Indexing tax thresholds to address bracket creep

Where there are disputed areas of our tax system, such as discounts to capital gains tax, negative gearing, superannuation tax concessions and family trust arrangements, many of us enjoy access to them. While they're available to all, these areas tend to be used most by older (yes baby boomers) and wealthier Australians who then have vested interests in pushing hard to keep the existing rules in place.

The way our current tax system is set up means workers shoulder most of the burden, but it's unsustainable as our population ages. A “substantial review of the tax system” by former Treasury boss Ken Henry in 2009 made more than 100 recommendations, most of which have not been implemented. We know the solutions.
Whenever some real tax reform is raised by the government of the day, the opposition tends to run a scare champagne because it’s an easy way to muster criticism towards government. The opposition's reaction tends to be a kneejerk No! The electorate always seems fall for it and hence it’s become an ingrained strategy with the voters that are aligned ideologically with the opposition in particular, eagerly going along with the condemnation. Unfortunately, this means real reform that is likely to be good for the country and its citizens, refer to the experts not the politicians, always has trouble getting a fair hearing and ultimately gets lost in the bitter partisanship.

Voters appear to have a short-term outlook and in turn politicians have become opinion poll driven. This problem will not go away and will only get worse because we'll have less workers as a proportion of the population as the population ages.

I really object to pollies of all persuasions patting themselves on the back when they lower tax rates after there has been bracket creep. We need to eliminate that fiddle by routinely inflating brackets. If the pollies want to raise or lower taxes to meet their budget, that's their prergoatve but don't lie to the community about how good or prudent they are. Pollies should only get kudos for real decisions and wear the lumps from voters as appropriate. I agree with previous commenters who rightly say that Medicare Levy is just a lurk to disguise the tax rates - it and income tax should be rolled together. How about some "truth in government". The big problem in Australia is getting changes to the tax system. I was disappointed, yet again, when Labor gave away the opportunity to sell other changes in tax by linking them to the giveback they are doing. For instance, they could have said "we are giving people a reduction in income tax, which is linked to a broadening of the GST base to include food, education, health care etc, and we will compensate tax payers and non-tax payers by a payment." I haven't seen reliable data on what a broader tax base would cost, how different demographics would be affected, and what the compensation would need to be. How about it, Firstlinks? I don't broadening the GST base is as bad as people feel. If (say) a family spends $200 each week, probably 50% is subject to GST - such as "manufactured" items like biscuits, icecream, soft drinks etc , pet food, toilet paper etc. What is not subject to GST is fresh and basic food - fruit and veg, milk, meat etc. Assuming GST is imposed on the $100 of fresh and basic food, consumers would be subject to $10 per week or $500 per year per family - say $200 per head. Chickenfeed! (which is already subject to GST!) GST would also be imposed on education, healthcare etc, so surely our overpaid pollies and public servants can find a way to service that part of the public? If the pollies still want more GST, argue the case, raise the rate and wear the lumps or kudos.

How can you make a comment about being too reliant on income tax (effectively advocating an increase in the GST) at the same time as pointing out the previous 60% marginal tax rate. And it cut in at a relatively low income.
Us baby boomers paid our high income tax then saved. The GST was introduced solely with an eye on taxing us baby boomers again when we spent our savings in retirement.
Any plan to increase the GST is yet another attempt to tax us once again after we have paid income tax at 60% before we saved for our retirement

"The GST was introduced solely with an eye on taxing us baby boomers again when we spent our savings in retirement."

Curious assertion, to say the least! Perhaps a little paranoid? Our GST is low by world standards, and has numerous exceptions that were forced due to politics.

It seeks to tax consumption for everyone, not specifically targeting boomers! Can anyone honestly say that our present tax system, which is overly reliant on income tax is fair, efficient and productive?

Changes to tax are usually a zero sum game and attempts to insist that one should be exempt from these because of .....blah blah blah ....is similar to NIMBYism et al and disregards the fact that as a country we must look forward, adapt and change as new challenges appear to achieve a better and fairer system for all. Most likely mission impossible mind you!

James I think the point that George was making is that a sliding scale of “fairness” exists if a flat rate of GST is applied to spending past savings on which tax has been paid at marginal rates of income tax.
For example a dollar saved at a marginal tax rate of 60% required $2.50 to be earned before tax. A further 10% GST on spending reduces the purchasing power of $1 to 90.91 cents creating an effective marginal tax of 63.63% which means that you needed to earn $2.75 at 60% tax to spend $1 on goods including 10% GST.

