A budget forever in the red: Beating bracket creep will cost billions

The federal budget will forever be mired in huge deficits if future governments deliver tax cuts to working Australians without “substantial” spending cuts or tax increases worth tens of billions of dollars, the independent Parliamentary Budget Office has revealed.

Workers will share in $23 billion worth of income tax cuts from July 1, returning bracket creep that has built up over the past decade. Bracket creep is the increase in a person’s average tax rate as their income grows over time. Without change to the personal tax system, the budget – forecast to record a $28.3 billion deficit in 2024-25 – would eventually move back into surplus in 2034-35.But if thresholds moved in line with inflation, the budget would show a deficit of 1.5 per cent of GDP – or about $60 billion – by 2035. If thresholds moved with wages, the deficit would be around $85 billion.

The advent of electric vehicles and more efficient petrol-driven cars is expected to reduce fuel excise, which the budget office projected could be between $2.8 billion and $4.8 billion a year lower by the mid-2030s.to little more than a rounding error, while alcohol excise could also fall. Government spending is expected to ease slightly over the coming years, mostly due to smaller grants to states and territories for major infrastructure projects.

Growing use of EVs and more efficient vehicles will reduce the amount of fuel excise collected by the federal government.In the short term, Treasurer Jim Chalmers will receive some good news on Friday, with monthly figures expected to show a sharp but temporary improvement in the budget.

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