Taxes paid by households increased by around 8 per cent, more than double the rate of growth in gross household income of 3.5 per cent, Reserve Bank assistant governor Luci Ellis said.
Taxes paid by households increased by around 8 per cent, more than double the rate of growth in gross household income of 3.5 per cent, Reserve Bank assistant governor Luci Ellis said.

Hidden pain behind huge tax increases

TAXES rose 8 per cent over the past year, forcing Australians to tighten their belts and cut spending, the Reserve Bank revealed yesterday.

Reserve Bank assistant governor Luci Ellis said higher tax and insurance payments are "dragging on disposable income'', as consumers spend less on housing, cars and household goods.

"In the past year, taxes paid by households increased by around 8 per cent, more than double the rate of growth in gross household income of 3.5 per cent,'' she told a housing industry breakfast yesterday.

Dr Ellis said the "rule of thumb'' is for tax payments to rise 1.4 per cent for every 1 per cent increase in household income.

Higher tax is slowing the economy.
Higher tax is slowing the economy.

"The ratio is more like a bit over two-to-one at the moment, rather than 1.4 to one,'' she said.

"For all of the past six years, growth in tax paid has exceeded income growth by an above-average margin, at a time when income growth itself has been slow.''

Dr Ellis said tax windfall was partly due to "bracket creep" - where a pay rise pushes taxpayers into a higher tax bracket.

She said an Australian Taxation Office compliance crackdown had boosted taxation revenue, while landlords were claiming lower deductions for record-low interest payments on investment property loans.

The federal government's tax take, as a share of household income, is at its highest level in 15 years.

An increasing tax bill is hurting households.
An increasing tax bill is hurting households.

The mid-year budget review in December showed the government would collect $457 billion in taxes this financial year - $17 billion more than was predicted in last year's May budget.

Prime Minister Scott Morrison is likely to use next week's federal budget to accelerate his planned tax cuts, kicking off the May election campaign.

Last year the federal government legislated tax cuts totalling $140 billion over a decade.

Workers earning up to $90,000 a year will get a tax offset worth as much as $530 this financial year - but those earning more must wait up to five years for tax relief.

The Reserve Bank's assistant governor said Australians were spending less, especially on cars and household goods.

She said businesses income was "weak'' among farmers, tradies and real estate agents, and would not recover in the "very near term''.

"When housing prices decline, turnover also declines,'' she said.

"This means there are fewer people moving house and realising their old couch doesn't fit or they need new furnishings in the extra bedroom.''

House prices fell by an average of 7.8 per cent in Sydney and 6.4 per cent in Melbourne last year but were stable in Brisbane, based on the latest Australian Bureau of Statistics data.


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