What is the Stage 3 tax cuts, and how will you be affected?

As planned, the final stage of the proposed tax improvements is meant to be completed on the 30th June 2024. The biggest and most improved step in the process was about to proceed until Anthony Albanese decided to reduce the tax benefits to high income earners.

What we think the media and government have missed, is that a person in 1997 on $180,000 was a wealthy person. In today terms, $180,000 is only just above the average Australian wage. To not implement the legislated and election promise is a disappointing step for this government. We see this as an opportunity to support the younger Australian individuals who are working and struggling to cover the higher cost of living.

Couple this change with the new $3 million super cap, you are seeing a government that is interested in short term votes, not supporting the younger generation to create wealth. We see this as two core steps in the wrong direction for the future of Australia.

The basis of the tax cuts

In 2018, the then-Coalition government implemented a series of tax changes which would be implemented in 3 separate stages. The first two stages were implemented successfully – Stage 1 in 2018, and Stage 2 in 2020. These two stages focused solely on low- and middle-income earners. If your income was $120,000 or more, then you did not receive any benefits from these stages of tax cuts.

The third, and final change is to cut the number of tax brackets from five down to four, as well as to increase the threshold of the highest bracket from $180,000 to $200,000. The primary focus of Stage 3 is to focus on the higher earners since they have not yet received any benefits to date. It was also to adjust the tax rate down of the 4th range to be more in line with global standards.

Current tax rates:

Originally proposed Stage 3 changes:

Agreed Stage 3 cuts:

With the backflip on these changes has led to the retaining 5 tax brackets and increasing the middle bracket to $135,000 rather than the $120,000 under the current legislation.

The above recommended design will see all taxpayers who are earning under $146,486 with a larger tax saving than previously planned. For everyone earning above this amount, your tax saving will be reduced.

The below table illustrates how your tax savings will be affected under the new plan:

The savings of tax will be applied to all income you earn after 1st July, in which you’ll see tax taken from your weekly payslip. Here is how much extra money you will see in your payslip if paid weekly/fortnightly/monthly:

When you consider that the average wage in Australia is now $75,000 compared with $30,102 in 1997, the tax legislation has not kept up with wages growth, which we believe it should.