In late January, news emerged of amendments to stage three tax cuts aimed at alleviating the financial burdens faced by Australians amidst rising living costs. This brings promising news for all taxpayers, as they can anticipate savings on their tax bills, providing a welcome relief in the current economic climate.
At First Financial, we recognise the significant interest surrounding the impact of amendments to stage three tax cuts on individuals and their personal income tax.
Here, we provide a concise summary of the key points for your consideration.
Everyone is a winner
The most important aspect to highlight is that there are some tax savings here for everyone. Despite considerable conjecture by the media preceding the government’s announcement, the actual changes diverged considerably from the speculated outcomes.
While the tax-free threshold will remain the same at $18,200, to assist with the rising cost of living pressures, from July 1st 2024, the tax cuts will:
- reduce the 19 per cent tax rate to 16 per cent
- reduce the 32.5 per cent tax rate to 30 per cent
- increase the threshold above which the 37 per cent tax rate applies from $120,000 to $135,000
- increase the threshold above which the 45 per cent tax rate applies from $180,000 to $190,000
Legislation will be introduced to enact these changes. You can estimate your personal tax cut with this calculator.
The original stage three tax cuts
In 2019, legislation introduced by the Morrison government successfully implemented stage three tax cuts, which entailed the elimination of the 37% tax bracket for individuals earning between $120,000 and $180,000. Additionally, the highest tax bracket was raised from $180,000 to $200,000, accompanied by a reduction in the 32.5% marginal tax rate to 30%.
While the Labor Party pledged to uphold these tax cuts during the previous election, recent amendments have been implemented to address rising living costs and ensure that households with middle incomes, secondary earners and single parents now receive substantial benefits while still providing tax cuts for all taxpayers.
“My determination and my job is to get the best outcome for Australians. It’s to respond to the circumstances which we confront.” – Prime Minister Anthony Albanese.
The need for revisions
By definition, tax cuts aim to ensure workers have more money to spend, thereby improving their financial situation. They represent an example of an expansionary fiscal policy.
The original stage three tax cuts were planned five years ago, but economic circumstances have changed since then. We’ve since experienced a global pandemic and have teetered on the edge of economic uncertainty and recession.
While Australia’s inflation rate eased to 4.1% in December 2023 after peaking at 7.8% in December 2022, this rate still exceeds the target band for the RBA of 2-3%.
What were the stage one and two tax cuts?
Stage one featured a temporary tax offset known as the low-and-middle-income tax offset (LMITO), granting taxpayers earning between $30,000 and $126,000 a tax break of up to $1,080, concluding in June 2022.
Stage two raised the tax bracket where the 32.5% rate was applicable from $37,001 to $90,000 to $45,001 to $120,000, primarily benefiting individuals with low and middle incomes. This adjustment was moved forward to July 2020 after initially being scheduled for implementation in July 2022.
Talk to the financial planning experts
At First Financial, our experienced advisers can help you retire when and how you choose. We understand the industry is ever-changing and always stay on top of legislative changes, including tax amendments.
If you would like to know more about how the amendments to the stage three tax cuts will impact you personally, feel free to contact a member of our team today.
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