@George B: It's simply not correct to look at GST like that. It's not a compounding tax on the income tax you have paid. It is a tax on consumption due to the purchase of a good or service. There are multiple points of tax collection in our economy. The government taxes the product or service, effectively taxing the provider, the provider in turn merely collects the tax for the government.

James your comments do not negate the different ways in which the introduction of a consumption tax impacts people at different stages of their earning careers. You may recall that when the GST was introduced it was also accompanied by significant changes to personal income taxes and social security payments to try to manage that impact. However some people fell through the cracks notably self-funded retirees who didn’t benefit from changes to income tax scales and receive no government support (hence the grumbling).

@George B: I'm not unsympathetic! Tax change is very difficult and it invariably is a zero sum game. Adding complexities like allowing for different age cohorts and accountability for past tax paid is never going to happen and will only further drive the generation wars. Governments of all persuasions make changes we don't like. My philosophy is to adapt, pivot, accept and then get on with enjoying life, despite the changes! Regards.

There are alternatives to a GST which are far better targeted and fairer but because of vested interests are difficult to pass.

Some include but not limited to
1) Resources rent taxes (work well in Norway)
2) Inheritance taxes (can be reduced by philanthropy)
3) Reducing or eliminating the CGT discount
4) Introducing CGT and land tax on main residence (over an indexed threshold of say $1m)
5) Taxing trusts as companies
6) Aggregate land tax on a national level, stopping land hoarders from having one property in each state
7) Tax super as it was prior to 1999, ie fully taxable but with a 15% tax offset (no need for limits in super this way)
8) Incorporate medicare levy into tax rates and increase tax rates of companies and trusts (after taxing trusts as companies) to cover this. This will stop people structuring their affairs to avoid medicare.
10) Disallow deductions for intangible assets and rights if paid to foreign related entities.

This combined with full tax indexation will mean their will be enough money to pay for pensions and health care for baby boomers AND reduce the top marginal tax rate to the company tax rate and thus stop our young from being over-taxed. You could even build more social housing. There may even be enough left over to reduce the company rate.

It's telling and instructive that 98% of the Henry Tax Review have been ignored or disregarded by both sides of politics. Many of the things you suggest were contained within, and discarded as too hard, aka political suicide!

Sadly, real tax reform seems a bridge too far, with the overly divisive state of politics, lack of bipartisan support and politicians having no real vision about what is truly best for Australians! Our political leaders are unable to communicate adequately to the Australian people and get their support. Distrust and dislike for politicians has reached its' nadir! The present antics of Albanese and Co merely cement that view.

Frankly I'd just love starting with an honest conversation about the structural deficit and the options to address that. I can't recall who it was, but from memory it might have been Chanticleer columnist James Thomson, who (to paraphrase badly) said Australia's budget is like shopping at Woolies on an Aldi Budget. And the only one in Parliament brave enough to talk about that basic problem is Allegra Spender. I get her constituents would benefit from lower income tax but they'd also cop a hit from increasing taxation on assets. But we're a long way from a solution if we can't even acknowledge the basic problem.

Hi Geoff, I think you've made my point perfectly... at least in terms of the community's appetite for tax reform.

There will never be a fair taxation system while we have an unfair money system. With built in inflation, savers will always lose and borrowers will gain. Why is that fair? Do not think that a targeted 2.5% per annum is bearable. The actual inflation per annum over the last 20 years or more is closer to 5% per annum. This makes money saved at the beginning of a working life worthless by the end of that life. We all see the effects, but no one wants to do anything about it. People put up with it as though it is inevitable. It did not used to be. Although gold has been very forcibly consigned to the history books, when it was used for 2500 years of human history it did not allow inflation. Here is a suggestion, which I know will not see the light of day. Use the market value of gold as the measuring stick. This is set every day by a huge trading market, independent of any government. No waiting for the ABS to work out an irrelevant and out of date CPI, which it is agreed that it no longer measures living expenses properly. Any Tax law, including that of Capital gains tax especially, is re-framed to use weights of gold instead of AUD amounts. The basic principle is that if you gained more gold in one year, compared to the previous one, then the difference is taxable. For CGT purposes, the cost price at the time of acquisition is converted to gold. When the asset is sold, the price is converted to gold and CGT is payable on the excess.This would make gold itself not subject to CGT. The tax free threshold would be a certain weight of gold, likewise the progressive thresholds. Interest paid on savings would be treated the same way, where the amount invested at the beginning of the year is added to the interest paid during the year and the total at the end of the year converted. If you made some gold, it is taxable, but not if you lost gold. No gold is actually required to be used as money and no gold reserves are required by the government to use this system. Tax would still be paid in AUD, after converting back from gold. Please do not dismiss this out of hand as politically impossible ( I suspect that). Tell me the technical flaws, or come up with a better system.

