Your Pay Rise Went Up a Bracket. The Middle Paid Most.

2026-10-10 — Michael Leung

Illustration · image created for this article

Australia’s income tax brackets don’t move with prices or wages. Only Parliament moves them. So when your pay rises, more of it lands in a higher bracket, even if the raise only covers inflation. That is bracket creep.

The ATO’s own figures show who paid for it. Between 2020-21 and 2023-24 the median taxpayer’s average tax rate rose from 21.6% to 25.5%. The average taxpayer’s went from 29.6% to 31.9%. In plain terms: the middle got hit hardest. Stage 3 gave some of it back in 2024-25, but the brackets are frozen again.

Bracket creep in Australia, in short

Useful already? ☕ Buy me a coffee and keep these explainers free and ad-free.覺得有用？☕ 請我喝杯咖啡，讓這些解說繼續免費、無廣告。

Are Australia’s tax brackets indexed to inflation?

1. 2020-21 to 2023-24: pure bracket creep. The rate scale stayed exactly the same for four years. Over that time the Wage Price Index rose about 13% and CPI about 17%. Anyone whose pay kept up with prices drifted into more tax.
2. 2024-25: the Stage 3 cuts. The revised package set rates of 16%, 30%, 37% and 45%, with thresholds at $45,000, $135,000 and $190,000. For most incomes, average tax rates fell below pre-COVID levels.
3. 2024-25 onward: creep resumes. The new scale is frozen too. The Parliamentary Budget Office’s baseline has the economy-wide average personal tax rate rising from 24.9% to about 28.5% by the mid-2030s.

ATO resident rates. Excludes the Medicare levy and tax offsets.

Did wages keep up with inflation?

Not between 2021 and 2024. Annual CPI ran above wage growth from mid-2021 to late 2024, peaking at 7.8% in the December quarter 2022 (7.9% on the ABS’s re-referenced basis). Wage growth peaked later and lower, at 4.3% in December 2023. The latest figures: WPI 3.2% (June quarter 2026) and monthly CPI 4.0% (August 2026).

That made it a double hit. Real wages fell, and the raises people did get were taxed on brackets that hadn’t moved. For the full cost-of-living picture, see Wages vs Inflation 2019–2026.

Who paid most? The median vs the average earner

Example 1: what taxpayers actually paid (ATO data, 2013-14 to 2023-24)

This is not a model. It is the ATO’s Taxation Statistics, Snapshot Table 4: median and average taxable income, and median and average net tax actually paid, after offsets and including the Medicare levy. Rate = net tax ÷ taxable income.

How to read it

• The middle drifted up most. From 2019-20 to 2023-24 the median rate rose 2.1 points (23.4% → 25.5%). The average rate rose 0.9 points (31.0% → 31.9%).
• The dips were new laws, not indexation. In 2018-19 the low and middle income tax offset (LMITO) arrived (24.6% → 23.2%). In 2020-21 the Stage 2 cuts and a boosted LMITO took the median rate to 21.6%, the decade low.
• 2022-23 was the snap-back. Median income rose 5.3%, but median tax rose 16.6%. The temporary LMITO ended and the frozen brackets took back the inflation raises in one year.
• Why is the average earner’s rate higher? Incomes are skewed. A small number of very high earners pull the average ($78,127 in 2023-24) well above the median ($58,739), so more of each average dollar is taxed at 32.5% or more.

Caveats: net tax excludes people who paid no net tax, while taxable income includes zero-income filers (ATO footnote). 2024-25, the first Stage 3 year, is not published yet; on scale rates alone the median earner’s marginal rate fell from 32.5% to 30%, so expect a dip.

Illustration · image created for this article

What happens to a $60,000 wage raised in line with wages?

Example 2: one $60,000 wage, raised every year (illustration)

The setup: a worker on $60,000 in 2019-20, close to the ABS pre-COVID median for full-time employees. From 2021-22 the wage rises each 1 July by the previous year’s June-quarter Wage Price Index. Each year is taxed on that year’s actual ATO scale. It excludes the Medicare levy and offsets, so these rates sit below Example 1’s real figures.

Not the same “median” as Example 1. Example 1 uses the ATO median taxable income of everyone who lodged a return ($48,381 in 2019-20), which includes part-time workers.

How to read it

• Small but steady. Each raise on a frozen scale added 0.3 to 0.5 points. At $60,000 only the top slice of each raise crosses into the 32.5% (now 30%) bracket, so the drift is gentle.
• New laws moved it twice. Stage 2 (2020-21) cut the rate 1.8 points with no raise at all. Stage 3 (2024-25) cut it 1.5 points.
• The trap. From 2024-25 the scale is frozen again, and the creep restarts from a higher wage. It speeds up as pay gets closer to $135,000.
• If pay had tracked CPI instead, which outran wages from 2021 to 2024, the creep would have been steeper.

How much tax on $100,000? Three bills for the same pay

Same $100,000, three different tax bills. None of the changes came from indexation. All three came from new laws.

Excludes the Medicare levy and offsets. 2019-20: $20,797 on the first $90,000, plus 37% of the rest.

Will the Stage 3 tax cut relief last?

The PBO’s baseline projects the economy-wide average personal income tax rate rising from 24.9% toward about 28.5% by the mid-2030s, unless a future government cuts tax again. That has been the pattern since 2020: creep, a cut, then creep again.

Illustration · image created for this article

What to watch next

• 18 November 2026: September quarter WPI. Wages are growing 3.2% a year, and every dollar of it is taxed on a frozen scale.
• ATO Taxation Statistics 2024-25: the first actual data on how much Stage 3 gave the median earner.
• The next federal Budget: any new tax cut, or any move to index the brackets.

Questions, answered

Not financial or tax advice. General commentary on public ATO, ABS and PBO data, checked on 10 October 2026. The research was AI-assisted, and every figure was checked against the primary sources listed. The $60,000 and $100,000 examples are illustrations that exclude the Medicare levy and offsets. Your own tax depends on your circumstances; ask the ATO or a registered tax agent.