Stage three tax cuts: it was always going to produce this anger

July’s tax cuts come after earlier cuts for low and middle income earners are long forgotten. It’s no wonder controversy continues.

It’s tall poppy chopping season across Australia as controversy around July’s stage three tax cuts for middle and high income earners flares once again.

This was always going to happen, ever since three stages of tax cuts were announced by then Prime Minister Malcolm Turnbull’s treasurer and successor, Scott Morrison, back in the May 2018 federal budget.

Stage one arrived in July 2018, Stage two was set for 2022 but was brought forward to 2020 amid a crazy little thing called Covid, while stage three was always set for July 2024 – now just over five months away.

I remember reading those 2018 budget papers and thinking “geez, that won’t go down well – lucky they gave it such a long lead-in time of six years”.

Here we are, almost six years later, and the tax cut controversy never left.

Several MPs, academics and media identities still attack stage three, although the Labor government is expected to begrudgingly accept the legislated cuts that will hand an extra $9075 a year to people earning $200,000.

Let’s recap the first two stages. Stage one delivered almost $1100 per year to some taxpayers, mainly those with income between $30,000 and $90,000. Stage two tweaked tax thresholds and took total savings from both stages to $2745 for singles and $5490 for dual-income families – mainly middle-income earners.

High income earners will see their tax bill drop dramatically. Picture: iStock

With those earlier cuts now gone and long forgotten, stage three is the big gun that remains. By abolishing the 37 per cent tax rate and giving all workers earning between $45,000 and $200,000 a simple 30 per cent tax rate, people at the higher end of that scale enjoy a huge financial windfall.

Simplifying income tax is a great idea that creates an incentive to work harder to move up the pay scale, but the nature of numbers in the simplification leaves the richest taxpayers with the biggest benefits.

Stage three adds $94 a month to an average $90,000 wage earner’s take-home pay, and $756 a month to someone on $200,000-plus. A worker earning $50,000 gets just $10 a month more, while a taxpayer with income of $150,000 gets an extra $330 each month.

As debate rages about the fairness, there have been misinformation and misguided claims about tax.

Firstly, we’ve had unions saying someone earning $200,000 will be paying the same tax as someone on $50,000.

Nope, sorry, they’re only paying the same rate of tax – 30 per cent on every dollar earned above $45,000.

That means our $50,000 earner will pay about $6600 in tax next financial year, while the $200,000 earner will pay around $51,600 – enough two fund two full age pensions, or 2.5 people on Jobseeker. The higher earner also pays four times as much Medicare Levy.

There have been claims that the tax cuts will add fuel to Australia’s high inflation, which the Reserve Bank is trying to reduce through interest rate rises.

The tax cuts would arguably have a bigger impact on inflation if they were all handed out to low income earners, who are more likely to spend every dollar they get paid. Wealthier people save and invest more.

And if $9000 tax cuts went to median wage earners receiving $55,000 a year, more than half of all working Australians would not pay a cent to the ATO. How fair is that?

We can expect tax cut turmoil to continue right up until July 1 and beyond, and the looming federal budget may yet throw a grenade or two into discussions.