Remember when tax reform seemed like something only accountants got excited about? The kind of topic that would make most people suddenly remember urgent errands they needed to run? Not anymore. When Stage 3 Tax Cuts landed on July 1, 2024, Australians suddenly developed opinions about marginal tax rates and thresholds.
This wasn’t because tax law suddenly became trendy (it didn’t). It was because these changes affect the take-home pay of every taxpayer in the country. Nothing motivates interest in government policy quite like more money in your bank account.
These aren’t your standard, run-of-the-mill tax adjustments that quietly move a decimal point here or there. The Albanese Government’s redesign represents a significant shift from the package introduced by the Morrison Government years ago. The changes reflect new economic realities that weren’t on the horizon when the cuts were first planned, back when “pandemic” was a concept most of us only encountered in zombie movies.
So what’s changed, who benefits, and most importantly, how does this affect your wallet? We’ve sorted and simplified every detail to give you a clear picture of Australia’s most talked-about tax reform without requiring a degree in economics or three cups of coffee to get through it.
Australian Tax Rates: Then and Now
Before July 1, 2024, Australia’s income tax system operated with five brackets:
| 2023-24 Income Range | Tax Rate |
| $0-$18,200 | 0% (Tax free) |
| $18,201-$45,000 | 19% |
| $45,001-$120,000 | 32.5% |
| $120,001-$180,000 | 37% |
| $180,001+ | 45% |
The original Stage 3 Tax Cuts, designed by the Morrison Government, planned to abolish the 37% bracket entirely and create a massive single tax bracket at 30% for everyone earning between $45,000 and $200,000.
That plan would have delivered enormous benefits to high-income earners—those making $200,000 would have received tax cuts worth $9,075 annually. Meanwhile, Australians earning $45,000 or less would have received nothing at all.
What’s Changed Under Labor’s Stage 3 Tax Cuts?
The Albanese Government’s redesign maintains the principle of tax cuts for all Australians but redistributes the benefits. Here’s the new system:
| 2024-25 Income Range | Tax Rate |
| $0-$18,200 | 0% (Tax free) |
| $18,201-$45,000 | 16% |
| $45,001-$135,000 | 30% |
| $135,001-$190,000 | 37% |
| $190,001+ | 45% |
The key changes include:
- Reducing the 19% tax rate to 16% (for incomes between $18,200 and $45,000)
- Reducing the 32.5% tax rate to 30% (for incomes between $45,000 and $135,000)
- Retaining the 37% tax bracket but increasing its threshold from $120,000 to $135,000
- Raising the threshold for the top 45% tax rate from $180,000 to $190,000
Unlike the original plan, which concentrated benefits at the top end, these revised cuts spread relief more broadly across income brackets.
Who Benefits from Stage 3 Tax Cuts (and By How Much)?
The new structure means all 13.6 million Australian taxpayers receive a tax cut. But the distribution has changed significantly:
| Income Level | Original Stage 3 | New Stage 3 | Difference |
| $30,000 | $0 | $354 | +$354 |
| $40,000 | $0 | $654 | +$654 |
| $60,000 | $375 | $1,179 | +$804 |
| $100,000 | $1,375 | $2,179 | +$804 |
| $140,000 | $3,275 | $3,729 | +$454 |
| $160,000 | $4,675 | $3,729 | -$946 |
| $180,000 | $6,075 | $3,729 | -$2,346 |
| $200,000 | $9,075 | $4,529 | -$4,546 |
The pattern is clear. Australians earning under $135,000 receive more than they would have under the original plan, while those earning over that threshold still get a tax cut—just not as large as originally proposed.
For context, less than 5% of Australians earn more than $180,000 annually. This means that for the overwhelming majority of taxpayers, the revised cuts are either the same or more generous than the original plan.
How The Stage 3 Tax Cuts Affect You
The tax cuts don’t arrive as a lump sum. Instead, they appear gradually in your take-home pay. Here’s what the increased weekly take-home pay might look like for people in different professions:
Hospitality Worker
Annual Salary: $58,000
2023-24 Tax: $10,347
2024-25 Tax: $9,218
Additional Weekly Take-Home Pay: $21.72
Additional Annual Take-Home Pay: $1,129.44
Nurse
Annual Salary: $85,000
2023-24 Tax: $19,792
2024-25 Tax: $17,988
Additional Weekly Take-Home Pay: $34.70
Additional Annual Take-Home Pay: $1,804.40
IT Professional
Annual Salary: $120,000
2023-24 Tax: $31,867
2024-25 Tax: $29,188
Additional Weekly Take-Home Pay: $51.51
Additional Annual Take-Home Pay: $2,678.52
Small Business Owner
Annual Taxable Income: $175,000
2023-24 Tax: $53,317
2024-25 Tax: $49,588
Additional Weekly Take-Home Pay: $71.71
Additional Annual Take-Home Pay: $3,728.92
For someone earning the Australian median weekly salary of $1,300 (approximately $67,600 annually), the tax withheld has decreased from $265.17 to $238.85 per week. That’s an extra $26.32 in your pocket each week, or about $1,369 annually.
The Medicare Levy Adjustment
Beyond the headline tax rates, there’s another important change: an increase to the low-income thresholds for the Medicare levy.
What is the Medicare Levy?
The Medicare levy is a 2% charge on taxable income that helps fund Australia’s public health system. Low-income earners are either partially or fully exempt.
How is the Medicare Levy changing after the Stage 3 Tax Cuts?
For the 2024-25 financial year, people earning $26,000 or less are fully exempt from the Medicare levy (up from the previous threshold). The levy then gradually increases until the full 2% is paid by those earning more than $32,500.
This 7.1% increase in the threshold (in line with inflation) means more than a million low-income earning Australians will pay a reduced rate or no Medicare levy at all.
