One of the hidden consequences of rising wages is that more and more Australians are set to pay what is known as Division 293 Tax.
This tax applies to all concessional (tax deductible or employer super) contributions made in a year when an individual has more than $250,000 in total assessable income plus these concessional contributions. It is an additional 15% contribution tax on any super above that $250,000 threshold, taking total tax on contributions to 30%.
Given that the marginal tax rate on $250,000 is 45% plus Medicare, superannuation still makes sense, but Division 293 tax is definitely some discouragement to save.
The real issue though is bracket creep. The legislation commenced on 1 July 2012 and was based on income of $300,000. Then in 2017 it was actually reduced to the current $250,000.
According to the Australian Bureau of Statistics, in 2012 the average weekly total cash earnings for all employees was $1,122. In 2023, this figure had risen to $1,489, a rise of 32%. Meanwhile the figure at which an Australian taxpayer is regarded as wealthy has fallen by $50,000 and is not indexed!