Bracket creep: How to get the answer you want
NATSEM recently released modelling showing that discretionary tax cuts have more than offset bracket creep since 2005 (that is, taxes are lower than if the income tax scales had been indexed to the CPI or a wage index). The Centre for Independent Studies replied with a study pointing out that you get the opposite conclusion by looking at the period since 2013. Why 2013?
We chose 2013 as the starting year because this is when the last change to tax thresholds occurred
Well, yes. If you pick a period in which there have been no discretionary tax cuts, you will certainly find that discretionary tax cuts have not outweighed bracket creep. As author Michael Potter observes
This shows the importance of the starting year.
There’s no need to check the CIS numbers: given the setup, only one answer is possible.
Correction Michael Potter advises that the CIS study includes the impact of the tax changes in 2012-13, making it possible in principle that these could have offset bracket creep. But the 2012-13 changes weren’t a general tax cut aimed at offsetting bracket creep. They offered small tax cuts for low income earners to offset the very modest impact of the carbon price/tax. These were clawed back by higher marginal rates so that upper income earners (appropriately) bore the full cost of the carbon price. The key point, stated below, is that the Howard-Rudd tax cuts introduced after the 2007 election were so large that they have more than cancelled out all the subsequent bracket creep.
Addressing the issue more seriously, the flattening of tax scales under the Howard-Rudd tax cuts, combined with weak growth in nominal wages means that bracket creep is operating very slowly. So, the reduction in the revenue share of GDP driven by those tax cuts remains in effect nearly a decade later.