Winners and losers in Anthony Albanese’s stage three tax cuts broken promise
Anthony Albanese’s backflip will likely see July 1 tax cuts halved for many Australians and those on higher incomes face a substantially bigger tax bill. See how you will fare.
Anthony Albanese is holding a meeting in Canberra on Wednesday afternoon with Labor MPs, asking them to endorse his plan to rewrite stage three tax cuts and break an iron-clad election commitment.
The Prime Minister’s policy backflip will likely see the July 1 tax cuts of people earning over $200,000 halve to about $4500, while there will be deeper relief for every dollar earned under $135,000.
Overall, the one million Australians earning over $150,000 are worse off under the proposed change while people earning under that amount have more tax relief because of deeper cuts for their first $45,000 earned.
The caucus meeting is at 4pm, with cabinet endorsing the package on Tuesday.
The stage three package was legislated by Scott Morrison in 2019, so its rewrite will need to be endorsed by parliament ahead of July.
Why the PM changed his mind
Speaking on Wednesday morning, Mr Albanese signalled he will tell voters he changed his position on stage three tax cuts because the global economy had changed since it was legislated by Scott Morrison in 2019.
“There has been a pandemic, there has been a recession, there has been global inflation, there has been not one war, but two wars that have had an impact,” Mr Albanese said in Canberra.
“So, there has been considerable events.
“My job isn’t to say, ‘I’ll just wring my hands about cost of living pressure that people are feeling’. My job is to respond, to seek advice, and then to make a difference.
“To make the right decision, not the easy decision.”
Affected tax brackets
Under the current brackets, the first $18,200 earned by workers is tax free, while earnings between $18,200 and $45,000 are taxed at 19 per cent.
The rate increases to 32.5 per cent for earnings between $45,000 and $120,000, before the 37 per cent bracket then kicks in on wages up to $180,000.
Every dollar over $180,001 is taxed at the top marginal rate of 45 per cent.
Under the initial stage three plan backed by Labor at the 2022 election, the 37 per cent tax bracket would be removed and the top marginal rate lifted to $200,000.
Every dollar earned between $45,000 and $200,000 would be taxed at 30 per cent, with the top marginal rate to remain at 45 per cent.
Under Mr Albanese’s rewrite, the 37 per cent bracket would be reinstated for workers earning more than $135,000, as revealed by The Australian on Tuesday night.
The Australian also reported on Tuesday the top marginal rate would be reduced from $200,000 to $190,000, paving the way for bigger tax cuts for lower income earners.
Sky News is reporting the tax rate from $45,001-$135,000 will be 30 per cent, while income between $19,000 and $45,000 will be taxed at a reduced rate of 16 per cent.
The proposed changes mean workers earning between $45,000 and $135,000 will receive an extra $932 a year against the legislated changes.
Retaining the 37c tax bracket from $135,000, however, means workers on $150,000 will be nearly $120 a year worse off under Mr Albanese’s proposals, which he has yet to confirm.
Higher income earners face bigger tax bill
Those on higher incomes face a substantially bigger tax bill under Labor’s plans.
At $180,000 annual income, a worker in 2024-25 will be paying an extra $2218 to the tax man versus the legislated tax rules.
Halving the increase in the top tax threshold, to $190,000 instead of $200,000, will cost individuals on that higher wage more than half of their promised $9075 tax relief.
Opponents of the stage 3 tax cuts had criticised the changes as being too expensive given the nation’s structurally weak budget position.
Labor’s proposed changes are even more costly.
The substantially expanded tax relief for lower and middle-income workers will reduce tax revenue by $13bn over the forward estimates period, according to the Parliamentary Budget Office, and by $20bn over the coming decade.
