MRC Report: Stop the Creep

Restoring fairness to Australia’s tax system

Published: August 2025

Australia’s heavy reliance on personal income tax is unsustainable and will worsen without reform. While wages are forecast to grow by 3.7% annually over the next decade, income tax receipts are projected to grow by 4.6%. This is largely due to bracket creep: the hidden tax increase that occurs when tax thresholds remain fixed as incomes rise with inflation.

Bracket creep erodes real wages and take-home pay, disproportionately affecting young and middle-income Australians. It reduces incentives to work, discourages aspiration, and enables governments to fund new spending through automatic revenue increases without transparency or accountability.

This report proposes a straightforward solution: indexing personal income tax brackets to inflation. The report recommends delaying indexation of the tax-free threshold until 2028–29 to align with the full implementation of the legislated cut in the 16 cent tax rate to 14 cents. All other brackets would be indexed from 2025-26.

Indexing income tax brackets would be the most significant economic reform since the introduction of the GST. It would end the cycle of tax cuts chasing bracket creep and align Australia with the majority of OECD countries, delivering lasting economic benefits. MRC analysis shows that the cost of indexation is modest — between $19.8 and $33.8 billion over the forward estimates. This is far less than the $107 billion cost of the recent Stage 3 tax cuts.

Indexation would improve workforce participation, increase the incentive to pursue education and training, and strengthen the link between productivity and wages growth. It would also improve fiscal transparency and act as an ongoing constraint on government spending growth.

The reforms set out in this report are fair, affordable and long overdue. Without reform, Australians will continue to face automatically rising tax burdens each year, and governments will remain shielded from the scrutiny that should accompany every new spending commitment. The case is clear, and the opportunity is now.