Honestly, there is nothing more thrilling on this earth than tax bracket restructuring. We know many of you will have had many a wild Saturday night pouring over the tax codes until the wee hours. Pure unadulterated joy.
While tax is, uh, boring, it’s also essential to the functioning of any society — unless you’re a tax haven in which case this is also true but for opposite reasons.
As you might have heard, there have long been plans to do away with the third tax bracket in Australia. This is known as the ‘Stage Three tax cuts’, the previous two rounds of which were carried out under the Morrison government.
Stage Three is the most ambitious and it has divided pollies and people alike. While the first two were aimed at low and middle-income earners, providing the $1080 tax rebate to those earning under $126,000, Stage Three primarily benefits the wealthiest 15% in society. It was described in 2019 by the Grattan Insitute as making income tax “the least progressive since the 1950s.”
New analysis commissioned by the Greens has found that the richest 1% in society will get as much benefit out of the tax cut as the poorest 65% combined. $243 billion would be wiped off the national tax bill and put more money in the pockets of the incredibly wealthy at a time when we’re struggling to get inflation under control by raising interest rates.
The same analysis found that $160.6 billion of this sacrificed tax would go to men while women would get ‘just’ $82.9 billion in benefits.
In opposition, Labor initially rejected the plan, saying it was “irresponsible” to lock in benefits for high-income earners. However, they eventually came around to the idea, voting with the Coalition in 2019 to secure the three-stage plan.
What Would the Stage Three Tax Cuts Do?
The third round of these sweeping tax cuts that are being rolled out across half a decade will effectively do away with one of the four income tax brackets. This is set to come into play in the 2024-2025 financial year.
Currently, Australian tax brackets sit at $18,201 — $45,000, $45,001 – $120,000, $120,001, – $180,000, and $180,001 and up. The first bracket takes 19% on that income, the second takes 32.5%, the third takes 37%, and the fourth takes 45%.
What would happen with the Stage Three cuts is the second tax bracket would lower to 30% while the third would disappear entirely. This may sound good, but it means anyone earning up to $200,000 would be paying the same rate of tax as someone on $45,001. Anything above $200,000 would still be taxed at 45%.
In practice, those on incomes below $45,000, so, people earning just over the minimum wage, will gain nothing from these tax cuts while people earning over $200,000 will gain $9,000 per year.
Chief Economist, Dr Richard Denniss, from independent think-tank the Australia Institute, has said that the plan will make Australia a much less equal place.
“By cutting taxes for the higher-come earners, this extreme plan will make our tax system permanently less fair. It’s an attack on Australia’s fair-go, progressive tax system,” he said.
“Low- and middle-income earners are more likely to spend their tax cut back into the economy, creating jobs and growth, while the highest income earners are more likely to stash the additional cash away. This plan will increase economic inequality in Australia.”
How Likely Are They to Pass?
There’s been a tonne of noise about these cuts ever since they were proposed. The three-stage plan has been legislated since 2018, meaning that the cuts have already passed. Whether they actually come into effect will depend on whether or not Labor decides to reverse the plan, getting a Bill through Parliament in order to do so.
That looks increasingly unlikely to happen, given that Labor renewed its support for the cuts on Monday.
“Parliament made a decision to legislate those tax cuts, and we made a decision that we would stand by that legislation rather than relitigate it,” Prime Minister Anthony Albanese said.
Labor is understandably cautious not to cause upset with voters after suggestions of keeping the taxes in place hit them badly in the 2019 election. However, it’s not just Labor who is torn on the issue; nine crossbench MPs also support delaying or scrapping the cuts while backbench Liberal MP Russell Broadbent has also come out in favour of abandoning the plan.
“When things change, we should change,” Broadbent told the ABC on Monday.
“The world has turned on its head since the tax cuts were introduced. So people like me don’t need tax cuts. Not only dealing with national debt as far as the eye can see, we’re dealing with bushfire recovery, flood recovery, we’ve got a housing and rental debacle, we’ve got staffing issues and supply chain issues. We could be spending that money on social housing, defence, it goes on and on.”
$243 billion is a staggering amount of money, particularly at a time of national crisis when spending ought to be key. The Guardian has put together a nifty, interactive tool to see just what the country could be getting for that kind of cash.
According to them, you could give aged care workers a 25% pay increase, boost arts spending by $1.6 billion, electrify the nation’s homes to save one-third of the country’s emissions, put solar panels on all public and Indigenous housing, spend $5.4 billion on increasing our defences to natural disasters, add mental and dental health care to Medicare plus about a dozen other things and still have $1.1 billion to play with.
Albanese has however backed off locking in the cuts in their current form, refusing to give an absolute guarantee that they would come into effect as they are in 2024. This has given some critics a smidge of hope that they could be altered. Unless momentum builds on the issue though, we’re likely to see these tax cuts come through in just a few years’ time.
Related: What the ATO Have Warned They’ll Be Cracking Down on This Tax Season
Related: Do I Have to Pay Tax on My Cryptocurrency Earnings in Australia?
Read more stories from The Latch and subscribe to our email newsletter.