Bracket creep would take more than half of a minimum-wage worker’s real pay rises, and the top-threshold earner loses even more

Bracket creep, the quiet tax rise that happens when wages climb into higher tax brackets that do not move, is about to hit two groups of Australians harder than anyone else: those on around $45,000 a year and those approaching $190,000.

That is the finding of a research note released on Wednesday by the e61 Institute, written by its chief executive Michael Brennan, economist Richard Holden and three colleagues. It modelled what would happen to every taxpayer’s average tax rate over the decade from 2027-28 if no new income tax cuts were made.

The answer: almost everyone pays more. For everyone earning more than about $21,000 a year, except the top 1%, the average tax rate would rise by more than two percentage points by 2034-35. At $45,000 the rise is more than five points.

“Bracket creep is a tax increase by stealth,” the authors write.

Why are $45,000 and $190,000 the worst places to be?

Because both sit just below a threshold. A worker on $45,000 is right at the edge of the bracket where the marginal rate jumps, so almost every real pay rise they receive is taxed at the higher rate. The same happens to someone on about $190,000, just below the top tax threshold.

On e61’s numbers, a $45,000 earner keeps less than half of any real pay rise: 56% of it is clawed back. Near $190,000 the clawback is 65%. Five percentage points on a $45,000 income is roughly $2,250 a year.

Further up and down the scale, the effect is smaller but still real. At $100,000 in today’s dollars, the average tax rate rises from 20.5% to 22.6% from inflation alone.

Who is counting on this money?

The federal budget. The 2026-27 budget forecasts a return to surplus in about eight years, and e61 says roughly half of that improvement comes from higher revenue, largely bracket creep. The note assumes nominal income growth of 3.7% a year, in line with Parliamentary Budget Office projections.

The authors argue that is neither fair nor sustainable. They call bracket creep “neither an equitable nor a credible mechanism” for repairing the budget, and say the honest options are slower spending growth or tax reform that raises money in a less distorting way.

There is history here. Between 2012-13 and 2017-18, bracket creep and the temporary budget repair levy lifted average tax rates by 1.8 points before later tax cuts wound them back.

What do the parties say?

Treasurer Jim Chalmers has said he does not want bracket creep pushing up average tax rates, and that returning it has been a goal of the government’s tax changes. e61 says that is true for the average worker only when measured against 2023-24, when rates had been inflated by the end of the low and middle income tax offset.

Opposition Leader Angus Taylor has promised to index tax brackets to inflation, phased in over two years from 2028. e61 says that would significantly slow the rise in average tax rates but would not fully account for bracket creep: with inflation indexation alone, the average worker’s rate still rises, because wages normally grow faster than prices.

What does it mean for your pay?

If you are near $45,000 or near $190,000, a pay rise that only keeps you ahead of inflation will still leave you paying a bigger share of your income in tax each year. For most workers, e61 estimates, bracket creep would erase around 30% of the growth in take-home pay over the decade, unless governments hand it back through tax cuts, as they usually do every few years, often near elections.