All quiet on the comment front, so I guess no one took my ideas seriously. Everyone happy that the Reserve bank and successive governments will prevent us from following the path of Argentina.

Sounds good to me, but when we can't even have an honest discussion about energy or much needed tax reform or defence for that matter I don't hold out any hope for your suggestion.

Reference your comment: "With built in inflation, savers will always lose and borrowers will gain. Why is that fair? Do not think that a targeted 2.5% per annum is bearable. The actual inflation per annum over the last 20 years or more is closer to 5% per annum." My comment is I disagree. If the cash rate and inflation rate are 2.5%, savers and borrowers nether gain nor lose. If the cash rate is less than the inflation rate, savers will lose and borrowers will gain. If the cash rate is greater than the inflation rate, savers will gain and borrowers will lose. I don't want to get into a time wasting debate so if you disagree with my comment, let's agree to differ.

"If the cash rate and inflation rate are 2.5%, savers and borrowers nether gain nor lose.":

Ignores tax.

= (1 + (1 - Tax%) * 2.5%) / (1 + 2.5%) - 1

Tax , Yield
47.0%, -1.15%
37.0%, -0.95%
34.5%, -0.84%
31.5%, -0.77%
00.0%, +0.00%

https://freeimage.host/i/marginal-tax-rate-67-plus.J1zLbJj
= -0.73%

David, I'll bite.

But only by asking you to go back and read all the RBA speeches and papers in Bernie Fraser's day when the 2-3% target range for inflation over the long term was discussed then introduced.

Gist is that this target was determined because of a few reasons relating to the technicalities of calculating the CPI and was judged to represent 'practical price stability'. It is NOT building in a core rate of inflation, it's actually building in stability in practice. To target a zero CPI would actually produce such tight settings that the economy would go backwards.

And even with the recent outbreak, your long run figuring is simply wrong. Over the 25 years to Dec 2023, the annual average inflation rate has been 2.8%. Prior to 2021, the 25 year average had fallen to 2.3%.

Your comment that the CPI doesn't measure living expenses properly is not correct. That's another topic, but it is composed of goods and services in proportion to where average folk in Australia spend their money, based on actual data from regular household expenditure surveys and the reams of data collected by the ABS for calculating the GDP figures. Many people mistakenly think that, because it doesn't only cover the grocery bill ("Which has gone up a lot more") that it's not measuring the cost of living, but the truth is that people spend their money on far more than that. Maybe they only buy a car every 5-7 years, but the cost of a car has to come into the CPI in an appropriate proportion to properly measure the 'cost of living'. It's not just the 'cost of eating'.

Your comments about gold make no sense at many levels. Just one wrong belief you expressed was that the gold standard gave us a non-inflationary nirvana. Not true - there were many bouts of inflation when the world used the gold standard. It was no panacea, which is why it collapsed in the 20th century.

