A Closer Look
the expiration of a tax offset and bracket creep.
The Low and Middle Income Tax Offset (LMITO), also known as the Lamington, ended on June 30, 2022. This resulted in a higher tax burden for low- and middle-income earners.
Due to inflation, nominal earnings increased, pushing a greater portion of workers' pay into higher tax brackets. This phenomenon, known as bracket creep, also contributed to the tax increase.
The effects of the expired tax offset and bracket creep were particularly evident for Australians earning two-thirds of the average income. Despite an increase in wages, their tax burden rose significantly, leaving them worse off in real terms when accounting for inflation.
On the other hand, high-income earners saw a smaller increase in their tax burden. While their wages increased, the slight rise in taxes was offset by the overall increase in income.
Australia's average income tax rate of 24.9% is the fourth-highest among developed nations. However, this comparison does not account for social security contributions in many other countries, providing an inaccurate picture.
When social security contributions are factored in, Australia's total tax burden is significantly lower, placing it among the least taxed nations in the OECD.
Australia's tax increase in 2022-23 was primarily driven by the expiration of a tax offset and bracket creep. While the impact varied across income groups, Australia remains a low-tax country compared to other OECD nations.