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Tax & AccountingJanuary 25, 2024

A global pandemic-surviving saga: final reckoning of the 3-stage journey to personal tax rate reforms

Endless finger-pointing and political posturing may cloud the proposed changes to already-legislated tax cuts that were due to take effect from the 2024–25 income tax year, ie from 1 July 2024. Personal tax rates are, well, personal, and we take every single decrease or increase to heart no matter how warranted by circumstances in the wider community.

This article explains the stage 3 tax cut changes announced by the Prime Minister on 25 January 2024.

Current resident individual tax rates (2023–24 income year)*

 Taxable income (Col 1)   Tax on Col 1 amount Rate on excess   Rate on excess 
$18,200 Nil 19%
$45,000 $5,092 32.5%
$120,000 $29,467 37%
$180,000 $51,667 45%


Australia uses a progressive tax rates scale for individuals, meaning not every dollar earned is taxed at the same rate. Resident individuals enjoy a “tax-free threshold” (ie their first $18,200 of taxable income is not taxed at all) regardless of how much they earn. Every dollar earned above $18,200 is taxed but at different rates depending on how much additional income is earned. As an individual’s taxable income crosses from one income bracket to the next, each additional dollar earned in excess of the previous bracket is taxed at a higher rate than before, as illustrated in the above table.

The progressive scale means an individual’s effective tax rate can be worked out as the percentage of their total income that is paid as tax. The effective tax rate is useful for broad comparisons.

For example, the current simple effective tax rate for someone with a taxable income of $40,000 is 10.35%, due to the tax-free threshold. Due to the progressive scale of rates, someone with a taxable income of $95,000 has an effective tax rate of 22.46%, while for those with a taxable income of $200,000, the effective tax rate is 30.33%. 

The calculation of the effective tax rates is illustrated below:

 Taxable income example   Tax payable  Effective tax rate   After-tax income  
$40,000   $4,142 
($40,000 - $18,200) × 19%
 10.35%
($4,142/$40,000 × 100)
 $35,858
 $95,000 $21,342
[($95,000 - $45,000) × 32.5%] + $5,092
 22.46%
($21,342/$95,000 × 100)
 $73,658
 $200,000  $60,667
[($200,000 - $180,000) × 45%] + $51,667
 30.33%
($60,667/$200,000 × 100)
 $139,333


Stage 3 tax cuts: resident individual tax rates currently enacted for the 2024–25 income year*

 Taxable income (Col 1)   Tax on Col 1 amount   Rate on excess 
$18,200 Nil 19%
$45,000 $5,092 30%
$200,000 $51,592 45%


*ignores Medicare levy, tax offsets, special rates for minors and other concessions

If no revisions are made to these already enacted 2024–25 tax rates, the effective tax rates from 1 July 2024 for resident individuals using the previous examples would be as follows:
$40,000 taxable income: no change from 2023–24, ie 10.35%
$95,000 taxable income: slight decrease to 21.15%
$200,000 taxable income: a decrease to 25.79%.

 Taxable income example   Tax payable   Effective tax rate   After-tax income 
$40,000 $4,142
($40,000 - $18,200) × 19%
10.35%
($4,142/$40,000 × 100)
$35,858
$95,000 $20,092
[($95,000 - $45,000) × 30%] + $5,09
21.15%
($20,092/$95,000 × 100)
$74,908
$200,000 $51,592
[($200,000 - $45,000) × 30%] + $5,092
25.79%
($51,592/$200,000 × 100)
$148,408


Revised Stage 3 tax cuts proposed for the 2024–25 income year*

 Taxable income (Col 1)   Tax on Col 1 amount   Rate on excess 
$18,200 Nil 16%
$45,000 $4,288 30%
$135,000 $31,288 37%
 $190,000  $51,638 45% 

*ignores Medicare levy, tax offsets, special rates for minors and other concessions

If these proposed changes are enacted, the effective tax rates from 1 July 2024 for resident individuals using the previous examples will be as follows:
$40,000 taxable income: a decrease from 2023–24 to 8.72%
$95,000 taxable income: a decrease to 20.31%
$200,000 taxable income: a decrease to 28.06%.

 Taxable income example   Tax payable   Effective tax rate   After-tax income 
$40,000 $3,488 
($40,000 - $18,200) × 16%
8.72%
($3,488/$40,000 × 100)
 $36,512
$95,000    $19,288
[($95,000 - $45,000) × 30%] + $4,288
20.31%
($19,288/$95,000 × 100) 
$75,712 
$200,000  $56,138
[($200,000 - $190,000) × 45%] + $51,638 
28.06%
($56,138/$200,000 × 100) 
$143,862 


These changes will only take effect once a Bill that amends the tax legislation passes through Parliament.

Earlier tax cuts in Stages 1 and 2

Stages 1 and 2 of the personal tax reforms (that came into effect between 2018 and 2023) were largely targeted at reducing tax for low and middle income earners. These reforms increased the various income brackets at which higher rates kicked in and provided the refundable Low and Middle Income Tax Offset (LMITO), which ended as of the 2022–23 income year. The previous government had also revised its originally enacted policy when faced with changing circumstances — changes to income brackets were brought forward and offsets were extended to weather the impact of the pandemic.

Some final thoughts

Should decision-makers crafting important policies do so based on the changing circumstances they are presented with? This writer considers it isn’t just their right to do so but it is their responsibility. The question of trust may well be raised, and each Australian’s response tested at their next visit to the voting booth. A 3-year election cycle means that reforms staged out over 7 years were always going to be at the mercy of new governments and, not to mention, the economic impact of major global events, including unprecedented pandemics and terrible wars.


Date written: 25 January 2024

The opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of Wolters Kluwer.

Mary Zachariah
Head of Content, Wolters Kluwer Tax and Accounting, Australia
Mary oversees the tax, superannuation and accounting content teams at Wolters Kluwer. Mary joined Wolters Kluwer in 2011 and currently writes and edits for the Income tax practice area.
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