‘Magic number’ you need to earn to get most out of looming tax cuts

New analysis has revealed the salary Aussies need to earn to get the most out of upcoming generous tax cuts – and it’s not as high as it was.

The ideal salary you need to earn in order to benefit most from the government’s rejigged stage three tax cuts has been revealed.

The government’s proposed changes to the final phase of Scott Morrison’s reforms look set to become a reality, after the opposition indicated its intent to support them.

Ben Phillips, associate professor at Australian National University’s Centre for Social Policy Research, crunched the numbers to see how better or worse off taxpayers will be after July 1.

Anthony Albanese’s changes to stage three means every taxpayer gets some kind of cut. Picture: NCA NewsWire / Martin Ollman

Much of the analysis since the tweaks were announced by Prime Minister Anthony Albanese has focused on dollar values, Mr Phillips explained.

“Sometimes it doesn’t make a lot of sense to look at things in terms of dollars because obviously high-income earners pay more tax,” he said. “This analysis looks at it in terms of percentages.”

On that basis, the ‘magic number’ an Australian needs to earn to benefit most from the stage three tax cuts is clear.

Those with a taxable income of $135,000 per year will fare best, with a 2.8 per cent tax cut, equating to about $3729 per year.

Previously, they would’ve received a 2.2 per cent tax cut, or $2925.

Those earning $135,000 are in the sweet spot when it comes to getting the most out of stage three.

Under the Morrison design, the biggest percentage cut was set to go to those on $200,000 – a 4.5 per cent saving, equating to $9075 per year.

Now, those high-income earners will get a 2.3 per cent tax cut, still saving $4529.

“For most incomes up to that ‘magic number’, you’ll be better off under the Albanese stage three tax cuts,” Mr Phillips said.

“Above that, you get substantially less of a tax cut than under Morrison’s version.

“The different is that everyone now gets a tax cut. In some sense, this is a more equitable approach – lower income taxpayers get a bigger cut, high income earners get less.”

His analysis also looked at where taxpayers at various levels land in terms of taxable income distribution.

“What we found is that the top 10 per cent of income earners are worse off under the Albanese scheme, but that means 90 per cent of taxpayers are either better off or will see no difference under this redesigned scheme.”

Aussies unfazed by ‘broken promise’

Polling from the Australia Institute found two-thirds of voters support the backflip, believing it’s more important to adapt policy to shifting economic conditions.

It found just 16 per cent of respondents want stage three left at it is, comprising a quarter of those who identify as Coalition voters and a third of Aussies on the highest incomes.

“The Morrison-era stage three tax cuts are bad economic policy, and even voters on the highest incomes recognise that,” Dr Richard Denniss, executive director of the Australia Institute, said.

The opposition will support the changes, it’s been revealed. Picture: NCA NewsWire / Martin Ollman

Dr Denniss said the polling showed majority support for the government’s changes across all age groups, genders, voting intentions and the large states.

“When stage three was legislated in 2019, no one would have predicted a global pandemic, rising inflation and a cost-of-living crisis. Voters understand that things change.

“Australians need the government of the day to respond to our current economic realities. That is what the government has done.”

‘More winners than losers’

The government’s changes mean virtually every taxpayer now gets a tax cut of some kind, Mr Phillips said.

“Most, the 11 million taxpayers earning up to $146,486, will also pay less tax [in dollar value terms] than they would have under the earlier version of stage,” he said.

“Some getting a tax cut twice as big.”

A much smaller number – a projected 1.8 million Aussies – will get less than they would have under the original stage three provisions.

Experts say the changes measure up by being more equitable.

Mr Phillips said his modelling of the impacts of stage three at a household level showed there are “more winner than losers” in every broad income group.

“We’ve divided Australian households into five equal-size groups ranked by income, from lowest to lower-middle to middle to upper-middle to high,” he said.

“Our modelling finds that, just as is the case for individuals, many more households will be better off with the changes to stage three than would have been better off with stage three as it was, although the difference isn’t as extreme.

“Overall, 58 per cent of households will be better off … than they would have under the original, and 11 per cent will be worse off.”

But at a household level, 31 per cent will be neither better or worse off.

Originally published as ‘Magic number’ you need to earn to get most out of looming tax cuts