The Coalition\u2019s bold plan to index tax brackets to the rate of inflation should be set at a standard rate regardless of price changes, a leading economist has suggested.<\/p>\n
Opposition Leader Angus Taylor on Thursday vowed to stop bracket creep<\/a> from eroding living standards being eaten up by inflation.<\/p>\n From 2028-29, the Coalition would index the bottom two tax brackets, with the top two to follow from 2031-32.<\/p>\n Westpac\u2019s chief economist Luci Ellis, an advocate of indexing tax brackets, said they should move in line with the Reserve Bank of Australia\u2019s 2.5 per cent inflation target regardless of how much inflation changes that year.<\/p>\n \u201cIndexing the tax brackets for (inflation) isn’t the best way forward,\u201d Ms Ellis told Business Weekend.<\/p>\n \u201cA better way forward is to say, look, the Reserve Bank’s inflation target is 2.5 per cent, so let’s escalate the tax brackets by 2.5 per cent every year.<\/p>\n \u201cOn average, that will get the same amount of tax burden.\u201d<\/p>\n She argued this will deliver the appropriate level of tax for the government and can help bring down interest rates.<\/p>\n \u201cWhen the economy is running too hot and inflation is high, you’ll be taking a bit extra out in tax,\u201d Ms Ellis said.<\/p>\n \u201cAnd when the economic is weak and inflation’s too low, you will be taking out a bit less tax as a share of the economy.<\/p>\n \u201cYou’ll have fiscal policy working hand in hand with what the Reserve Bank’s doing with monetary policy.\u201d<\/p>\n Her call for fiscal and monetary policy to work hand in hand comes as the government\u2019s large spending complicates the RBA\u2019s inflation battle.<\/p>\n