What the third phase tax cut means for you

And this despite the fact that Prime Minister Anthony Albanese has repeatedly stated that he does not plan to abandon the scheme of the former government.

Last week, Treasurer Jim Chalmers said the world was bracing for another global recession and while the October 25 Budget did not predict a recession for Australia, the nation would not emerge unscathed.

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“We are in a much better position than most of the countries we compare ourselves to, but we are not immune to a global downturn,” he said.

“This will have implications for our own growth projections. This will have implications for our unemployment forecasts. It’s obvious and it’s clear.”

The third phase of tax cuts, due to come into effect in July 2024, is part of the former Morrison government’s tax plan.

The legislation was passed with Labor support in 2019, despite some concerns, and Mr Albanese went into the 2022 election promising no change.

But tax cuts can still be reversed.

Mr Chalmers has repeatedly noted that global economic conditions have changed, including rising inflation and several interest rate hikes since the peak of the Covid-19 pandemic.

What was the Morrison government’s tax plan?

The first phase included a low- and middle-income tax of up to $1,080 a year for taxpayers earning between $30,000 and $126,000.

The second phase raised the 32.5 percent marginal tax bracket from $37,001 to $90,000 to $45,001 to $120,000, and the threshold for the 37 percent tax rate was raised from $90,000 to $120,000.

The Low Income Tax Credit was also increased to include those earning less than $45,000.

The third phase abolishes the 37 percent marginal tax bracket and reduces the 32.5 percent marginal tax rate to 30 percent.

It also increases the threshold for the 45 percent marginal tax rate, so people earning between $45,000 and $200,000 will pay the same 30 percent tax rate.

The tax cuts are aimed at addressing so-called “bracket creep,” which threatens to raise average tax rates.

What are the current tax brackets in Australia?

• Up to $18,200 – tax free
• $18,201 to $45,000 – Pay a 19 percent tax rate
• $45,001 to $120,000 – Pay a 32.5 percent tax rate
• $120,001 to $180,000 – Pay a 37 percent tax rate
• $180,001 plus – pay a 45 percent tax rate

What tax brackets will be in phase 3?

• $18,200 – no tax
• $18,201 to $45,000 – Pay a 19 percent tax rate
• $45,001 to $200,000 – Pay a 30 percent tax rate
• $200,001 plus – pay a 45 percent tax rate

What will the costs be for the budget?

The third phase of tax cuts is estimated to cost the budget $243 billion in lost tax revenue over ten years.

Are tax cuts good?

The cuts appear to benefit high- and middle-income earners more than low-income earners.

Analysis by the Australia Institute found that high earners would get a tax break of $9,075 a year in the third phase.

For the roughly 90 percent of taxpayers who make less than $120,000 a year, the creeping value will continue to be a problem.

“When economic circumstances change, economic policy must change too – even if that means breaking an election promise,” Australia Institute chief executive Richard Dennis said.

Sydney

Angie Raphael has nearly two decades of journalism experience. Angie began her career in regional and community newspapers, then spent 10 years with the Australian Associated Press before joining the NCA Ne… Read more

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