What the Stage 3 tax cuts mean for you

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Average wage earners are set to receive a $1500 tax cut under the government's new tax plan - double that of the former policy.

After days of speculation Prime Minister Anthony Albanese has officially confirmed that the government will seek to do away with the Stage 3 tax cuts in their existing form in favour of a new tax plan which returns more money to low and middle-income earners.

In an address to the National Press Club this afternoon, the Prime Minister laid out the government's new tax plan as one which would deliver a fairer outcome for more taxpayers at a time when many are feeling the pressure of elevated living costs.

anthony albanese national press club stage three tax cuts

"From the 1st of July this year, our government will deliver a tax cut for every Australian taxpayer. All 13.6 million taxpayers, not just some.

"Everyone who works and pays tax will benefit. This is a plan for middle Australia that delivers for every Australian taxpayer, right up and down the income ladder."

The move is a major policy reversal from the government which went to the last election pledging not to alter the Stage 3 cuts which it helped pass while in opposition back in 2019.

However, the Prime Minister acknowledged as much in his speech, arguing that the economic landscape had changed since the Stage 3 cuts were legislated.

"When economic circumstances change, the right thing to do is change your economic policy. That's what we are doing. This is a change in our policy."

Which taxpayers will benefit from the new tax plan?

According to the government, all taxpayers will receive a tax cut under the new proposal.

However, Australians who earn less than $150,000 per year will receive a larger tax cut than they would have done under the Stage 3 reforms, while those above that mark will receive a lower cut.

For example, someone earning $80,000 a year would have received a tax cut of $875 under Stage 3, whereas they could receive a $1679 cut under the government's new proposal.

On the other hand, a worker on $220,000 a year will see their potential tax cut drop from $9075 to $4529 if the government's new proposal is enacted.

Mark Chapman, the director of tax communications at H&R Block Australia, says the announcement is a welcome move given the current economic situation.

With the cost of the tax cuts package overall remaining the same, this means that the tax savings have been distributed much more widely."

"They are now focused on low and middle income taxpayers, who were previously not well served by the tax cuts, and who have been suffering from increases in the cost of living and are far more numerous than high income earners (less than 5% of whom earn more than $180,000)."

What comes next?

Given that the Stage 3 reforms were due to commence at the beginning of the 2024-25 financial year, the government will need to pass new legislation to ensure that its new tax plan can kick in from July 1.

To do that they will need the support of crossbenchers in the Senate. Speaking to the media after his address, the Prime Minister said that he was confident that the new plan would get the support it needed in parliament.

"I'm sure that there will be some who will say that this does too much, or doesn't do enough. We think this is the right thing to do, so we will argue our case. That's what I'm doing here today and I'm confident that we will be able to get it carried in the House of Representatives and the Senate."

In an interview with the ABC after the speech, Shadow Foreign Minister and the Opposition's leader in the Senate, Simon Birmingham, said that the party would need to see the details of the proposed legislation before making a decision.

"In terms of the details of our future position, we will have to look at the detail of the legislative package brought forward, the analysis that underpins it, and we will work our policies out for the next election."

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.
Comments
Leigh Munro
January 26, 2024 7.48pm

So, what happens if you have a second job?

maree bowker
February 4, 2024 4.45pm

Lets have a good look at our tax system.

As unpopular as it may be up the GST and do away with all the sneaky fees and charges. Look at it from a practical point of view. If you have no money you buy cheap, so the GST is low if you have disposable income you buy expensive so GST is high. It then becomes a case of your choice is to pay high GST or Low GST depending on what you choose to spend on.

Everyone pays GST not everyone pays income tax