Australian workers were hit by the largest tax rate increase in the developed world last year, with low and middle-income earners bearing the brunt of the burden.
According to the Organisation for Economic Co-operation and Development's (OECD) latest Taxing Wages report, released this morning, the average personal tax rate increased by 7.6 per cent for the 2022-23 financial year.
That's a bigger jump than any of the organisation's 37 other countries recorded, and by some margin; Luxembourg had the second-biggest increase at 5 per cent, while New Zealand was next on the list with 4.5 per cent.
The OECD identified the end of the low and middle income tax offset (LMITO, also sometimes referred to as the lamington) as the main contributor to Australians' increasing tax burden.
It provided workers earning under $126,000 with a tax cut of up to $1500, but finished at the end of the 2021-22 financial year – a decision made by both the current Albanese government and its predecessor led by Scott Morrison.
The end of the lamington was the main reason many Australians complained of a lower-than-expected tax return in 2023, and the OECD said it, alongside relatively flat wages, was the driver of the higher tax rate.
"This was due to the cessation of a tax credit (the low and middle-income tax offset [LMITO]) and the fact that nominal earnings increased while earnings thresholds in the tax schedule remained the same in nominal terms," the OECD wrote.
Last year's increase brought Australia's average tax rate up to 24.9 per cent of gross earnings – far higher than the OECD average of 15.4 per cent.
However, on the overall "tax wedge" – which is income tax plus employer and employee social security contributions (which Australia does not have) minus cash benefits – Australia is actually below the OECD average of 34.8 per cent, sitting at 29.2 per cent.
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While many nations saw their tax rate decrease in 2023, including the United States (-2.2 per cent), Mexico (-10.5 per cent) and the Netherlands (-2.8), Australians will get to experience that from July 1, when the stage three tax cuts come into effect.
That will provide all taxpayers with a smaller tax rate, with much of the benefit being directed to those on lower and middle incomes.
