Treasurer Hockey’s job has just got a little harder. Already he faces a hostile Senate, high unemployment, and historically low interest rates. But what could scuttle his budget plans once and for all is the drop in the growth of Australian wages.

Historically wage rises in Australia have been big money earners for the government through what has become known as ‘bracket creep’. As the name suggests income earners are forced into higher marginal tax brackets as their wages rise. Even those lucky enough not to be forced into a higher bracket are not spared, as higher wages force more of your income into the higher marginal tax rate you are currently in.

Best of all – this is money spinner goes straight into the government coffers without the need for Senate approval or deals with cross-benchers. In fact, a lot of the increased revenue flows into the tax department without most of the nation even knowing.

And we’re talking substantial amounts! Where the tightening of Medicare rebates is expected to net the government a cool billion dollars, bracket creep is predicted to bring in between $25 and $30 billion over four years.

But that’s assuming wages rise.

Should the slow growth in Australian wages continue the federal government is facing a devastating blow to its budget.

The mining sector pushed wages growth between 2007 and 2013. But the boom is over and the 1% wages growth reflects that. Australian wages grew by 2.6 per cent, only 0.3 per cent more than inflation. Last year defence personnel received a 1.5 per cent wage rise; with many public servants not even getting that.

The joker in the pack is the cost of living. Should the cost of living rise real wages will actually fall, unemployment will skyrocket as employees are forced to work harder for less, just to keep their jobs. The revenue from bracket creep will evaporate and along with it any hopes the federal government had of bringing the economy back into surplus.

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