The below table is a summary of the changes, compared to Scott Morrison’s original stage 3 tax cuts.
Australians earning less than $45,000 were initially not expected to receive a tax cut in July. However, there have been recent changes to the tax code, which must still pass through parliament. These changes include a reduction in the lowest rate of income tax from 19 percent to 16 percent. Despite speculation in the media, the tax-free threshold will remain at $18,200. Additionally, more lower-income earners will be exempted from the Medicare levy, with reports suggesting that the threshold will increase from $26,000 to $32,500.
According to Anthony Albanese, these changes will benefit workers with modest incomes, part-time workers, and will also provide an incentive for parents to return to work by increasing their take-home pay. This, in turn, will aid businesses by encouraging greater workforce participation.
To ensure that assistance is directed towards middle Australia, who require support with the cost of living, the second tax rate will be reduced from 32.5 percent to 30 percent for incomes up to $135,000.
At tax time, middle and high-income households, with average annual incomes of $97,000 and $136,000 respectively, will experience the most significant average gains.
According to modelling by Assoc Prof Ben Phillips at the Australian National University, individuals earning between $50,000 and $130,000 will see the greatest benefit from the proposed changes.
For those earning above $150,000, the tax cut will be smaller than they would have previously received.
Furthermore, the threshold for the top tax rate of 45 percent will be increased from $180,000 to $190,000. This marks the first increase in the threshold for the top marginal tax rate since 2008.
During an address to the National Press Club in Canberra, Mr Albanese stated that these changes will help alleviate living costs and promote workforce participation. It remains to be seen if these changes will have the positive impact they aim to achieve.
If you need some guidance or advice around the above changes our team are here to help you out. BLG Business Advisers are Wollongong Accountants who service all across Australia, so talk with us about your situation and gain advice specific to your needs.