Stage 3 Tax Cuts Redesigned

Under the proposed redesign, all resident taxpayers with taxable income under $146,486, who would actually have an income tax liability, will receive a larger tax cut compared with the existing Stage 3 plan. For example:

• An individual earning $40,000 will receive a tax cut of $654, in contrast to receiving no tax cut under the current Stage 3 plan
• An individual earning $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan
• An individual earning $200,000 will have the benefit of the Stage 3 plan slashed to 50% of what was expected from $9,075 to $4,529

For more information select this link.

There is additional relief for low-income earners with the Medicare Levy low-income thresholds expected to increase by 7.1% in line with inflation. It is expected that an individual will not start paying the 2% Medicare Levy until their income reaches $32,500 (up from $26,000).

While the proposed redesign is intended to be broadly revenue neutral compared with the existing budgeted Stage 3 plan, it will cost around $1bn more over the next four years before bracket creep starts to diminish the gains.

First announced in the 2018-19 Federal Budget, the personal income tax plan was designed to address the very real issue of ‘bracket creep’ – tax rates not keeping pace with growth in wages and increasing the tax paid by individuals over time. The three point plan sought to restructure the personal income tax rates by simplifying the tax thresholds and rates, reducing the tax burden on many individuals and bringing Australia into line with some of our neighbours (i.e., New Zealand’s top marginal tax rate is 39% applying to incomes above $180,000).

The three point plan introduced incremental changes from 1 July 2018, 1 July 2020, with stage 3 legislated to take effect from 1 July 2024.