Millennials and Gen Z hit hardest by income tax bracket creep

One group of Aussies are being hit the hardest by bracket creep, paying up to $3500 more compared to three years ago.

Exclusive: Young people are being hit the hardest by bracket creep, with Gen Z and millennial full-time workers on a median wage paying up to $3,500 more income tax now than three years ago.

As Labor prepares to hand down its fourth budget on the eve of a federal election, economists fear there is little political appetite to address the “inequality” caused by inflation-driven wage growth pushing some workers into higher tax bands, describing the phenomenon known as “bracket creep” as a “major issue”.

Finance Minister Katy Gallagher and Treasurer Jim Chalmers will deliver the budget on Tuesday. Picture: NewsWire / Martin Ollman

Workers aged 15 to 34 will experience the biggest jumps in how much of their wage goes to the tax office in percentage terms, according to new Coalition analysis.

In 2021-22 a full time worker aged 20 to 24 on the median wage of $57,357 had a net tax bill of $8,755.

Projections for this financial year show a worker that age now earns $67,134, while the amount paid in tax will jump by 3.01 per cent to $12,271.

Assuming wages continue to climb as forecast by Treasury, in 2028-29 this age group’s average tax rate will have increased a whopping 4.69 per cent.

Teenagers working full time will also experience significant bracket creep, with their average tax increasing by $2,046 or about 2.33 per cent this year, and then soaring by $4,299 or 4.91 per cent by 2028.

Meanwhile, Australians aged 25 to 34 have gone from a median full time wage of $73,950 with a net tax bill of $14,480 three years ago, to earning a projected $84,048 with an average tax jump of 1.46 per cent to $17,683 in 2024-25.

Coalition treasury spokesman Angus Taylor says Labor is using income tax bracket creep to prop up the budget. Picture: NewsWire / Nikki Short

By comparison Australians aged 35 to 55 on a median full-time wage are projected to experience only a 0.88 per cent to 0.96 per cent average tax increase over the last three years.

Coalition treasury spokesman Angus Taylor said Labor’s only plan to fix the budget was to “take from family budgets to bolster their own”.

“It is clear taxes are on the rise if Labor’s policy settings continue,” he said.

Labor said its changes to stage three tax cuts meant benefited all Australians.

“By cutting two rates and lifting two thresholds we are returning more bracket creep to more taxpayers,” a spokesman for Treasurer Jim Chalmers said.

Hanah Maxwell 21 and Mathew Niccol 21 from Manly say the added financial struggle the additional tax bill will have. Picture Thomas Lisson

Labor also highlighted its policies to help young Australians, like wiping 20 per cent off all HECS student debt and making fee-free TAFE permanent.

AMP chief economist Shane Oliver said he believed neither side of politics was “too interested” in addressing bracket creep.
“They like to be able to say they’re delivering a tax cut every so often,” he said.
“But it’s not a real tax break, it’s just delivering bracket creep back to taxpayers.”
Mr Oliver said “ideally” Australia would index the income tax rates to the inflation target, wages or CPI growth, but to offset this there would have to be a shift to heavier reliance on GST for revenue.

He said this would be a “fairer way” to tax Australians, but raising the GST was a “hard sell” because politicians “never try and explain it”.

Jake Kaczorowski, 22, at work at The Log Cabin in Penrith. Picture: Jonathan Ng

Mr Oliver said Tuesday’s budget would show revenue as a share of GDP steadily rising, but the only reason was bracket creep.
“It basically means an even higher burden on Gen Z and millennials to pay the structural surging costs associated with the ageing population and NDIS,” he said.
“Eventually at some point Gen Z and millennials will get sick of it and change, but the longer we persist with a sub-optimal tax system, a whole bunch of inequities will continue.”

Hanah Maxwell, 21, is a midwife from Cheltenham and said forking out more tax only added to the cost-of-living pressures on young people.

“The fact that I could fall into a higher tax bracket and be paying the same rate on part of my tax as someone on a lot more money is a bit of a shame,” she said.

For Matthew Niccol, 21, an engineering student from Epping, the prospect of growing taxes was “daunting and a bit overwhelming”.

Meanwhile Jake Kaczorowski, 22, a bartender from Penrith said bracket creep would make it harder for young people to get ahead.

“Everyone wants to earn more right, but if we’re paying more tax but we’re not actually better off, that seems counterintuitive to me,” he said.

Originally published as Millennials and Gen Z hit hardest by income tax bracket creep