Politicians of all shapes, sizes and party preferences do it, however, the question they always ask is, can I avoid getting caught breaking my promise? When the subject matter at hand is an election promise combined with a tax cut, that question is not hard to answer. The Labour party rolled out the line both before and after the election, and as recently as last week (even knowing that Treasury had been consulted on changes prior to that date) that the Stage 3 tax cuts would be retained.
The change of an election promise when it relates to tax cuts is something that most politicians find hard to recover from, however, the Federal Government have sought to apply a positive spin on the changes, seeking to redirect some of the benefits whilst still giving some benefits to higher income earners.
The changes to the Stage 3 tax cuts result in a redistribution of some of the tax benefits away from those earning more than $150,000 towards those on lower incomes. For those who were in line for a tax cut of just over $9,000, this will now be halved, with lower income earners receiving tax relief in the form of lower income bands and an increase in when the Medicare Levy applies.
The top marginal rate for Australian will apply for income over $190,000, however, it should be noted that this is comparatively low internationally and, if the top band had been subject to CPI would be circa $250,000 now. Bracket creep is alive and well!
So whats changing and how does it all work out?
Politicians of all shapes, sizes and party preferences do it, however, the question they always ask is, can I avoid getting caught breaking my promise? When the subject matter at hand is an election promise combined with a tax cut, that question is not hard to answer. The Labour party rolled out the line both before and after the election, and as recently as last week (even knowing that Treasury had been consulted on changes prior to that date) that the Stage 3 tax cuts would be retained.
The change of an election promise when it relates to tax cuts is something that most politicians find hard to recover from, however, the Federal Government have sought to apply a positive spin on the changes, seeking to redirect some of the benefits whilst still giving some benefits to higher income earners.
The changes to the Stage 3 tax cuts result in a redistribution of some of the tax benefits away from those earning more than $150,000 towards those on lower incomes. For those who were in line for a tax cut of just over $9,000, this will now be halved, with lower income earners receiving tax relief in the form of lower income bands and an increase in when the Medicare Levy applies.
The top marginal rate for Australian will apply for income over $190,000, however, it should be noted that this is comparatively low internationally and, if the top band had been subject to CPI would be circa $250,000 now. Bracket creep is alive and well!
So whats changing and how does it all work out?
| 2024 Existing | Rate | 2025 New Thresholds | Rate | Cumulative |
| $-$18,200 | 0.0% | $-$18,200 | 0% | - |
| $18,201-$45,000 | 19.0% | $18,201-$45,000 | 16% | $4,288 |
| $45,001-$120,000 | 32.5% | $45,001-$135,000 | 30% | $31,288 |
| $120,001-$180,000 | 37.0% | $135,001-$190,000 | 37% | $51,637 |
| >$180,000 | 45.0% | >$190,000 | 45% | $56,137 |
The change in the tax rates means that someone earning $200,000 who was in line to receive a tax saving of $9,075 will now receive a saving of $4,529 – just under half of what had been legislated with those earning $150,000 line ball when compared to the legislated Stage 3 cuts (a tax saving of approximately $3,975). The higher income earners will be receiving a tax cut, just not the one promised.
The savings made at the top end have been redistributed to the lower income earners with people earning $45,000 now to receive a tax saving of $804 when originally slated to remain unchanged. The changes are designed to provide cost of living relief to lower and middle income families. The question is whether these changes will drive inflation given the propensity for lower income earners to recycle income through the economy therefore potentially undoing the cost of living relief.
Should you have any questions about how these changes will impact you please reach out to your Engagement Partner.