Dear Former Treasury policy adviser; Thank you for you considered reply and taking the time to present how you see the world from having been in government. I will indeed read through the arguments put forward by Bernie Fraser to justify the 2.5% reserve bank cash rate target. However in my first line of defense, I would like to remind you and the readership of the famous quote by Alan Greenspan, Bernie Fraser's contemporary and chairman of the Federal Reserve. "In the absence of a gold standard, there is no way to protect savings from confiscation due to inflation. There is no safe store of value." Not that that doesn't stop people from trying. The favourite alternative in Australia is property and the richer you are the more the imperative there is to buy as much as you can. And people wonder why it is not affordable for the less well off. Gold is not an investment. See the Biblical "Parable of the Talents". Gold is money (J. P. Morgan). Wealth as money is necessary some times, for investment opportunity. It should not be degraded while waiting, in my opinion.
In my naivety, to find the Australian inflation rate over the last 40 years or so, I asked Google, coupled with Chat Gpt. Here is the statement: "The approximate average inflation rate over the last 40 years in Australia is around 4.5%". Admittedly, the average over the last 20 years is less and if I went further back is is more. The last 10 years, which include the Covid period of economic stagnation are now being turned around with the recent inflation bout. No wonder Philip Lowe had a hard time.
The futures market for gold in New York while large, is capable of manipulation and gold responds not only to inflation but also to a fear index, so not entirely perfect. Because there is no monetary demand, it is more volatile than it was. The market nature, free of any government interference is appealing. To quote Churchill, it is not based on "lies, damned lies and statistics".
As to your last sentence, there are many issues that I cannot agree with. The best period when gold was centre of money was 1870-1910, the period the French call the Belle Epoche. Mostly free of wars, there was little inflation. There was a period at the beginning of the 16th century when the gold of the New World flooded into Europe, where some inflation occurred. Secondly, gold did not collapse. Confiscation of gold was mandated in 1933 during the great depression, by F.D Roosevelt, who had to force it by making it illegal for US citizens to hold it, under pain of huge fines and imprisonment. So much for the land of the free. Australia followed suit, as usual. Australia was built on gold. It is still one of the largest suppliers of gold to the world. Amazingly, because of improvements in mining technology, the supply of gold has continually increased to keep pace with the growth in world population, so the same amount of mined gold per person as in 1900. At least 85% of the world's gold has been produced since 1900, well after the gold rushes of the 19th century. The world will not run out any time soon. It is not used up in any true sense. The independence from government is its greatest virtue, plus it is hard to get which ensures its value.
There is a lot more to say, but enough for now.

OK, let's clear something up here. There's a presumption that we have a history of allowing 'bracket creep' to happen. We don't. I could go through year-by-year, but to illustrate let's look at some key moments in the last 30 years.
In 1994 the income tax brackets were $5,400 for the threshold; then $20,700, followed by $38000 and the top rate kicked in at $50000. Average annual full-time earnings back then were just over $35,000 so these brackets as a % of earnings were 15%, 59%, 107% and 141%.

Jump to 2014 and average earnings had more than doubled to just under $80,000 (the % increase was 225%). If there'd been no adjustments then the average earner would have gone way over the $50k top bracket and tax would have been enormously increased. But that didn't happen. The brackets had been adjusted to $18,200 then $37,000 then $80,000 and then $180,000. As a % of earnings those come to 23%, 47%, 101% and 226%.

If we had somehow deemed in 1994 that those brackets were sacrosanct then indexation would have resulted in the threshold only increasing to $12,150 in 2014 (which is 15% of average earnings in that year). The second bracket does kick in a little earlier (47% versus 59%), but the first marginal tax rate was lower at 32.5% compared with 34% in 1994.

I'm not here to defend or justify the specific brackets. But the fact is that they have been adjusted in a manner not too dissimilar to what those screaming for automatic indexation would have them to have done. The worries that politicians only want to let bracket creep increase the tax take is absolute nonsense from observed tax rate changes.

However, further than that, with automatic indexation, tweaks like increasing the threshold rate (compared with average earnings) can't happen. As soon as you start fiddling with an automatic indexation process it's not automatic indexation and you end up with what we actually have!

This analysis says nothing about the number of tax payers in each bracket over time, which would be another critical factor in the various adjustments. My point being, I would rather allow Treasury, the Treasurer and the Parliament to review the whole structure from time to time than lock us into a mindless automatic indexation process just because of an irrational fear that the politicians are gaming the system.

A few questions
1. What were the marginal tax rates at each of the historical points
2. The GST effectively needed a trade off in income tax. What impact does this have on your figures

BillyS,

your questions are answered by the ATO here:
https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents#ato-Australianresidentstaxrates1990to1999 (ignore the years shown in the link - that page has all the tax rates and scales from 1983-84 to 2023-24.)

Specifically on question 2, when the GST was introduced there was a combination of changes to both rates and brackets which resulted in the tax rate on average full-time earnings being reduced by 4% (from 26% to 22%).

Hi Former Treasury policy maker,

Thanks, I welcome the discussion.

When comparing movements between 1994 and 2014, you will need to adjust for the big drop in average tax rates that occurred from the 2000 tax year to 2001 tax year, to compensate for the introduction of the GST. The change to the personal income tax scale was significant.

