Bracket creep has been in the news lately as debate rages about the Albanese government’s changes to the stage-three tax cuts.
But what exactly is it?
Bracket creep occurs when an individual’s income growth causes them to pay higher average income tax rates each year.
Imagine a construction worker who earned $118,000 in taxable income in 2022-23
Bracket creep is seen as unfair on workers because they can end up paying more tax for doing the same job.
The problem can become significantly worse if left unaddressed because income increases compound, meaning that over a decade someone can pay thousands more in income tax.
There are two main ways bracket creep can be addressed:
The past two federal governments have made changes to the tax system to address bracket creep: