Stage 3 tax cuts are a smash success, so why aren’t we more thankful?

One of the first lessons I learnt when it comes to saving money is that it doesn’t actually matter how small the amount you’re putting away is. Whether it’s 50 cents or $50, in those early days of trying to build a new habit, it’s more about learning to set money aside every time your pay cheque hits your bank account than the dollar value itself.

And while that may still be as relevant then as it is now, it doesn’t always hold true when politics and savings psychology are added into the mix.

The lack of fanfare over the government’s successful stage 3 tax cuts says a lot about Australian’s money saving habits.Credit: Dionne Gain

Perhaps the perfect example of this is the stage 3 tax cuts. Upon announcing the changes this time last year before their eventual July 1 rollout, Treasurer Jim Chalmers said the tax cuts were “a better way to provide more cost-of-living relief to more people”, while Opposition Leader Peter Dutton called the change “an attack on aspiration”.

As most of us can remember, months of debate about their merit and whether they would be the magic bullet to cure inflation or go the other way and send us into a recession followed.

In the leadup to the cuts coming into effect, countless television, radio and publications (including this one) surveyed Australians to gauge their feelings about the policy. The mood, by all accounts, could best be described as total and utter indifference.

Some people said they didn’t need the extra money and that it would be better spent by the government elsewhere. Others said it would make no difference to the pain being felt amid a cost of living crisis.

When we’re given the option of a one-off lump sum or a slow-and-steady-wins-the-race approach, we’ll always choose the sugar hit.

More than once, I heard people say they wouldn’t notice the change or that if they had a choice between stage 3 tax cuts or the return of the low- and middle-income tax offset (affectionately known as the “lamington”), they’d choose the dessert option any day.

But now we’re six months into living with the stage 3 tax cuts, and the results are fascinating for a number of reasons.

For starters, the cuts have neither driven the economy into a recession nor fixed cost-of-living pressures entirely. According to the latest figures released by the Australian Bureau of Statistics, between October and December 2024, inflation fell to 2.4 per cent (the lowest rate in almost three years), while the underlying measure also moved downwards to 3.2 per cent.

As for Chalmers’ claim that the cuts would provide cost of living relief, the results are clear. According to the latest Westpac-DataX Consumer Panel figures, Australians earning between $45,000 and $135,000 have found themselves with $830 more in their pockets over the past six months thanks to the cumulative tax benefit on average.

What’s more, the report shows of that $830, around 75 per cent has gone to savings, while 25 per cent has been spent. In dollar terms, that’s $205 going out into the economy and $625 being stashed away for a rainy day.

While this is good news, it brings me back to our psychology when it comes to saving money and the lasting allure of the lower- to middle-income tax offset.

Introduced in 2018 by the Coalition, the “lamington” saw Australians earning between $48,000 and $90,000 get an automatic tax refund of $1080. In 2022, the figure climbed even higher to $1500 – coincidentally announced just before a federal election took place.

Naturally, the lamington was a winner with voters, and its removal in 2023 was decried by many who had developed a taste for this annual sugar hit.

The end of the “lamington” tax break was decried by many.Credit: Fairfax

Stage 3, though, hasn’t enjoyed the same fanfare, even though the same Australians who enjoyed the lamington are set to end up with an average of $1660 more in their bank accounts this financial year on average thanks to the change. That’s because when we’re given the option of a one-off lump sum or a slow-and-steady-wins-the-race approach, we’ll always choose the sugar hit.

There are many reasons for this, and it’s true in all aspects of our lives, but it is particularly acute when it comes to personal finances. The lamington, for example, felt like a treat. Almost no effort was required other than lodging a tax return, and for that effort, we received a major reward.

But to make stage 3 count in the same way, you have to diligently put aside this new bonus amount every time your pay lands in your account. While we’re clearly doing that – and oh so well– this extra task transforms the experience from a treat into feeling like work.

So despite millions more Australians being a little bit better off than they were this time last year and the government’s policy that was designed to provide relief clearly working, people aren’t cheering.

According to Ipsos polling from December 2024, people aren’t thankful at all. In fact, more Australians currently believe the Coalition is better placed to manage the cost-of-living crisis (29 per cent to Labor’s 24 per cent). Resolve polling tells an even worse story, with the Liberal Party leading Labor 42 per cent to 23 per cent on economic management.

That these are the results at the very same time stage 3 beneficiaries found themselves $830 better off thanks to Labor is precisely why our mentality around saving is just as important – if not more important – than the saving itself.

Because the biggest problem with trying to introduce new habits is that change takes a lot of patience and, even more than that, time. And that’s something governments don’t seem to have all that much of any more, particularly when people are already feeling the crunch.

Victoria Devine is an award-winning retired financial adviser, bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also the founder and co-director of Zella Money.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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