Bracket creep on track to rob Aussie workers of $25 billion Unless the Abbott Government embarks on tax reform, workers earning $78,000-a-year will be forced into the second highest tax bracket. MILLIONS of Australian workers face a tax trap that will increase income taxes by $25 billion over the next four years. New research has confirmed the devastating impact of bracket creep, which forces workers into higher tax brackets as a result of rising wages and inflation and hits low income earners the hardest. Unless the Abbott Government embarks on tax reform, average workers earning $78,000-a-year will be forced into the second highest tax bracket next year as a result of bracket creep. Any earnings over $80,000 will be slugged at 37 cents in the dollar. New economic modelling commissioned by the Sunday Herald Sun has confirmed that millions of workers face the stealth tax unless the Abbott Government addresses bracket creep The National Centre for Social and Economic Modelling has confirmed that 1.8 million Australians will be forced into higher tax brackets over the next four years as a result of bracket creep. Over time, the Prime Minister concedes that average workers will pay the equivalent of $3,800 more tax every year as a result of bracket creep. Without tax relief, the average income tax rate for average earners will rise from 23 per cent to 28 per cent over the next decade. Treasurer Joe Hockey said the NATSEM research confirmed the need for tax reform to restore fairness to the tax system. But he's blamed Bill Shorten for blocking budget savings measures that would help the government fix Labor's deficit. The principle of bracket creep is that it hurts people on lowest incomes. We are the party of lower taxes,""" he said. But we need to get the budget under control and the Labor Party is holding up $28 billion in savings. "That is why it is times to have a Tax White Paper to inform the government."" Mr Hockey is expected to announce the terms of reference for the government's tax inequity shortly. Kane Hartland and Katie Atkinson's financial situation will be put under more stress if they are placed into a higher tax bracket. Picture Yuri Kouzmin Source: News Corp Australia NATSEM's Ben Phillips said the figures confirmed that bracket creep was a far bigger tax hit to families than the petrol tax increases or other budget nasties. While the petrol tax hit will increases fuel costs by $2 billion, bracket creep will increase taxes by $25 billion over the same time period. "It's really the stealth tax increases, the bracket creep, that brings in the bigger dollars in the long term,"" Mr Philips said. What it means is people move into higher tax brackets as they earn more or they have a higher proportion of their wages in the higher brackets. To be fair those tax brackets should be increased with inflation. Because it's not increased to inflation, people naturally move up to higher income tax thresholds. There's implications for workforce participation, other family payments and childcare as well that leads to higher effective marginal tax rates. That's the combination of your personal income tax increasing and losing government benefits. So you get a double whammy of increased taxes and lower government payments. Ideally you would not be relying on bracket creeps to return to the budget surplus. But it's been going for years now."" Bracket creep will gouge an extra $2.4 billion in income taxes from workers this year alone according to NATSEM. The Abbott Government is expected to raise $183 billion in income taxes this year. Without formally increasing taxes, the Treasurer will gouge workers by an extra $5 billion a year in 2015 purely as a result of bracket creep. Without urgent tax reform, workers will be slugged an extra $10 billion-a-year purely by 2018 according to NATSEM. Currently, a tax-free threshold applies to earnings up to $18,200. Workers earning up to $37,000 lose 19 cents in the dollar. Workers earning between $37,000 and $80,000 lose 32.5 cents in the dollar to the taxman. Workers earning over $80,000 lose 37 cents in dollar. People earning over $180,001 lose 45 cents in ever dollar they earn. However, the impact of the temporary deficit levy and the Medicare levy on high income earners delivers an effective 49 per cent tax rate. NATSEM's research assumes a conservative 2.75 per cent a year wages growth this year and 3 per cent beyond, as is assumed in the federal budget. If wages rise faster than forecast the impact of bracket creep would be even greater. Originally published as Attack of the tax creeps costs you $25b