Every extra dollar you earn is taxed at your marginal rate — the rate on your top slice of income, not your average rate. That is why a raise never feels as big in your bank account as it looked in the offer letter.
You never lose money by moving up a bracket
The most persistent myth in Australian pay negotiation is that a raise can “push you into a higher bracket” and leave you worse off. It can't. The tax system is marginal: on a raise from $130,000 to $140,000, only the $5,000 above the $135,000 boundary is taxed at 37% — everything below is taxed exactly as before. Your take-home always rises when your gross rises. The rare exception is the Medicare levy surcharge, which is a genuine cliff: cross $101,000 (single) without private hospital cover and 1% applies to your whole income.
Bracket creep: the silent pay cut
Tax brackets are not indexed to inflation. If your raise merely matches inflation — say 3% — your buying power is unchanged, but a larger share of your income now sits in your highest bracket, so your average tax rate rises. Over a decade this “bracket creep” quietly transfers a growing slice of real income to the ATO without any legislated tax increase. It is why a raise that only matches CPI still deserves negotiating: anything less is a real-terms pay cut after tax.
The HECS “cliff” is mostly gone — but repayments still bite
Before 1 July 2025, crossing a HECS threshold applied a repayment rate to your entire income — a $1 raise could genuinely cost you hundreds. The new marginal system fixed that: you now repay 15% only on income between $67,000 and $125,000, and 17% above. Crossing $67,000 costs you 15 cents per dollar over the threshold, nothing more. But inside the band, HECS still stacks on top of tax: at $90,000 with a HECS debt, each extra dollar loses 30% tax + 2% Medicare + 15% HECS — you keep just 53 cents.
Negotiating: cash salary or extra super?
If your employer offers flexibility, part of a raise taken as salary-sacrificed super is taxed at just 15% on the way into your fund, versus your marginal 30–47% as cash. On a $10,000 raise at a 32% marginal rate (including Medicare), cash delivers $6,800 to your pocket; the same amount sacrificed delivers $8,500 into super. The trade-off is access — super is preserved until at least age 60. Run the numbers in our salary sacrifice calculator before deciding.