Treasurer defends revised stage 3 tax cuts plan
Changes to the legislated stage 3 tax cuts will deliver more significant cost of living relief to middle Australia, says Jim Chalmers.
***Updated***
The Treasurer has defended proposed changes to the stage 3 tax cuts which will provide lower to middle income earners with greater tax relief but halve the tax cuts for higher income earners.
The Prime Minister this afternoon confirmed that the revised stage 3 tax cuts will reduce the lowest rate of income tax from 19 per cent down to 16 per cent for taxpayers earning less than $45,000. The second tax rate will be reduced from 32.3 per cent down to 30 per cent. The threshold for the 37 per cent tax rate will be increased to $135,000, while the threshold for the top tax rate of 45 per cent will be increased to $190,000 from the current $180,000.
Prime Minister Anthony Albanese said the revised plan will deliver tax cuts to every Australian taxpayer.
The government will also increase the low-income threshold at which the Medicare levy applies.
Speaking on ABC News this morning, Treasurer Jim Chalmers said anyone who is paying tax will receive a tax cut.
“There'll still be decent tax cuts for people on more substantial incomes but there's a bigger emphasis on middle Australia," he said.
Dr Chalmers said that cost-of-living pressures driven by the pandemic and global economic instability have been “sustained and persistent”.
“It became increasingly clear to us over the course of the summer that there was a much more effective way for the same amount of money to provide the kind of cost‑of‑living relief that middle Australia desperately needs and deserves,” he said.
“Everyone still gets a tax cut but middle Australia gets a bigger tax cut.”
H&R Block welcomed the revised tax cuts package, stating that the heavy weighting of the original package towards those on the highest incomes was difficult to justify in the current economic climate.
H&R Block director of tax communications Mark Chapman said with the cost of living impacting disproportionately on those low and middle income taxpayers, this will provide some much needed extra cash in the pockets of hard working families to pay mortgages, food and fuel bills.
Under the original stage 3 tax cuts, the 37 per cent marginal tax rate was to be abolished for those earning more than $120,000 a year, and the 32.5 per cent tax rate was to be reduced to 30 per cent for people earning between $45,000 and $200,000.
This would have meant that there would be a single 30 per cent tax bracket for everyone earning between $45,000 and $200,000. For earnings above $200,000, the current 45 per cent tax rate would be retained.
Mr Chapman said under the previous stage 3 tax cuts, those earning $45,000 would receive no tax cut, people earning $80,000 would receive a tax cut of only $875, while those earning $200,000 would receive a tax cut of $9,075.
Analysis undertaken SMSF Alliance indicates that under the revised Albanese tax cuts, those earning $40,000 will now receive $654, those earning $80,000 will receive $1,679, while those on $200,000 will receive $4,529.
Mr Chapman said with the cost of the tax cuts package overall expected to remain the same, this means that the tax savings have been distributed much more widely.
“They are now focused on low and middle income taxpayers, who were previously not well served by the tax cuts, have been suffering from increases in the cost of living and are far more numerous than the high income earners,” he said.
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