that the government is taking. It is the government's money that you are temporarily holding in your paycheck, and it is frankly very rude of you to complain when they reach in to retrieve it.
If we index the tax brackets, people might use that extra money to buy things they need, which is highly inflationary and deeply irresponsible.
Furthermore, the Treasurer is absolutely right to warn about the inflationary impacts of Taylor’s plan. It is a settled economic consensus among the people I sit next to at charity galas that when a household in the Stafford electorate spends an extra $50 on school uniforms, it triggers a catastrophic inflationary spiral. However, when the federal government spends that exact same $50 on a bespoke branding agency to design a new logo for a Department of Infrastructure subcommittee, it is a stabilizing macroeconomic investment. The science on this is very clear.
This is why Labor’s continued strong showing in places like the Queensland byelection is so encouraging. The voters clearly understand that their role in the national economy is to act as a sponge, quietly absorbing the punishing costs of inflation so that the Treasury can slowly squeeze them out over the next ten years.
It is time we stopped demonizing bracket creep and started celebrating it for what it is: a mandatory, non-consensual donation to the people who know what’s best for you. I, for one, am proud to do my part. Well, not my part personally—my wealth is held in a family trust that is entirely insulated from marginal tax rates. But I am immensely proud of the sacrifices you are making.