In the 2023-24 financial year, taxpayers earning less than $45,000 will pay 16 cents per dollar in tax, down from the current rate of 19 cents. 

Albanese said changes made to the agreed-to stage three tax cuts were “fairly and squarely focused” on providing cost-of-living relief to middle- and low-income earners in hopes of promoting “inclusive” growth.

New tax rates from 2024–25
0 –18,200 Nil
18,201 – 45,000 16%
45,001 – 135,000 30%
135,001 – 190,000 37%
>190,001 45%

Most people earning less than $135,000 will realise more savings than under the original stage 3 plan.

Someone earning the average (mean) full-time salary of $95,000 will be $2,054 better off than 2023-4, and $804 better off than the original stage 3 plan.

The threshold with which the 2% Medicare levy applies has also been increased to $26,000 on the low end, and $32,500 on the upper threshold (both up 7.1%). Someone earning $30,000 will save approximately $172 this way.

See Also: Income Tax Calculator

In the previously legislated tax reforms under the Coalition government, those earning a maximum $45,000 were not supposed to get a tax cut on 1 July, with the 19c threshold retained.

“This [tax cut] is a significant boost for the take-home pay of Australians on modest incomes and the many Australians working part-time,” the PM said during his speech at the National Press Club. 

“Our government understands that middle-income Australians need help with the cost of living now more than ever.” 

Tax-free threshold remains the same

However, the tax-free threshold, originally rumoured to increase to $19,000, will stay at $18,200, as it has been for more than a decade.

Come July, those earning no more than $135,000 will also get a tax cut from the current rate of 32.5 cents per dollar, down to 30 cents.

On the other hand, earners with pre-tax income above $150,000 will see a smaller cut than they otherwise would have after the government abandoned plans to abolish the 37% tax bracket. 

The government instead increased the lower threshold for the 37-cent tax bracket from $135,000, up from $120,000.

The highest tax bracket, whose rate sits still at 45%, will also go up from $180,000 to $190,000 - but less than the original stage 3 plan of $200,000.

Someone earning $250,000 will be just over $4,500 worse off under the tweaked plan than the original one.

“I note that this is the first increase in the threshold for the top marginal rate since 2008,” Albanese said. 

If brackets were indexed to inflation, the tax-free threshold (left unchanged since 2012-13) would be $22,934, and the top threshold (left unchanged since 2008-9) would be $249,743.

The former government’s stage three tax cuts package, which passed Parliament in 2019, promised to flatten middle income brackets and replace them with a 30-cent-per-dollar tax band encompassing income of $45,000 to $200,000.  

The original stage three tax cuts would have predominantly benefited those on higher incomes. The Albanese administration’s amendments distribute the changes up the scale, with the middle-income households getting the most benefit. 

“The government’s redesign of the stage three tax cuts is a welcome recalibration of the original tax cuts package,” said Mark Chapman, H&R Block Australia’s director of tax communications.

“The heavy weighting of the original package towards those on the highest incomes is difficult to justify in the current economic climate and, with the cost of living disproportionately impacting those low- and middle-income taxpayers, this will provide some much-needed extra cash in the pockets of hard-working families to pay mortgages, food, and fuel bills.”

In the redesigned package, those earning $200,000 will now only get $4,546 in tax savings, down from $9,075 as previously announced.

‘No implication for inflation’

The Prime Minister said the Treasury sought the advice of the Governor of the Reserve Bank to ensure the amendments would have no implications for the board’s inflation forecasts. 

“The Australian economy was expected to be supported by a positive global outlook, with strong, broad-based global growth,” the Treasury said.

“Inflation, and therefore interest rates, were expected to remain low.”

Agreeing with the Treasury’s outlook, bank economists don’t expect Albanese’s changes to stage three tax cuts will affect RBA’s inflation forecast. 

“The macroeconomic impact of this – relative to the packages as originally announced – is marginal. We do not expect that this will affect the RBA’s view of the inflation outlook or the future path of the cash rate,” Westpac Group chief economist Luci Ellis said. 

The ABS will release the December quarter consumer price index on 31 January, while the RBA board is scheduled to meet on 5-6 February.

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