The gap between where the top rate kicks in and where it should be is now close to $100,000. That gap acts like a stealth tax rise on professionals and executives.
Australia’s top income tax threshold is now sitting at its lowest inflation-adjusted level in 20 years, according to historical comparisons. If the threshold had been indexed since 2008-09, when it was last meaningfully lifted under changes initiated by the Howard government, it would currently sit at about $281,450.
Instead, the Albanese government in 2024 nudged the old $180,000 threshold up only to $190,000. The previous legislation from the Morrison government’s stage 3 tax cuts would have pushed that threshold to $200,000.
Policy advisers who worked inside government argue that decision undershot what was needed to counter bracket creep for middle to higher-income workers. Labor’s former economic policy adviser to the prime minister, who served between 2019 and 2024, reportedly urged the party to go further on relief for those groups.
The argument centred on the idea that unindexed thresholds quietly lift average tax rates each year, especially during periods of elevated inflation. That dynamic can dull incentives to take promotions, extra hours or performance bonuses once earnings push closer to the static top threshold.
Critics of the current settings warn the combination of high inflation and frozen brackets shifts more of the tax burden onto a growing slice of skilled workers. In their view, the choice to cap the top threshold at $190,000, well below the inflation-adjusted $281,450 level, is a deliberate decision to bank extra revenue rather than neutralise bracket creep.
Policy circles are now debating how long governments can lean on stealth bracket increases before it starts to weigh on workforce participation and investment incentives.
