The average Australian worker will find themselves bumped into the second-highest income tax bracket in just over a year's time.
The nasty news is set out in the 200-page tax discussion paper, Re:think, released by the Abbott government on Monday. And it is, in large part, thanks to "bracket creep" - where wage earners inadvertently pay higher tax due to wage inflation.
With average annual wages hovering at $75,000 as of 2013/14, the average Australian worker currently sits within the third-highest tax bracket. Australians in that bracket pay $3,572 plus 32.5 cents for every dollar of $37,000.
But according to the paper, by 2016/17, the average full-time employee will find themselves bumped into the second-highest tax bracket, earning about $80,000 and having to pay the tax office $17,547 plus 37 cents for every dollar over $80,000.
Over the next decade, the percentage of taxpayers in the top two tax brackets is also set to jump from 27 per cent to 43 per cent. This will involve two million more taxpayers in the second top bracket ($80,000 to $180,000) and about 750,000 more in the top bracket ($180,000 and above).
By 2023/24, average full-time earnings are estimated to be about $104,000.
The report cautioned that if bracket creep is left unchecked, lower and middle income earners will be hit harder than those on higher incomes.
"For some people, particularly those on relatively low incomes, bracket creep can reduce incentives to work," it said.
"At higher incomes, bracket creep increases the incentives for tax planning and structuring, and even overseas relocation."
Despite the concerns raised by the report, Australia Institute senior economist Matt Grudnoff says it would be "silly" to assume that they would be no change in tax arrangements over the coming decade.
"There would be no time ever in our history where [the government] hasn't shifted the tax brackets for ten years," he said.
"It's not based in any kind of reality."
Mr Grudnoff said the Treasury report's finding appeared designed to scare people, "rather than make any sort of informed, interesting point".
He noted that Australia currently had relatively low levels of individual taxation, helped in part by tax cuts introduced by the Howard government at the height of the mining boom.
"Because income tax rates were cut so savagely ten years ago, the tax system isn't able to generate income tax nearly as well as they used to."
Mr Grudnoff said that in 2004/05, 13 per cent of tax payers were in the top bracket, compared to just three per cent today.
On Monday, when asked if workers would just have to "tolerate" bracket creep until the government reached a surplus, Mr Abbott said that "we want to get taxes down".
"If we want to get taxes down further, we've got to keep government spending under control," he said.
Australian Council of Social Service chief executive Cassandra Goldie said she would like the Abbott government fix the loopholes that allow people in higher tax brackets to avoid paying tax before it tried to tackle bracket creep.
"Clearly you can't just fix tax rates for time [immemorial]," Dr Goldie said.
"But I don't want us to avoid the really important debate about what is happening at the higher end right now. We would like to see better integrity in the existing arrangements [and] bite the bullet on some of these tax loopholes that are allowing people to avoid their rate of tax at the higher end."
Tax rates as of July 1, 2014:
$0 – $18,200 - Nil
$18,201 – $37,000 - 19 cents for each $1 over $18,200
$37,001 – $80,000 - $3,572 plus 32.5 cents for each $1 over $37,000
$80,001 – $180,000 - $17,547 plus 37 cents for each $1 over $80,000
$180,001 and over - $54,547 plus 45 cents for each $1 over $180,000
- with Gareth Hutchens
