Four ways you can make the most of your stage three tax cut

For many of us, the stage three tax cuts can't come soon enough.

It's not just about navigating a cost-of-living crisis. Data from the Australian Bureau of Statistics (ABS) shows that the national tax take has steadily risen over time.

Last year, for example, total tax revenue across all levels of government was up $72.7 billion on 2021-22.

How much tax do Australians pay?

According to the ABS, Australia taxation revenue across all levels of government hit $755.8 billion in 2022-23 - an increase of 10.6% on the previous financial year.

Mark Chapman, director of tax communications at H&R Block, says the stage three tax cuts are the final step in a plan to restructure individual rates.

He notes that the cuts originally proposed by the former LNP government were "widely derided as unfair", with zero savings for people earning $45,000 and only $875 extra for those earning $80,000. By contrast, high-income earners ($200,000-plus) stood to pocket $9075 a year.

The Albanese government restructured the plan, with much of the benefit now diverted to lower- and middle-income earners, who are most likely to have felt the cost-of-living increases. Of course, the pollies in Canberra would also be mindful that low- and middle-income voters vastly outnumber high-income earners, who account for less than 5% of taxpayers, according to Chapman.

The result is that those earning $18,000 to $45,000 annually will see their rate drop from 19% to 16%, a saving of 3%. Workers earning between $45,001 and $120,000 will receive a 2.5% tax cut, from 32.5% to 30%.

If your income is between $120,001 and $135,000, the tax saving is worth 7% annually.

Four ways to make stage three tax savings work harder

The big question is what the tax cuts will amount to in hard coin. On this score, there's good news and bad.

As the table shows, the annual savings will range from $354 to $4529 depending on your taxable income.

While any savings are always welcome, the downside is that the increase in disposable income is spread over the year.

That may be fine if you're a high-income earner. The $4529 gain for the top income earners will add $87 to disposable income each week. It's hard to miss that sort of money.

For others, the savings are more modest. If you're on $50,000, for example, you'll save $929 over the year - just $17.86 a week.

A few takeaway coffees or lunches will make short work of that.

The trick, according to Jacob LoCascio, a financial adviser with Coastal Advice Group, is to ensure your savings aren't lost in daily spending. He offers 
a few suggestions to make the extra money work harder:

1. Pay down personal debt

"Using the extra funds to pay off high-interest personal debt can save money in the long run and improve financial stability," says LoCascio.

For example, if you have an outstanding credit card balance of $10,000 with a rate of 15%, increasing repayments from $200 to $400 a month could see the debt cleared 2.5 years sooner, with an overall interest saving of $13,694.

"Even better, once you pay the debt off, the money that was once dedicated to repayments is all yours to spend on yourself," adds LoCascio.

2. Contribute to super

Investing the tax savings in super via salary sacrifice is an effortless way to boost your retirement nest egg. As a guide, a 40-year-old earning $90,000 who adds their weekly $37.09 tax cut to super could have almost $60,000 extra by retirement at age 67.

If the boss won't go along with salary sacrificing (they don't have to), consider making your own personal contributions to super. These can often be claimed on tax to help boost next year's refund.

LoCascio advises checking you are under the annual contribution caps before making extra super contributions. The annual limit on before-tax (concessional) super contributions is increasing from $27,500 to $30,000 from July 1.

3. Build an emergency fund

A Finder survey revealed that one in three Australians doesn't have a dollar of emergency savings. The tax cuts can provide the funds to grow rainy day money.

"Seek out a savings account with a competitive interest rate and contribute to your emergency fund consistently - you'll be amazed at how rapidly it could accumulate," says LoCascio.

Many savings accounts are paying interest of 5% or more. At that rate, a worker on $60,000 who saves rather than spends their weekly tax cut of $22 could accumulate an emergency stash of more than $6500 over five years.

4. Invest in education or skills 

"Utilise your tax savings to advance your career goals, whether through obtaining a new certification, degree, licence or other qualifications," suggests LoCascio.

"While it requires both financial investment and time commitment, consider it an investment in your future."

Furthering your education could see you land a promotion or better job opportunity along with a pay rise.

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