Bracket creep will eat more of your wages.

The extra tax burden is expected to total $29.6 billion over the 40-year average by 2020-21, according to the report by free-market think tank The Centre for Independent Studies

The tax-to-GDP ratio is expected to rise by almost 8 per cent over the same period, largely as a result of bracket creep — the failure to adjust income tax brackets for inflation or wages growth.

“This tax increase is being accepted by default, but it should not be,” economist and report author Michael Potter said.

“We are heading towards the tax burden imposed in the mining boom, yet the economy today is nowhere near as strong now. Wages growth is minimal, profits are shrinking, and investment is plummeting.

“Analysis shows the tax burden in five years is estimated to be $29.6 billion above its historical average: this is an extra tax burden of $1,228 per person.

“Most of this tax increase is due to bracket creep — the failure to index tax thresholds to inflation or wages. So the extra tax will be concentrated on the minority of the population who pay personal tax.”

The report, ‘The case against tax hikes in Australia: The growing burden’, also argues against common claims that Australia is not a low-taxing country.

Australia is often compared with other OECD countries to show Australia’s tax burden is below the developed world average.

Mr Potter argues this is because the OECD counts social security contributions as taxes, while the International Monetary Fund and the World Bank do not.

Using IMF data of OECD countries, Australia’s 26.8 per cent tax-to-GDP ratio sits well above the average of 25.2 per cent, ahead of Canada, Israel and the US.

“Australia’s tax burden is above the developed world average according to data from the IMF and World Bank. And our company and personal tax burdens are well above average,” Mr Potter said.

“In previous periods when the tax burden was high, governments provided tax cuts to offset the tax burden. But that isn’t happening now. Recent Budgets have had only a minimal impact on the upward march in the tax burden — even with the proposed company tax cut.”

The report forecasts that the increase in personal taxes is expected to cut GDP by up to 0.55 per cent every year, amounting to $376 per person.

In contrast, a cut in the company tax rate to 25 per cent is estimated to increase national income every year by $460 per person, or 0.7 per cent of GDP. That would be more than 2.6 times the net budget cost of the tax cut, the report argues.

“This evidence supports the case against the forecast tax hikes, let alone any additional tax hikes,” Mr Potter said. “This includes proposals to cut tax concessions such as CGT, wind back negative gearing, add levies on high income earners, or cancel proposed tax cuts for companies.

“The costs of tax hikes are large and are not supported by historical, international or economic analysis. Instead, a priority should be for government to control its spending.”