Key Highlights

  • A modelled $45,000 earner’s average tax rate rises from 11% to 16% if brackets stay frozen for a decade.
  • Rising nominal wages push more income into higher tax bands while thresholds remain unchanged.
  • The modelled average tax rate rises from 20% to 22%.
  • The Coalition proposes Tax Bracket indexation phased in from 2028; it is not enacted law.

A worker earning $45,000 could see their average tax rate climb from 11% to 16% over the next decade if tax brackets stay frozen, according to new analysis from the e61 Institute and economist Richard Holden. The finding puts lower-paid workers at the centre of a sharpening political fight over bracket creep, as the Coalition promises indexation and Labor defends its approach of periodic tax cuts.

What the new analysis found

The e61 and Holden analysis modelled how average tax rates change over 10 years at different income levels if tax brackets are left unchanged while wages rise.

At $45,000, the average tax rate goes from 11% to 16%, a five-percentage-point jump. That is the largest rise of any income level in the published figures.

Others also rise. A $75,000 earner goes from 20% to 22%, and a $100,000 earner from 23% to 25%. At $190,000 the rate moves from 29% to 34%, while a $300,000 earner goes from 36% to 39%.

The e61 Institute and Richard Holden analysis indicates the $45,000 and $190,000 groups would have "more than half" of their real income growth taxed away. Most other taxpayers face a rise of at least two percentage points.

E61 chief executive Michael Brennan said: "The tax increase falls unevenly across the income distribution."

Why $45,000 is hit so hard

Bracket creep happens because tax thresholds are fixed in dollar terms while wages generally rise with Inflation and productivity. Over time, more of each pay packet falls into higher tax brackets.

Under the 2026–27 rates, income up to $18,200 is tax-free, income from $18,201 to $45,000 is taxed at 15%, and income from $45,001 to $135,000 is taxed at 30%. Higher rates of 37% and 45% apply above $135,000 and $190,000.

The $45,000 mark sits right at the edge of the jump from the lowest rate to 30%. A worker at that point who receives a pay rise sees every extra dollar taxed at double the rate of the band below. That cliff helps explain why the e61 numbers show such a sharp rise at this income.

The same logic applies near $190,000, where income starts to be taxed at the top marginal rate of 45%.

Hypothetical example: how creep builds up

Hypothetical example: a worker earns $45,000 today. To keep things simple, this example uses only the 2026–27 tax-free threshold and the 15% and 30% rates, holds them fixed, and ignores the Medicare levy and tax offsets.

Today, the worker pays 15% on the $26,800 above the tax-free threshold, or $4,020. That is an average rate of about 8.9%.

Now assume wages rise 3% a year for 10 years and prices rise at the same pace, so the worker's real income does not change. Their salary would grow to about $60,476.

With brackets unchanged, they would pay the same $4,020 on the first $45,000, plus 30% on the extra $15,476, or about $4,643. Total tax would be about $8,663, an average rate of about 14.3%.

So a worker no better off in real terms would hand over a noticeably bigger share of income. These figures differ from e61's because the methods and assumptions differ, but the mechanism is the same.

The legislated cut to 14% from 1 July 2027 would lower both figures in this example.

What the law already does for low-income earners

Labor has preferred to return bracket creep through periodic cuts rather than automatic indexation. The lowest rate fell from 16% to 15% on 1 July 2026 and is legislated to fall to 14% from 1 July 2027, on income between $18,201 and $45,000. Those are enacted changes.

A $1,000 standard work-related deduction is also enacted from 2026–27, and the ATO has issued draft guidance, LCR 2026/D5, on how it will operate. A $250 Working Australians Tax Offset is legislated from 2027–28.

The government has presented these measures as a way of handing back bracket creep to workers. Critics argue one-off cuts are eventually eroded again unless thresholds move with wages.

The Coalition's indexation promise

The Coalition has proposed indexing tax brackets, phased in from 2028. This is a proposal, not law.

In its first three years, the plan would be partly funded by scrapping Labor's $250 tax offset for wage earners. That means some lower-income workers could lose a fixed offset in exchange for brackets that rise over time.

Whether a given worker comes out ahead would depend on how fast wages grow, which index is used and how quickly the change is phased in. Those details will matter a great deal at the $45,000 level, where the offset is a meaningful share of the tax a worker pays and where the jump to the 30% rate begins.

Bracket creep is also a major source of future revenue. The Parliamentary Budget Office has estimated that without bracket creep, the budget would be in Deficit of 0.7% of GDP by the end of the decade, compared with the official projection of a 1% surplus.

That gap shows why both sides find it hard to give up the Revenue entirely. Indexation would provide certainty for workers, but it would also remove a large part of the projected improvement in the budget.

Supporters of indexation argue that governments should have to legislate tax increases openly rather than collect them silently through inflation. Defenders of the current approach argue it lets governments target relief at particular groups, such as low-income earners, rather than giving the largest dollar gains to people on higher incomes. Each approach involves a trade-off between certainty for taxpayers and flexibility for governments, and neither side has yet published full modelling of how its plan would affect a $45,000 worker over a decade.

What to watch

The Senate Economics Committee is due to report on 13 November 2026 on Labor's trust and housing tax bills, a separate but related part of the tax debate.

The Mid-Year Economic and Fiscal Outlook in December 2026 will update Treasury's revenue projections, including how much Personal Income tax is expected to rise.

The 14% rate is scheduled to start on 1 July 2027, and the $250 offset applies from 2027–28. The Coalition's indexation proposal would begin in 2028 only if it is legislated.