A new report from the Household, Income and Labour Dynamics in Australia (HILDA) Survey has revealed a significant milestone in the nation’s tax landscape: Australians are paying a higher share of their income in tax than at any point in the past two decades.
In the 2022–23 financial year, households paid an average of 11.7% of their income in tax, the highest level since records began. For full-time workers, the burden was even more pronounced, with an average of 20.3% of income going to tax, up from 18.1% in the previous year.
The key culprit behind this surge is bracket creep — a subtle yet impactful shift that quietly increases tax bills without any explicit rise in tax rates.
Understanding Bracket Creep
Bracket creep occurs when tax thresholds do not keep pace with inflation. As wages rise in nominal terms (the dollar amounts we see in our pay slips), taxpayers can be pushed into higher tax brackets even if their real incomes — what their earnings can actually buy after inflation — have not improved.
For example:
- A full-time worker might receive a modest 3% annual pay rise to keep up with rising costs of living.
- Despite feeling no richer in real terms, that pay rise could push part of their income into a higher tax bracket.
- As a result, they pay a higher rate of tax on that slice of income, reducing the benefit of the raise.
For businesses, this phenomenon can create a ripple effect:
- Employees’ take-home pay grows more slowly, often dampening morale and purchasing power.
- Pressure mounts on employers to increase wages further, as staff struggle with cost-of-living pressures.
- Small business owners themselves often experience the same squeeze, as a larger share of their personal income is taxed away.
Why Bracket Creep Matters for Everyone
Bracket creep isn’t just an abstract economic concept — it has tangible effects on households, employees, and businesses alike.
For Employees and Households
When a larger portion of earnings goes to tax, disposable income shrinks. This can mean:
- Less spending power for essentials and discretionary purchases.
- Increased financial stress, especially as the cost of living continues to rise.
- Slower savings growth for long-term goals like home deposits, retirement, or education funds.
For Businesses
Small and medium-sized enterprises (SMEs) face unique challenges:
- Tighter cash flow as owners pay more tax on their own wages or business drawings.
- Wage negotiations become more complex, as employees seek higher pay to offset higher taxes.
- Shifts in investment decisions, as the post-tax return on reinvesting profits diminishes.
For the Economy at Large
When consumers spend less and businesses hesitate to invest, economic growth can slow. Bracket creep acts as a drag on productivity and innovation by discouraging both consumption and capital expansion.
How BOA & Co. Chartered Accountants Can Help
While broad-based tax reform remains a topic of debate at the national level, there are practical steps businesses and individuals can take now to lessen the impact of bracket creep.
At BOA & Co., we work with clients to develop proactive, tailored strategies, such as:
- Salary Packaging and Fringe Benefits Solutions
Structuring remuneration to optimise take-home pay while staying compliant with tax laws. - Tax-Efficient Business Structures
Advising on whether operating as a sole trader, partnership, company, or trust delivers the best tax outcomes for your circumstances. - Multi-Year Tax Modelling
Forecasting tax obligations for the next 3–5 years to plan ahead and avoid unexpected burdens. - Maximising Legitimate Deductions and Incentives
Identifying and leveraging opportunities such as the R&D Tax Incentive, small business concessions, and other credits to reduce your overall tax liability.
Take Action Today
Waiting for large-scale tax reform can be risky. The reality is that bracket creep will continue to affect incomes and business profits in the near term. By acting early, you can better manage your tax exposure and safeguard your financial wellbeing.
📞 Contact BOA & Co. Chartered Accountants today to review your tax position. Our team can help you design strategies that keep more of your hard-earned income in your pocket and support your long-term financial goals.
⚠️ Disclaimer:
This article reflects information available as of October 2025. Tax laws and policies are subject to change. Readers are encouraged to seek personalised professional advice tailored to their specific circumstances before making financial decisions.