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Addressing the National Press Club today (25 January), Mr Albanese stated that the changes to the stage 3 tax cuts are a “plan for middle Australia” in an effort to benefit “everyone who works and pays tax”.
Under the changes, individuals earning up to $140,000 will benefit from the tax cuts due 1 July 2024.
Originally, a 30 per cent tax rate was set to be applied to those earning between $45,000 and $200,000, removing the existing tax brackets of 32.5–37 per cent, while increasing the minimum income level for those who sit in the 45 per cent tax bracket.
In a bid to help alleviate cost-of-living pressures manifested out of rising inflation and interest rates, the federal government has gone back on the election promise of not altering the already legislated roll-out.
As a result, high-income earners ($200,000 and higher) will see their tax cut effectively halved, receiving $4,529 instead of the $9,075 that was previously legislated.
The laws were first introduced and legislated by the Morrison government in 2019 in an effort to give more money back to the majority of taxpayers.
The new tax cuts set to come into effect as of 1 July are as follows:
• A reduction in the tax rate to 16 per cent from 19 per cent for incomes $18,200–$45,000.
• A reduction in the tax rate to 30 per cent from 32.5 per cent for incomes between $45,000 and the new $135,000 threshold.
• An increase to the threshold at which the 37 per cent tax rate applies from $120,000–$135,000.
• An increase to the threshold at which the 45 per cent tax rate applies from $180,000–$190,000.
According to the Albanese government, these changes will see all 13.6 million Australian taxpayers receive a tax cut, 2.9 million more when compared to the original plan by the Morrison government.
For example, a person earning the average income of approximately $73,000 will receive a cut of $1,504, $804 more than what was first legislated.
These changes came as the Labor government faced scrutiny, particularly from the Australian Greens Party, that the unchanged stage 3 tax cuts would only fan the flames of high inflation and could force the Reserve Bank of Australia (RBA) to resume interest rate hikes.
Acting leader of the Greens, senator Mehreen Faruqi, flagged that those earning between $50,000 and $100,000 would “be worst off” and potentially see an increase to mortgage repayments.
However, Treasurer Jim Chalmers has remained steadfast in today’s revised tax cuts, declaring that it won’t further complicate the ongoing fight against inflation.
Mr Chalmers stated he had received assurance from RBA governor Michele Bullock around the implications of the proposed changes with the central bank’s forecasts.
“Neither the Treasury nor the Reserve Bank expect[s] it to put upward pressure on inflation,” the Treasurer told RN Breakfast, ABC today.
“It has positive implications for labour supply, for example, which people often don’t factor into their thinking about this question, but broadly revenue neutral.
“We’ve got the Treasury advice, we’ve spoken to the Reserve Bank Governor, and that’s important.”
Commenting on the revised tax cuts, Westpac chief economist Luci Ellis said that while the changes will alter the distribution of benefits, the macro-economic impact (in relation to the original plan) is marginal.
“We do not expect that this will affect the RBA’s view of the inflation outlook or the future path of the cash rate,” Ms Ellis said.
“It is also important to remember that these tax cuts will not take place until 1 July. By that stage, inflation is likely to be within striking distance of the RBA’s 2–3 per cent target. Any surprises around the effect of the tax package on household spending will only emerge after that.”
Ms Ellis added that what matters for near-term monetary policy decisions is “whether the RBA currently thinks that the outlook has changed, not whether things turn out differently once we get to that point”.
“Media reports suggest that the RBA has already confirmed with the government that the tax changes do not affect the outlook,” she said.
[RELATED: Concerns arise stage 3 tax cuts]
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