The Silent Tax Hike: Bracket Creep, Housing Affordability and the Australian Borrower

When most Australians hear that tax rates haven't changed, they naturally assume

they're paying roughly the same proportion of tax as previous generations.

The reality is quite different.

Over the past 18 years, a phenomenon known as bracket creep has steadily increased the tax burden on many income earners, particularly professionals, skilled workers, business owners and families seeking to upgrade their homes. While tax rates may not have risen dramatically, the income thresholds at which those rates apply have failed to keep pace with inflation and wage growth.

For mortgage holders and aspiring homeowners, understanding bracket creep provides important context around affordability, borrowing power and household cash flow.

What Is Bracket Creep?

Bracket creep occurs when wages increase over time due to inflation and economic growth, but tax thresholds do not increase at the same pace. As a result, workers move into higher tax brackets and pay a larger percentage of their income in tax, even if their real purchasing power has not improved significantly.

Put simply:

·         You earn more income.

·         Your living costs also increase.

·         But the tax system treats you as though you are substantially wealthier.

The result is a gradual increase in the average amount of tax paid by households.

The $180,000 Benchmark

On 1 July 2008, the threshold for Australia's top marginal tax rate was increased from $150,000 to $180,000. Income above $180,000 became subject to the 45% tax rate.

At the time, earning $180,000 placed an individual among a very small group of high-income earners.

Today, the threshold has only increased to $190,000, following the Stage 3 tax reforms from 1 July 2024. Income above $190,000 is taxed at 45%.

At first glance, that may seem reasonable. After all, the threshold has increased by $10,000.

However, the broader economic picture tells a different story.

What Would $180,000 in 2008 Be Worth Today?

Using Australian inflation data, a salary of $180,000 in 2008 would require roughly $270,000 to $290,000 today to provide the same purchasing power. A reasonable midpoint estimate is approximately $280,000.

In other words:

·         Top tax threshold in 2008: $180,000

·         Equivalent purchasing power today: ~$280,000

·         Actual threshold today: $190,000

This means the current threshold is approximately $90,000 below where it would sit had it been indexed to inflation.

Another way to view the issue:

A person earning $190,000 today has approximately the same purchasing power as someone earning about $120,000 to $125,000 in 2008.

That is a significant shift.

More Australians Are Reaching the Top Tax Bracket

When the $180,000 threshold was introduced in 2008, only around 1.5% to 2% of taxpayers were earning above that level.

Today, estimates indicate approximately 3% to 4% of taxpayers earn above the current $190,000 threshold.

In practical terms, the proportion of taxpayers reaching the highest marginal tax rate has roughly doubled.

This is one of the clearest examples of bracket creep in action.

Wage Growth Has Outpaced Tax Thresholds

Australian wages have increased by approximately 55% to 60% since 2008 according to the Wage Price Index.

Had the top tax threshold moved in line with average wage growth, it would sit at approximately:

$280,000 to $290,000 today. 

Instead, the threshold remains at $190,000.

For many professionals, managers, tradespeople, medical specialists and business owners, incomes that once represented exceptional earnings are now far more common. Yet the tax system continues to apply rates designed for a different economic environment.

What Has Happened to Government Income Tax Revenue?

The Australian Taxation Office reported individual income tax collections of $329.5 billion in 2023-24, accounting for more than half of total tax revenue collected by the ATO.

For comparison, taxes on income collected by the Commonwealth in 2008-09 totaled approximately $201.4 billion.

On the surface, this represents an increase of approximately 64%.

However, after adjusting for inflation:

·         $201.4 billion in 2008 is worth roughly $302 billion to $322 billion today.

·         A midpoint estimate is about $312 billion in today's dollars. 

The current figure of $329.5 billion therefore represents only a modest increase in real purchasing power terms.

Nevertheless, the relationship between tax thresholds and wage growth means governments continue to collect additional revenue as more taxpayers move into higher brackets.

Housing Affordability: The Real Impact on Australian Families

While tax thresholds tell one story, Sydney property prices tell another.

In 2008, Sydney's median house price was approximately $550,000 to $600,000. By 2026, Sydney's median house price sits around $1.8 million, with some forecasts suggesting it could approach $1.9 million by the end of 2026.

This represents an increase of more than 200% over the period.

Income vs House Prices

Let's compare the top tax bracket threshold earner in each period:

2008

·         Income: $180,000

·         Median Sydney house: ~$575,000

·         House-price-to-income ratio: 3.2 times annual income 

2026

·         Income: $190,000

·         Median Sydney house: ~$1.82 million

·         House-price-to-income ratio: 9.6 times annual income  

In other words, while the income needed to enter the top tax bracket increased by only 5.6% ($180,000 to $190,000), Sydney house prices increased by more than 200%.

Borrowing Power Then and Now

The difference becomes even more striking when examining borrowing capacity.

2008 Borrower

A person earning $180,000 in 2008 could typically borrow around 5 to 6 times their income, depending on lender policy and interest rates.

This equates to borrowing approximately:

·         $900,000 to $1.08 million

Against a median Sydney house price of approximately $575,000, that borrower could comfortably purchase the median home and still have significant purchasing flexibility.

2026 Borrower

A person earning $190,000 today will generally have a borrowing capacity of approximately:

·         $850,000 to $1.05 million

depending on lender servicing assessments, living expenses, existing commitments and interest rate buffers.

Against a median Sydney house price of approximately $1.82 million, borrowing power falls dramatically short of the median house price.

The Bigger Picture

The combined effect of:

·         Bracket creep,

·         Rising property prices,

·         Higher taxation of middle and upper-middle income earners,

·         Increased regulatory lending standards, and

·         Cost-of-living pressures

has significantly altered the Australian property landscape.

An individual earning the top-bracket threshold salary of $180,000 in 2008 occupied a very different financial position from someone earning the top-bracket threshold salary of $190,000 today.

Adjusted for inflation, the 2008 threshold would be approximately $280,000 today. Yet the actual threshold is only $190,000.

At the same time, Sydney's median house price has increased from approximately $575,000 to more than $1.8 million.  

For borrowers, this means that being classified as a "high-income earner" by the tax system no longer guarantees the housing affordability or financial comfort that it once did.

That is why today's property decisions require more strategic planning than ever.

Understanding borrowing capacity, structuring debt correctly, choosing the right lender and building a long-term wealth strategy can often have a greater impact on financial outcomes than salary increases alone.

As mortgage brokers, our role is to help clients navigate that reality and make informed decisions in an environment where income, taxation and housing costs have become increasingly disconnected.