Stage 3 Tax Cuts
The effects of Australia’s recent implementation of Stage 3 tax cuts have sparked discussions across various socio-economic spheres. Aimed at reducing tax burdens and promoting economic growth, these cuts have differing effects on low, middle, and high-income earners.
The revised edition includes a reduction in the bottom tax rate, affecting incomes below $45,000, from 19% to 16%. This adjustment is expected to provide tax relief of up to $804 annually to all taxpayers, including those with higher incomes.
Concurrently, individuals in higher income brackets will have their initial tax cut scaled back and almost halved in some cases.
The new tax cut, beginning on July 1st, 2024, affects individuals with taxable incomes of approximately $146,486 or less, representing nearly 90 per cent of all taxpayers. They will receive the same or increased tax cuts under the revised plan.
Meanwhile, the remaining 10 per cent with higher incomes will experience reduced tax cuts compared to the original Stage 3. Specifically, the tax cut for those earning over $200,000 annually – estimated to be less than 5 per cent of taxpayers in 2024-25 – will be approximately halved, from $9,075 to $4,529 annually.
Low income earners
The stage 3 tax cuts have brought about modest but noticeable relief for low-income earners. The increase in the Low-Income Tax Offset (LITO) has been particularly beneficial. This offset effectively reduces or eliminates tax liability for individuals below a certain threshold. With the recent changes, eligible low-income earners are experiencing a reduced tax burden, allowing them to retain more of their earnings for essential expenses.
The flattening of tax brackets has slightly eased the tax burden on low-income earners. While the impact may not be as substantial as for higher income brackets, every dollar saved is significant for those living paycheck to paycheck. The additional disposable income from these tax cuts can contribute to improved living standards and increased consumer spending within this demographic.
Middle income earners
Middle-income earners have also felt the effects of the Stage 3 tax cuts, albeit to a greater extent than low-income earners. Adjusting tax brackets has reduced tax rates for individuals earning within this bracket. As a result, many middle-income earners are experiencing a decrease in their overall tax liability, leading to an increase in take-home pay.
Furthermore, the widening of tax brackets has provided relief for individuals whose earnings hover around the threshold of different tax brackets.
This change ensures that individuals aren’t penalised with higher tax rates due to slight increases in income, thereby incentivising productivity and work-related efforts.
The additional disposable income for middle-income earners can have a ripple effect on the economy. Increased spending power can stimulate consumer demand, contributing to economic growth. Individuals within this bracket may have more flexibility in budgeting for savings or investments.
High income earners
High-income earners are the demographic most affected by Australia’s Stage 3 tax cuts. The reduction in tax rates for individuals earning above a certain threshold has led to substantial tax savings for this group, even under the revised edition that will come into effect from July 1st, 2024.
While the tax cut has been reduced, it is still a tax cut, and high-income earners are retaining a more significant portion of their earnings, which can have positive implications for their financial portfolios and discretionary spending.
So, what does it mean for you?
While the tax cuts are meant to mean just that (you pay less tax and get more in your pocket), they are tied to many levers designed to keep the machine moving forward. You will read about “bracket creep” and tax savings over the decade. Whether they make a big or small difference is debatable, and whether they keep pace with inflation, the cost of living, and other uncertainties is fodder for another day.
Regardless of political persuasion, governments are skilled at wrapping an insult inside a compliment.
In short, if you currently earn:
$30,000pa, you’ll get an extra $354.00 per year
$40,000pa, you’ll get an extra $654.00 per year
$50,000pa, you’ll get an extra $929.00 per year
$60,000pa, you’ll get an extra $1179.00 per year
$70,000pa, you’ll get an extra $1429.00 per year
$80,000pa, you’ll get an extra $1679.00 per year
$90,000pa, you’ll get an extra $1929.00 per year
$100,000pa, you’ll get an extra $2179.00 per year
$120,000pa, you’ll get an extra $2679.00 per year
$140,000-$180,000pa, you’ll get an extra $3729.00 per year
$200,000-$250,000pa, you’ll get an extra $4529.00 per year
For most Australians, the extra $1179.00 to $2679.00 is welcomed and will help to keep the wolf from the doors in the short to mid-term; however, it is wise to seek out or speak to your financial planner. Each situation is unique, and while the tax cuts are primarily designed to spark activity, they are an opportune time to revisit and upgrade your current financial plan. Receiving a tax cut happens rarely, and maximising the extra money and getting it working harder for you is a savvy decision.
Contact us today for experienced, compassionate, and professional financial advice about how you can take advantage of the stage 3 tax cuts.