Anthony Albanese has unveiled a major redesign of stage three tax cuts in a move aimed at helping low- and middle-income earners battling through Australia’s cost-of-living crisis.
The stage three cuts — which were introduced and legislated while the former Coalition government was in power and before the current economic environment marred by crippling inflation — are due to come into effect from the next financial year.
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In their original form, all Australians earning between $45,000 and $200,000 would see a decrease in the amount of tax they paid.
Critics, however, argued the cuts skewed favourably towards higher-income earners, while low-income earners, particularly those on less than $45,000 per year, were being left behind.
The PM’s reform was presented to a full Labor caucus meeting on Wednesday afternoon and formally unveiled at the National Press Club on Thursday.
The prime minister has outlined an overhaul of stage three tax cuts at the National Press Club. Credit: AAP
The original plan would have seen a flat tax rate of 30 cents per dollar for those earning between $45,001 and $200,000.
Under the re-worked cuts, the Albanese government will cut the tax rate from 19 per cent to 16 per cent for those with an income between $18,200 and $45,000.
Workers in that bracket would save about $804 on their annual tax bill, according to H&R Block.
The government’s recalibration will also slice the middle-income tax rate on earnings between $45,000 and $135,000 to 30 per cent, down from 32.5 per cent.
The 37 per cent marginal tax bracket, which was set to be scrapped altogether, will be retained, but with an increased threshold of $135,000.
The top bracket, taxed at a 45 per cent rate, will now begin at $190,000, previously $180,000.
The reform is expected to provide relief for middle-income workers, with Australians earning below $140,000 up to $900 better off than the previous plans, according to some estimates.
Well-heeled Australians will still receive a sizable tax break, but not as much as previously legislated.
“The effect of the redesigned package is that those on higher incomes — say, $200,000 — will now only benefit by $4546 as opposed to $9075,” H&R Block Australia’s director of tax communications Mark Chapman said
“With the cost of the tax cuts package overall expected to remain 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, have been suffering from increases in the cost of living and are far more numerous than the high-income earners.”
How much workers will get
Under the changes, due to take effect on July 1, a person earning an average wage of $73,000 will get a tax cut of more than $1500 a year.
Those earning $50,000 will pocket an extra $929 a year while people on $100,000 will receive $2100.
According to a joint statement by Albanese, Treasurer Jim Chalmers and Finance Minister Katy Gallagher, 13.6 million taxpayers will receive a cut in the changes.
More than 2.9 million of those taxpayers would not have received a tax cut under the previously legislated plans.
Some 84 per cent of taxpayers, 11.5 million people, will receive more than they would have under the previous plan.
Albanese said helping Australians with the rising cost of living remains his government’s “number one priority”.
“Because if the cost of essentials is rising too fast, people hardly have time to think about the future, let alone plan to save for it,” he said in a National Press Club address on Thursday.
“I understand that people are under financial pressure.
“Australians have been living through the economic aftershock of the pandemic, the first recession in three decades and the ongoing, far-reaching consequences of Russia’s invasion of Ukraine, an unprecedented combination of global inflation and damaged supply chains has pushed up interest rates, putting pressure on family budgets.
“Everything we have done as a government has been about managing those competing forces.”
Millions of Australians will be up to $900 better off under the reformed plans. Credit: AAP
He added that more cost of living relief is “on the way”.
“Australians are looking for more help, Australians deserve more help and today, I can confirm that more help is on the way.”
The tax cuts are not expected to impact inflation, Albanese said, quoting advice from the Treasury.
“This option is broadly revenue neutral and will not add inflationary pressures, and will support labour supply,” he said.
Albanese said Chalmers had consulted Reserve Bank Governor Michele Bullock, and expected “no implications for the RBA inflation forecast”.
The decision to change the tax cuts, however, exposes the government to an onslaught of criticism from the opposition.
Albanese pledged to keep stage three tax cuts in the 2022 election campaign, and has reiterated that position consistently since.
Opposition spokesman for foreign affairs Simon Birmingham called the backflip a “significant broken promise” and said it did not address bracket creep.
“What Anthony Albanese and Jim Chalmers will be doing is possibly giving some people a little bit more today, but many of those people will be pushed up into those higher tax brackets tomorrow and in the years ahead,” he told ABC radio on Wednesday.
“(The changes are) dressed up as a short-term giveaway, but with long-term consequences of the government relying on even more income tax.”
– With AAP