Paying More Tax Each Year but Not Getting Richer? Understanding Bracket Creep — Sydney Auction Clearance Rate at 51%

Weekly Market Focus

Have you ever noticed that even after a pay rise, your take-home pay doesn’t seem to go much further? The culprit may be bracket creep. When your income rises modestly with inflation but crosses into a higher tax bracket, your average tax rate increases — even though your real purchasing power hasn’t changed. What’s more, the “tax cuts” politicians promise during election campaigns often do little more than return revenue the government has already collected through bracket creep. For many Australians, this has long felt like a system that should be scrapped.

That said, economists recognise a category of mechanisms called automatic stabilisers — features built into the economy that help smooth out fluctuations without requiring active policy decisions. Unemployment benefits are the most familiar example: payments rise automatically during downturns and pull back as conditions improve. Bracket creep works in a similar way. When inflation is running hot, more households are pushed into higher tax brackets, disposable income falls, and consumer spending slows naturally. Without anyone making a deliberate decision, it acts as a brake on overheating demand.

So why not simply index tax brackets to inflation? On the surface, that seems reasonable. But if thresholds automatically rise with inflation, households hold onto more disposable income rather than paying additional tax — adding fuel to demand at exactly the wrong moment. The Reserve Bank would then need to raise interest rates more aggressively to compensate, with the burden falling disproportionately on the roughly one-third of Australians with a mortgage. History offers a cautionary note: the Fraser Government introduced bracket indexation and later abandoned it under fiscal pressure.

Bracket creep is not without its shortcomings. During downturns or periods of flat wages, it offers no automatic relief. But it does serve one underappreciated purpose: because governments cannot quietly rely on it to fund higher spending, they are forced to justify new expenditures openly — which encourages a degree of fiscal discipline and public accountability.

Bracket creep is both an unpopular feature of the tax system and an often-overlooked stabiliser. Before calling for its abolition, it’s worth understanding the role it quietly plays.

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Last Week’s Auction Results

Sydney: 1,272 properties went to auction this week. Of the 693 results reported, 350 sold — returning a clearance rate of 51%. Total value of properties sold reached $327,100,054, with a median sale price of $1,585,000.

Melbourne: 1,221 properties went to auction this week. Of the 812 results reported, 468 sold — returning a clearance rate of 57%. Total value of properties sold reached $362,215,877, with a median sale price of $1,004,750.