No respite from tax burden on younger workers in budget

Bracket creep is necessary for budget balance, says Australia's treasurer despite handing back two years of inflation-fuelled higher tax payments to workers.

The "modest" tax cuts announced in the federal budget will save taxpayers $10 a week once fully implemented in 2027/28.

They would also provide an economic dividend by encouraging income earners to work more hours, Treasurer Jim Chalmers claimed as he introduced the changes to parliament on Wednesday.

"They return bracket creep, they boost workforce participation and they incentivise people to take up that extra shift, which could push up hours worked in our economy by 1.3 million hours, mostly driven by women's workforce participation," he said.

But the treasurer ruled out indexing tax brackets to inflation, which would put an end to relatively higher taxes as workers move into higher income brackets.

"We've got to make the budget add up," Dr Chalmers said.

The fiscal blueprint revealed government spending would grow 5.5 per cent per year on average until 2028/29, with deficits stretching into the middle of next decade.

Even with the cuts, personal income tax will rise to 54 per cent of tax revenue, as young working-age Australians bear a larger share of the burden.

"Over the next decade, the tax to GDP ratio is set to increase and in the absence of serious tax reform, bracket creep will be relied on more and more," said KPMG chief economist Brendan Rynne.

Underlying deficits are predicted to total $179.5 billion over the five-year forward estimates before eventually shrinking as spending declines.

But it is unclear how this will be achieved in practice.

Major expenses such as the National Disability Insurance Scheme, health, aged care, defence and interest on debt are projected to grow significantly faster than the economy over the next decade.

And that's before $104 billion is added in off-budget spending over the next five years. These "investments" still add to public debt.

AMP chief economist Shane Oliver said the rising burden on Millennials and Gen Z to boost revenue through bracket creep is unfair and unrealistic.

"Politicians will eventually want to give some back as 'tax cuts'," he said.

"So how will we get back to surplus then?"

Independent research body Prosper Australia called for structural reforms to rebalance the tax burden from younger income earners onto unearned wealth.

"The next government must commit to a tax reform process during its term to transform how we collect tax in Australia," said director Rayna Fahey.

"There is a broad consensus among economists, business leaders and the community that Australian workers shoulder an unfair tax burden."

Young Australians were losing hope, hit with falling living standards, housing unaffordability and record insolvencies, shadow treasurer Angus Taylor said.

"Australians who are trying to get ahead, who are finding they're having to pay more tax, personal income taxes, $3500 extra for the average Australian taxpayer and personal income taxes, since Labor came to power, there is no pathway back to hope," he said.

Dr Chalmers acknowledged more would need to be done during a second-term government but said more structural progress in the budget had been made than most people recognised.

"One of the big features of the budget last night on the spending side, was actually that we're making better progress on the NDIS than we anticipated. That's a structural fix," he said.

Spending on the NDIS is predicted to grow eight per cent per year over the medium term, down from 23 per cent previously, but will still eclipse $63 billion in annual costs by 2028/29.

Despite sinking back into deficit, Australia maintained its AAA credit rating with S&P Global Ratings, which noted the government's net public debt of $556 billion remained modest by international standards.