What is bracket creep?

TL;DR – what is bracket creep?

Tax brackets don’t change over time in Australia, unless a government chooses to change them.
‘Bracket creep’ is where you pay more tax when you get a pay rise. Combined with high inflation, it can mean your overall income doesn’t rise by much.
Some independent MPs say bracket creep is a “stealth tax” on working Australians and want the next government to make sure tax brackets are regularly increased.

First: tax

Australia has a “progressive tax system” — the higher your income, the more tax you pay.

Example

Here’s an example: Stephanie earns $100,000 per year.

The first $18,200 of her salary is tax-free.

The dollars between $18,201 and $45,000 are taxed 16c each, totalling $4,288.

The dollars between $45,001 and $100,000 are taxed 30c each, totalling $16,500.

Stephanie would pay a total of $20,788 in income tax.

Tax brackets

Australia’s income tax brackets are fixed.

Australia, like many economies around the world, has seen high inflation in recent years.

Wages have risen broadly in line with inflation. Increasing wages according to the rate of inflation is meant to cancel out the impact of rising prices.

Australian Bureau of Statistics (ABS) data shows wages rose 3.2% in the year to December. In that same period, inflation was 2.4%.

Overseas

Other countries, such as Canada, change their tax brackets every year to adjust for inflation, under a process called indexation.

Canada’s federal tax rate in 2024 was 15 cents for every dollar earned up to $55,867.

In 2025, it changed to 15 cents for every dollar earned up to $57,375.

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European countries like Belgium, Norway, and France adjust their tax brackets yearly, while Germany changes them every two years.

Teals

At the last election, a group of ‘teal’ independents were elected to the House of Representatives.

They ran in traditional Liberal seats on a platform of stronger climate action, improving gender equality, and integrity reforms in federal politics.

Most polls suggest the upcoming federal election is likely to result in a minority government, where neither of the major parties can govern in their own right.

In the event of a minority government, both sides will need to negotiate with independents and minor parties.

Calls to change

Eight independent MPs, including all the teals, wrote a letter to Treasurer Jim Chalmers this week urging him to introduce indexed tax brackets.

The letter describes bracket creep as a “stealth tax on individuals’ incomes,” which independent MP Allegra Spender said particularly hurts ”young, working people”.

Another independent, Dr Sophie Scamps, added: “For too long we’ve been overly reliant on personal income tax in Australia.” About 50% of tax collected in 2021/22 was derived from income tax, according to official government figures.

In a statement to TDA, Spender said the group of independents are “open” to how income brackets are indexed.

Options include inflation or the wage price index, which is the Australian Bureau of Statistics’ measurement of wage growth.

Spender also suggested an ongoing rate of 2.5%, based on the mid-point of the Reserve Bank of Australia’s target range for inflation (2-3%). She suggested this would limit the possible impacts of inflation and wage fluctuations.

Government

Indexing income tax brackets to a metric like annual inflation would ultimately mean the Government receives less tax revenue.

Earlier this week, Treasurer Jim Chalmers told the ABC: “It’s easy to make proposals about changes which would cost the budget substantially [but] I have to make it all add up.”

Last year, the Government changed some tax brackets. For instance, incomes between $45,001 and $120,000 used to be taxed at the same rate. That has lifted to $135,000.