For example, the average tax rate on a salary of $50k, dropped substantially from 28.2% to 22.8%. This would have a big effect on your comparisons.

I think you will find historically, and particularly since 2001, that the increase in average tax rates outpaces wage inflation due to bracket creep. Yes, they are pegged back from time to time like for example with the stages 1 to 3 cuts, but inevitably the government wins over time. Income tax receipts in Australia were up by nearly 30%, just in the 18 months to the end of 2023. Meanwhile spending as a percentage of GDP continues to increase with the help of bracket creep. Fiscal discipline is certainly lacking.

And I didn’t need to detail numbers of taxpayers in each bracket over time, because the fact that tax receipts are expected to be $28 billion more over the next decade under Labor compared to the Coalition, alone demonstrates the withholding of bracket creep return, and who is bearing the brunt of bracket creep.

I love your faith in politicians to ‘do the right thing’, but let’s face it, they are often pre-occupied with where they are at in the election cycle, such that gaming the system is often real, not an irrational fear.

I'm away for a few days without access to the data to respond in detail.
Will just say for now that the significant adjustment to tax rates when the GST came in supports my argument that discretionary changes have been made historically to align the brackets and tax rates with contemporary economic and fiscal realities. The argument that we "need" automatic indexation because our elected representatives will fail us is not borne out by history in my view. Further, even if we had automatic indexing we'd still need discretionary changes at times.

Nah. Just went through year by year, starting from 2001. The tax rate on AWE for all employees full-time was 21-22% every year until the current FY2024 when it sneaks up to 23%. There have been 9 adjustments to either or both of the brackets or the rates for each bracket over those years. I'm not defending the specific changes or levels, but the fact is that they do result in the brackets changing over time pretty well in line with earnings, such that the average earner is paying the same % of tax now as they did in 2001.

Which. incidentally, is the same % as they were paying in 1994. In 2000, the year before the GST and related adjustments, the tax rate on average earnings had crept up to 26%, but the 2001 adjustments restored the older historical rates.

I say again that automatic indexation is not a superior outcome to allowing the processes that we've witnessed regularly over the years to play out. It would deliver roughly similar outcomes, but without some of the tweaking of specific rates and brackets that flexibility allows.

Hi FT policy adviser. Thanks again. I had a quick look and the average tax rate on AWE in say 2008 was 20.6%, jumping to 22.8% in 2023. So your numbers look sensible. Still, it is a 10% increase in average tax rate, which works out to be about $2k extra on AWE. And if the increase was steady over time, aggregated over 15 years, that’s not immaterial. And that’s just looking at one income level. I haven’t run the numbers but logic suggests the bracket creep would be more at higher income levels, given if indexation had occurred over the period, the top marginal rate should be cutting in at about $250k today, which is a long way from $180k.

In any case, indexing brackets would serve the dual purpose of not only nullifying bracket creep, but holding government spending to account also. We have a productivity problem in this country, and ever increasing spending will not help that. Productivity is enhanced by restrained spending coupled with competitive tax rates.

The government seems to have no issue indexing things like fuel excise and alcohol tax regularly to inflation, so why not tax brackets? It seems to be a case of heads I win, tails you lose.

Finally, 17 out of 38 OECD nations, including the US, have automatic indexation of their tax scales annually. So it can’t be that hard. But I suspect the political payoff of tax cuts, coupled with a propensity to spend more, is a difficult habit to break.

One final response to Tony then I'll leave this topic alone.
The fact that other OECD countries including the US have tax bracket indexation doesn't mean they implement fiscal policy any better than we do. In fact I'd say in the US it's worse, with regular crises.
Sure, a flexible strategy doesn't eliminate bracket creep in some individual years or over 2-3 years. But my belief is that, as long as it's achieved over the medium term, the system we now have is a good balance. I should add that it wasn't always that way. For many post-WW2 years it was endemic. Only the reviews of policy undertaken by folk like Asprey, Matthews and the White Paper for the Hawke-Keating tax summit in 1985 delivered us the system we have now. Matthews (a great man with a heart for Australia) recommended indexing the tax scales and Fraser implemented for a time. But it tied the budget from year to year to tightly and had to be abandoned.
Anyway, a good discussion from which I'll now back away.

Yes, a good discussion. Thanks FTpm.

