The Federal Government has unveiled a proposal to modify the scheduled personal income tax cuts set to begin on July 1, 2024. The adjustments aim to realign and redistribute the tax cuts, ensuring a more equitable impact, particularly benefiting lower-income households facing rising living costs.

What is the change?

Under the proposed redesign, the Stage 3 tax cuts will favour residents with taxable incomes below $146,486, offering larger cuts than the existing plan. 

For instance, an individual with a taxable income of $40,000 would receive a $654 tax cut, contrasting with no cut under the current Stage 3 plan. Similarly, someone with a taxable income of $100,000 would receive a $2,179 tax cut, an $804 increase compared to the original Stage 3 plan.

However, individuals earning $200,000 will experience a reduction in the expected benefit, with the Stage 3 plan cut nearly in half, from $9,075 to $4,529. Although there is still a benefit compared to current tax rates, it is not as substantial.

Additional relief is provided for low-income earners, with the Medicare Levy low-income thresholds anticipated to rise by 7.1% to $32,500 before the 2% levy kicks in (up from $26,000).

While the proposed redesign aims for broad revenue neutrality compared to the existing Stage 3 plan, it is projected to cost approximately $1 billion more over the next four years before bracket creep mitigates the gains.

It is not a sure thing yet!

Enacting the redesigned Stage 3 tax cuts by July 1, 2024, requires swift legislative action, with the government seeking support from independents or minor parties to secure passage through Parliament.

The personal income tax plan, initially announced in the 2018-19 Federal Budget, aimed to address the issue of ‘bracket creep’ by restructuring tax rates and thresholds. 

The three-point plan, implemented in stages from July 1, 2018, and July 1, 2020, with Stage 3 originally scheduled for July 1, 2024, sought to simplify the tax system, reduce the tax burden, and align Australia with neighbouring countries’ tax rates.

If you have any questions regarding the impact of the tax curts changes, give us a call on (02) 9957 4033.

The three stages reform