Prime Minister Anthony Albanese recently announced changes to the stage three tax cuts in Australia, aiming to provide more benefits to lower and middle-income workers. Originally introduced by the Morrison government, these tax cuts have been a subject of controversy due to concerns about favoring higher-income earners. Here’s what you need to know about these changes and how they might affect you.
Original Stage Three Tax Brackets
| Income level | Tax rate |
| Up to $18,200 – | no tax |
| $18,201 to $45,000 | 19% |
| $45,001 to $200,000 | 30% |
| Above $200,000 | 45% |
The stage three tax cuts, part of a larger restructuring of income taxation, were initially designed to address bracket creep, where rising incomes push taxpayers into higher tax brackets. The original plan involved three phases, with the final phase scheduled to take effect from July 1, 2024. However, the Albanese government has revised these cuts to prioritize low and middle-income earners.
Revised Stage Three Tax Brackets
| Income level | Tax rate |
| Up to $18,200 | no tax |
| $18,201 to $45,000 | 16% |
| $45,001 to $135,000 | 30% |
| $135,001 to $190,000 | 37% |
| Above $190,000 | 45% |
Under the revised proposal, the 37% tax rate will be retained with a higher upper limit, while the lower tax brackets will be reduced. This adjustment aims to provide cost-of-living relief for those facing economic challenges, especially amidst the uncertainty brought by the pandemic and global inflation spikes.
Current Australian Tax Brackets
| Income level | Tax rate |
| Up to $18,200 | no tax |
| $18,201 to $45,000 | 19% tax rate |
| $45,001 to $120,000 | 32.5% tax rate |
| $120,001 to $180,000 | 37% tax rate |
| Above $180,000 | 45% tax rate |
From July 1, taxpayers earning less than $150,000 annually will receive larger tax cuts compared to the original plan, while those earning more than $150,000 will receive smaller cuts. For example, someone earning around $80,000 a year will now receive a tax cut of $1679 instead of $875, while a person earning $200,000 will get a cut of $4529 instead of $9075.
The Size of Your Tax Cut (excluding Medicare Levy)
| Taxable Income | Tax cut under original stage 3 | Tax cut under revised stage 3 | Difference |
| $20,000 | $0 | $0 | $0 |
| $30,000 | $0 | $354 | $354 |
| $40,000 | $0 | $654 | $654 |
| $50,000 | $125 | $929 | $804 |
| $60,000 | $375 | $1,179 | $804 |
| $70,000 | $625 | $1,429 | $804 |
| $80,000 | $875 | $1,679 | $804 |
| $90,000 | $1,125 | $1,929 | $804 |
| $100,000 | $1,375 | $2,179 | $804 |
| $120,000 | $1,875 | $2,679 | $804 |
| $140,000 | $3,275 | $3,729 | $454 |
| $160,000 | $4,675 | $3,729 | -$946 |
| $180,000 | $6,075 | $3,729 | -$2,346 |
| $200,000+ | $9,075 | $4,529 | -$4,546 |
Overall, the revised stage three tax cuts will benefit 13.6 million taxpayers, with a focus on supporting low and middle-income individuals. Treasurer Jim Chalmers has assured that these changes will not impact inflation forecasts.
Despite initial opposition, the revised plan has passed into law, indicating a shift in government policy. However, discussions around tax cuts and their implications for public services continue to be relevant.
For more information or assistance regarding tax matters, contact us at Boa & Co.: 1300 952 286, [email protected], or visit our website at www.boanco.com.au.