Opposition says it would fix ‘bracket creep’. What is that?

Opposition Leader Angus Taylor has vowed to end ‘bracket creep’ if the Coalition wins the next election.

Bracket creep occurs when wage and inflation rises push a person into the next tax bracket, meaning any financial gains are offset by higher taxes.

Treasurer Jim Chalmers told the ABC that Taylor’s plans are “irresponsible”.

Here’s what you need to know.

Tax system

In Australia’s tax system, the higher your income, the more you pay. These are the brackets for the 2025-26 year.

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 before any deductions or levies.

Inflation

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

Wages have risen broadly in line with inflation, though not always. 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 3.3% in the year to March. In that same period, inflation was 4.6%.

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Bracket creep

In Australia, tax brackets don’t change over time unless the Government chooses to change them.

Some countries, including Belgium, Norway, and France, change their tax brackets every year to adjust for inflation, under a process called indexation.

Currently, the Government indexes payments such as Youth Allowance and JobSeeker, and loans including HECS.

Budget reply

After the Budget, the Opposition makes a speech critiquing the Government’s plans and proposing its own. Here’s the part of Opposition Leader Angus Taylor’s speech on bracket creep:

"When your wages rise just to keep up with inflation – you’re no better off. But you pay higher taxes as though you’re better off. More of your income goes into a higher tax bracket – this is bracket creep. And that’s why you feel poorer."

In a press conference on Monday morning, Taylor reiterated the Coalition’s plan to scrap bracket creep.

“We will, through our Tax Back Guarantee, ensure that

bracket creep comes to an end,” he said.

In a statement to TDA, Taylor said: “The Tax Back Guarantee can be expected to return $22.5 billion to Australians over the forward estimates.”

The ‘forward estimates’ means the year the Budget is handed down and the next three years. The next election is due in 2028, meaning this would begin from the 2028-29 financial year if the Coalition won.

Response

On Sunday, Treasurer Jim Chalmers told the ABC the Government is “enthusiastically returning bracket creep” – meaning he believes its tax cuts are making up for bracket creep.

Chalmers said “responsible” management of the budget is “creat[ing] room to return more bracket creep into the future.”

He added that Taylor’s proposal is “neither responsible nor affordable.”

“What Angus Taylor is proposing to do is to pump the most money into the economy when inflation is already at its highest,” Chalmers told the ABC.