What is Bracket Creep—and Why the New Tax Cuts Might Not Feel Like Enough

by | Oct 21, 2025 | Tax Law

What is Bracket Creep—and Why the New Tax Cuts Might Not Feel Like Enough

Introduction

You may have heard of “bracket creep”, a silent income tax issue that often gets overlooked. Even with tax cuts on the way, inflation and wage growth can push you into higher tax brackets, meaning more of your income is taxed at higher rates even if your real purchasing power hasn’t improved.

What Is Bracket Creep?

Bracket creep happens when your earnings rise in nominal terms—because of inflation or wage increases—but tax brackets don’t shift accordingly.

The result:

  • You pay a higher proportion of your income in tax, even though your standard of living hasn’t improved.

  • Over time, your real disposable income may actually shrink, despite earning “more” on paper.

👉 Related reading: Division 296: Super Tax Proposal & What It Means If You Have a Large Super Fund

Will the New Tax Cuts Help?

The government has introduced stage 3 tax cuts (including lowering rates for the $18,200–$45,000 bracket and adjusting higher brackets). These reforms are designed to address bracket creep, but they may not go far enough.

Key concern:

  • If inflation remains high and thresholds are not regularly adjusted, tax cuts may only partially offset the effect of bracket creep.

  • Workers could still see their tax bills rise faster than their purchasing power.

For more detail, see the ATO’s current tax thresholds.

Who Is Most Affected by Bracket Creep?

Bracket creep doesn’t hit everyone equally.

Those most exposed are:

  • Young and middle-income earners – much of their income comes from wages, and they often have less in savings or investments to offset the impact.

  • Families with rising costs – when household expenses climb due to inflation, a bigger tax bite can squeeze budgets even tighter.

What Can You Do?

Tax cuts are welcome, but without bracket indexation, creep will continue. Steps to consider include:

  • Plan your income timing – prepay deductible items where possible.

  • Explore salary packaging – such as super contributions or benefits.

  • Invest in inflation-hedging assets – which may grow in real terms and protect purchasing power.

  • Stay informed – small adjustments early can prevent bigger impacts later.

Conclusion

The hidden inflation tax of bracket creep is something every wage earner should watch. While new tax cuts will help, they may not fully protect against rising bracket pressure if inflation stays high. Keeping track of how wages and costs move together—and adjusting your financial strategies—can stop you from losing ground to silent tax creep.