Why the Change?
The Morrison Government’s original Stage 3 Tax Cuts were designed in 2018—before the COVID-19 pandemic, before inflation, before interest rate rises, and before the cost-of-living pressures many Australians now face.
The Albanese Government argues that the new design responds to current economic realities while maintaining the original commitment to tax relief. The revised plan keeps the same overall budget cost ($107 billion over the forward estimates) but distributes the benefits differently.
According to the government, the new system:
- Delivers bigger tax cuts for middle income earners facing cost-of-living pressures
- Provides more equitable relief for women (90% of female taxpayers get bigger cuts)
- Increases rewards for Australians who choose to work and earn more
- Delivers a more equitable share of tax relief
- Addresses bracket creep more effectively
- Boosts labour supply
Common Misconceptions About the Stage 3 Tax Cuts
Tax law is never an easy read, so tax law changes tend to create a fair bit of confusion. The Stage 3 Tax Cuts have been no exception. With contradictory information circulating, it’s worth clarifying some common misunderstandings.
1. These tax cuts will not affect your 2023-24 tax return
The new rates only apply to income earned from July 1, 2024. If you’re filing your 2023-24 tax return now, these changes won’t affect your refund. The benefits will first appear when you file your 2024-25 tax return after the current financial year ends.
2. This isn’t a one-time payment
Unlike temporary COVID relief measures, these tax cuts represent a permanent change to Australia’s tax rates. The benefits continue each year rather than arriving as a single payment. This ongoing adjustment means slightly higher take-home pay in each pay cheque moving forward, creating a sustained financial benefit.
For business owners and freelancers who don’t receive PAYG income, these tax cuts still apply but work differently. Rather than seeing immediate changes in regular paychecks, you’ll benefit when calculating your quarterly or annual tax obligations. The reduced rates apply when determining your tax liability during your regular Business Activity Statement (BAS) lodgments or when filing your annual return.
3. Your employer should have automatically adjusted your withholding
You don’t have to do a thing to start benefiting from the tax cuts. Your employer should have automatically adjusted their payroll systems to reflect the new tax withholding rates from July 1, 2024. If you haven’t noticed a change in your take-home pay since then, consider checking with your payroll department. The system is designed to implement these changes without requiring any action from individual taxpayers.
For sole traders and business owners, the changes are automatically applied when you calculate your income tax using the new rates. While you may need to adjust your quarterly PAYG instalments to reflect the lower tax rates, this isn’t an application for the tax cuts themselves—it’s simply updating your estimated tax to prevent overpayment throughout the year.
The Broader Economic Context
The Stage 3 Tax Cuts are coming to you as part of a broader cost-of-living relief strategy. Other measures include:
- Energy bill relief for households and eligible small businesses
- Strengthened Medicare
- Cheaper medicines
- Cheaper childcare
- Higher income support payments
- The biggest Rent Assistance upgrade in 30 years
The government has emphasised that these measures are designed to provide relief without adding to inflationary pressures.
Calculating Your Personal Benefit
Everyone’s tax situation is different. Variables like deductions, offsets, and family circumstances affect your final tax position. However, we can generally say that middle-income earners receive proportionally larger cuts. For example, someone earning $80,000 annually can expect approximately $1,679 in tax savings per year, while someone on $120,000 might see savings around $2,679.
Your specific benefit will vary based on factors like:
- Your income level and whether you have multiple income sources
- Investment income and applicable deductions
- Work-related expenses and other deductions
- Any tax offsets you’re eligible to claim
- Medicare levy obligations and potential surcharges
- Any HECS-HELP debt repayments that are income-contingent
For business owners and contractors, the tax savings will affect your effective tax rate, potentially changing your quarterly instalment amounts and end-of-year tax position.
You can get a quick snapshot of how the tax cuts will affect you by using the Australian Government’s Tax Cut Calculator. But please do keep the above factors in mind, and remember this is just to give you a bit of an idea. Your actual tax savings will become clearer once you complete your 2024/25 tax return.
Understanding How Progressive Taxation Works
A common misconception about tax brackets is that when you move into a higher bracket, all your income is taxed at the higher rate. This isn’t how it works.
In Australia’s progressive tax system, only the portion of your income that falls within each bracket is taxed at that bracket’s rate. Here’s how it works for someone earning $100,000 in 2024-25:
- First $18,200: $0 tax (tax-free threshold)
- $18,201 to $45,000 ($26,799): $4,288 tax (16%)
- $45,001 to $100,000 ($54,999): $16,500 tax (30%)
- Total tax: $20,788
Understanding this principle helps explain why every taxpayer benefits from cuts to lower tax brackets, even high-income earners. When the 16% and 30% rates apply to portions of a high-income earner’s salary, they still benefit from lower rates on those portions.
Long-Term Implications of the Stage 3 Tax Cuts
Tax systems shape societies. They influence work incentives, wealth distribution, and government capacity to fund services.
The revised Stage 3 Cuts maintain Australia’s progressive taxation principles while acknowledging the economic pressures facing middle-income earners. By retaining multiple tax brackets rather than moving to the flatter system originally proposed, the design continues Australia’s tradition of asking higher contributions from those with greater capacity to pay.
At the same time, the cuts address bracket creep—the phenomenon where inflation pushes income into higher tax brackets even when real purchasing power hasn’t increased.
Understanding how these changes affect your specific situation is worth the effort. Take the time to calculate your benefit, check your payslips, and if needed, adjust your financial planning to make the most of your increased take-home pay.If you have any questions about your tax position or want help with financial planning, ITP’s accountants are happy to be of service. Give us a call, drop into your nearest office, or book an appointment online. We’ve been serving the Australian community for 50 years and counting, and we would love to help you create a more secure financial future for yourself.