Prime Minister Anthony Albanese has formally announced changes to the planned ‘Stage 3’ tax cuts after Labor MPs met in Canberra yesterday.
Under the proposal, those earning below $45,000 will be included in tax cuts that previously only applied to higher-income earners. However, incomes above $135,000 won’t get the reduced tax rate promised under Stage 3.
The Opposition has accused the Prime Minister of lying about his commitment to implement the cuts.
Context
Australia has a “progressive” tax system, which means the more you earn, the more tax you pay. You don’t pay tax for the first $18,200 earned in a year.
Every dollar earned above that is taxed.
This week, the Government has announced changes to planned tax cuts. The changes mostly impact Australians who earn $45,000 or less, and those who earn above $135,000.
Stage 3 tax cuts
A three-stage tax plan to change income was first introduced under the former Coalition government. Labor, then in Opposition, voted for the measure in 2019.
Stages 1 and 2 have already been implemented. Under the plan’s third stage, incomes between $45,000 and $200,000 would have been taxed at the same rate of 30%.
The Stage 3 tax cuts would not have reduced taxes for anyone earning below $45,000.
Changes
Prime Minister Anthony Albanese announced the changes to the Stage 3 tax cuts during an address at the National Press Club.
New tax rates
The new tax rate will mean that anyone earning above $135,000 will be taxed at 37%, instead of the 30% originally slated under the Stage 3 model.
Anyone earning under $45,000 will pay 3% less tax on every dollar earned in a year. For example, a person who earns $40,000 will pay $654 less tax under the changes. Under Stage 3, they would not have benefited from any tax relief.
A person earning $150,000 will pay $3,729 less tax in a year. While their taxes will still go down, the changes mean they will be $246 short of a $3,975 tax cut promised under Stage 3.
Calculate your tax savings with Stage 3 tax cuts
Labor meeting
Labor MPs and Senators returned to Canberra earlier this week – two weeks before they were due back to Parliament – where they agreed to changes to the tax cuts.
During a speech in Canberra, the PM said the changes will affect “all 13.6 million taxpayers, not just some”.
Why the changes?
The Government has been under pressure to change Stage 3 tax cuts to minimise worsening inflation (rising prices), due to Australians having more money to spend on everyday items.
The measures were also expected to cost the Government roughly $21 billion in the first year.
Australia’s peak social welfare body, ACOSS, had also urged the Government to scrap the cuts for high income earners and fund cost of living relief instead.
Opposition
Deputy Opposition Leader Sussan Ley told media yesterday the PM “lied to the Australian people”.
Albanese had promised the tax cuts in the lead up to the 2022 election, where Labor defeated the Coalition.
“The Prime Minister's election win was built on a lie. Labor won this election on a lie,” said Ley.
She added the Coalition would introduce the originally planned Stage 3 cuts if it wins the next election.
Next steps
The changes to the cuts will need to go through Parliament before being implemented. Labor will need the support of minor parties and independents in the Senate.
It’s unclear if the Greens will support the new measures. The party has suggested funding public services as a better way to address cost of living pressures than tax cuts.
Greens Senator Mehreen Faruqi said: “Scott Morrison is gone, and Labor should ensure his tax cuts for the wealthiest Australians go with him.”