So a former Treasury policy maker does not like automatic indexation and prefers to have bracket creep. Not surprising really!

Unfortunately the arguments put up for retaining bracket creep do not meet the pub test. For example "tweaks like increasing the threshold rate (compared with average earnings) can't happen". Of course they can just as the current Labor Gov't has done to change the previously legislated tax changes.

The argument that the proposal is being put forward "because of an irrational fear that the politicians are gaming the system" smacks of rhetoric.

However the lack of policy in Treasury about increasing productivity and real GDP per capita i.e. wealth creation, which the RBA and many other have raised, is clearly a problem which is enabled by the current system.

Michael we are not "retaining bracket creep". As my other comments argue, we have historically - and I'll add under governments of both persuasions - seen frequent adjustments that result in overriding bracket creep. It's done in a flexible way that enables specific adjustments to the tax free threshold, the brackets and the marginal rates at each bracket which reflect contemporary circumstances. Yes that includes political circumstances but so what? We live in a democratic political system that judges each government regularly and political decisions are made all the time about everything. That doesn't make them bad.
I don't believe bracket creep should be allowed, but it never has been in practice. We already have a superior policy framework to mindless indexing of tax brackets.
If you want to argue differently please do so with sound policy analysis rather than unfounded innuendo that people like me and my Treasury colleagues over the years aren't interested in the well-being of Australians. It might surprise you to learn that that's why we joined the Treasury in the first place!

Australia had indexation of tax brackets in the late 70s. It was stopped very quickly (probably because it cost too much). Seems to me that true tax reform in Australia will never happen as there will always be someone who is worse off (and the opposition and/or media would make a meal of it like they have done in the past).

To argue that hat we shouldn't have a 37% tax rate as it encourages to minimisation, well that will happen anyway and has been happening for years. What should be stopped is transferring trust profits to companies (especially where there is no actual payment) as this is simply legal tax avoidance and limiting some of other tax minimisation that goes on eg service trusts.

That the tax-free threshold still sits at $18,200, rather than $18,000 or $19,000 demonstrates that all that all governments do with the tax scales is tinker at the edges.

They index super contribution caps and the total super balance for pension super accounts, but not the $3m top limit.

Shows them all up for the shifty manipulators they are.

Geoff, I found it quite ironic that on the day (or close to it) that the ALP announced their broken tax promise, the excises for alcohol and tobacco increased via indexation. Unfortunately, I did not hear wind of any commentary on that from the fourth estate.

Neil, I noticed that too on news day before exise increase, not beer drinker but shocked when saw average cost of a 'pint'. Chaps soon won't be able to afford escape for a pint or two up the pub in time-honoured fashion.

How many times does it need to be said that the top tax rate is not 45%, it is 48%+,
once you add in Medicare levy, plus the Medicare surcharge for higher income earners who don't pay expensive private health insurance, plus various other levies sometimes imposed on higher income earners ( Fire levy, Budget repair levy etc ).
A personal tax rate of 48%+ is ridiculously high

Politicians have two reasons not to index tax brackets
1. It will cost them tax revenue
2. You get more votes if you make a big tax cut announcement before an election (every three years) rather than having it happen each year

Bottom line "your dreaming" if you think it will ever happen

Agree John. Australia's taxation system is far too reliant on taxation from income, as Ken Henry has (repeatedly) pointed out. So until there's a genuine attempt at reforming the tax system to tax assets and consumption the one big lever revenue lever politicians have to pull is bracket creep.

Ultimately I think this on voters and politicians. Politics is obviously a sorry state of affairs when both parties prefer wedge politics than to contribute constructively when in opposition. But voters must take some blame too. If everyone screams like it's the end of the world when tax reform is raised, why wouldn't the government continue to play the hand they are dealt?

Aren’t we already taxing assets (municipal rates, capital gains taxes, stamp duties, etc) and consumption (GST). By "reforming the tax system" you obviously have in mind much higher taxes. Retirees many of whom are self funded and have spent a working lifetime on the receiving end of a taxation system that was and remains too reliant on taxation from income (top marginal tax rates were 60-65% in the 70s and 80s) will not look kindly on proposals to now hit them on their hard won (and tax paid) assets as well.

The last government that introduced tax indexation soon found that the punters did not understand it and so there was no bang for their buck at the ballot box. Thus it will always be. Better to hand back the basket creep to the voters prior to an election. Basic politics - like it or not!