Key Highlights

  • The Coalition proposes personal Tax Bracket indexation phased in from 2028.
  • The proposal would scrap the legislated $250 Working Australians Tax Offset.
  • The Coalition's indexation policy is a proposal, while the worker offset is already legislated.
  • No. Outcomes depend on income, wage growth, eligibility and the final policy design.

Bracket creep has become one of the sharpest dividing lines in federal tax politics. New analysis shows how much of workers' future pay rises could be absorbed by tax, and the Coalition is now promising to index income tax brackets from 2028. Part of the bill would be met by scrapping Labor's $250 Working Australians Tax Offset, a measure already written into law. Here is what each side's approach could mean for ordinary taxpayers.

What the Coalition is proposing

The Coalition's plan would index Personal Income tax brackets, with the change phased in from 2028.

In the first three years, the plan would be partly funded by abolishing Labor's $250 tax offset for wage earners.

This is a PROPOSED policy only. It is an Opposition commitment, not a bill before Parliament, and its detailed design, including the indexation Factor and exactly which thresholds would move, has not been set out in legislation.

Indexation means tax thresholds rise each year in line with a measure such as Inflation or wages. Without it, a worker whose pay merely keeps pace with prices can drift into a higher average tax rate, even though their real income has not improved. That effect is known as bracket creep.

The $250 offset that is already law

The Working Australians Tax Offset is ENACTED law. It is a $250 offset that starts in the 2027–28 income year, so it would first show up when people lodge tax returns after 30 June 2028.

It is non-refundable. That matters: a non-refundable offset can reduce the tax a person owes to zero, but it cannot create or increase a refund beyond the tax payable.

Someone whose tax bill before offsets is less than $250 would therefore receive only part of the benefit.

The offset sits alongside other enacted changes. The rate on Taxable Income between $18,201 and $45,000 falls from 16% to 15% from 1 July 2026, and to 14% from 1 July 2027. A $1,000 standard work-related deduction also applies from the 2026–27 income year. The ATO has released draft guidance on that deduction, LCR 2026/D5, which is not yet final.

How much bracket creep is costing workers

The new figures come from analysis by the e61 Institute and economist Richard Holden. They estimate how a person's average tax rate would change over 10 years at different income levels.

On those estimates, a person on $45,000 would see their average tax rate rise from 11% to 16%. At $75,000 it would move from 20% to 22%, and at $100,000 from 23% to 25%.

Higher up, someone on $190,000 would go from 29% to 34%, and a person on $300,000 from 36% to 39%.

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

"The tax increase falls unevenly across the income distribution," e61 chief executive Michael Brennan said.

The same report cited a Parliamentary Budget Office estimate that, without bracket creep, the budget would be in Deficit of 0.7% of GDP by the end of the decade, rather than the officially projected 1% surplus.

A worked example: losing $250 versus gaining from indexation

Hypothetical example: Mia earns $60,000 a year in 2028–29. Under current law she would receive the full $250 offset, because her tax bill is well above that amount.

Now assume, purely for illustration, that the Coalition's plan indexed both the $18,200 tax-free threshold and the $45,000 threshold by 3% in that year. The tax-free threshold would rise by $546 to $18,746, and the $45,000 threshold by $1,350 to $46,350.

The $546 slice would no longer be taxed at 14%, saving 14% x $546 = $76.44. The $1,350 slice would be taxed at 14% rather than 30%, saving 16% x $1,350 = $216.

Her total saving from indexation would be about $292.44, against the loss of the $250 offset. That leaves her roughly $42 a year ahead in this illustration.

The result changes with the assumptions. A lower indexation rate, a phase-in that moves only some thresholds, or a different rate schedule would shrink the gain, and could leave some workers worse off in the early years. This example ignores the Medicare levy and other offsets, and does not reflect any announced Coalition parameters.

Who stands to win or lose

The key difference is that the offset is a flat amount, while the value of indexation grows with income and with the rate of inflation.

A worker with a modest tax bill gets real value from a flat $250, if their tax payable is at least that much. Indexation, by contrast, delivers more in high-inflation years and compounds over time, because each year's adjustment builds on the last.

Over a longer horizon, the e61 figures suggest that people on around $45,000 and around $190,000 are hit hardest by bracket creep, so they would arguably have the most to gain from permanent indexation.

In the short run, though, the trade-off depends on how quickly the Coalition's phase-in moves and what indexation measure it chooses. Those details have not been released in legislative form.

For the government, abolishing the offset would remove a measure Treasurer Jim Chalmers has presented as part of making the tax system fairer for workers. For the Opposition, it is a way to help pay for a structural change it argues will protect future pay rises. Neither side's claims about winners and losers have been independently costed in published form for this specific trade-off.

What to watch

The near-term focus is the Mid-Year Economic and Fiscal Outlook, due in December 2026, which will update the Revenue figures that rely on bracket creep.

On the enacted side, the 14% rate begins on 1 July 2027 and the $250 Working Australians Tax Offset applies from the 2027–28 income year. The ATO's final ruling on the $1,000 standard deduction is also still to come.

For the Coalition, the question is when its indexation policy is fully costed and which thresholds would move first. Until legislation exists, the $250 offset remains the law, and taxpayers can expect it to apply from 2027–28 unless Parliament decides otherwise.