For example, if inflation is 5% through out the year, and a wage earner's income is adjusted proportionately, they get no more income in real terms - the buying power of their wage has stayed the same.

They do however end up paying more tax in real terms because a higher proportion of their income is taxed at a higher rate - and their net income (income after tax) is actually lower.

Many people believe that bracket creep only affects those whose changing income crosses a tax threshold, but in fact bracket creep affects nearly all people who pay income tax.

There are two ways to avoid this

• Governments can introduce legislation to automatically increase tax thresholds with inflation.
• A single tax rate can be employed, with no tax free threshold.