Tax and interest on loans to drain 25pc of Australians’ earnings

Australians will devote almost one in every four dollars of their earnings to paying income tax and loan interest by the middle of next year, as hundreds of billions of dollars of fixed-rate mortgages roll off and workers lose wage gains to bracket creep.

Households spent a record 21 per cent of their gross income on home loan interest and income tax in the three months to June.AFR WeekendThat figure has risen sharply over the past year, and is well above the income tax burden faced by workers a decade ago, when income tax consumed about 12 per cent of household income.Jarden chief economist Carlos Cacho said the recent increase in the tax burden came down to bracket creep.

“Given that roughly two-thirds of GDP comes from household consumption, and that tax and interest are the two largest and most obvious first claims on income, it means it is going to put obvious downward pressure on consumption and therefore GDP growth,” he said.“We’re taxing incomes more and more, and we’re out of step with other advanced economies in terms of the amount we tax income, relative to the amount we tax consumption,” he said.

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