Inflation is 3.5%. Here is the pay rise you actually need to keep up
Because of tax, a 3.5% raise does not lift your take-home pay by 3.5%. The real number is higher.
Annual inflation eased to 3.5% in July, down from 3.8% in June. The measure the RBA watches most closely, trimmed mean inflation, stayed at 3.6% (Aussie). Both are still above the Reserve Bank's 2 to 3% target.
So if prices are up 3.5%, a 3.5% pay rise keeps you even, right? Not quite.
The tax catch
Australia's tax system is progressive. Each extra dollar of a pay rise is taxed at your marginal rate, which is higher than your average rate. So a 3.5% rise in gross pay turns into a smaller rise in take-home pay. To keep your after-tax pay growing as fast as prices, most people need a bigger gross raise than the inflation number.
| Salary | Take-home rise from a 3.5% raise | Gross raise needed | That is |
|---|---|---|---|
| $50,000 | 2.66% | 4.60% | $2,302 |
| $70,000 | 2.92% | 4.20% | $2,938 |
| $85,000 | 3.01% | 4.07% | $3,463 |
| $100,000 | 3.07% | 3.99% | $3,988 |
| $120,000 | 3.14% | 3.91% | $4,688 |
| $150,000 | 2.90% | 4.22% | $6,336 |
| $200,000 | 2.65% | 4.63% | $9,254 |
2026–27 resident tax rates, Medicare levy and low income tax offset, no HELP debt. Take-home is measured over a full year.
How wages are tracking
CommBank's salary data, drawn from around 400,000 customer accounts, showed annual wages growth steady at about 3.1% through early 2026 (CommBank). Set against 3.5% inflation, a typical raise isn't keeping pace, and the table above shows the gap is wider once tax is counted.
Minimum wage workers did better. The National Minimum Wage rose 4.75% to $26.44 an hour from 1 July 2026 (Study Australia).
Using this at review time
If you're heading into a pay review, the "gross raise needed" column is the number that keeps your spending power flat. Anything below it is a real pay cut, even if it looks like a raise on paper.
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