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Understanding the Impact of Tax Cuts on Australian Cost of Living

Family and Social

Learn more about the new stage 3 tax cuts and their impact on the cost of living. Understand how these changes impact you and how to maximise the benefits.

In Australia, recent tax cuts have promised relief for many households, but what does this really mean for your cost of living?

In this article, we’ll explore the immediate and long-term effects of these tax cuts, compare living costs before and after, and dive into public feedback. We’ll also provide some practical financial tips to help you make the most of these changes.

Let’s break down how these tax cuts might affect you and your family.

Overview of the Recent Stage 3 Tax Cuts

The revised stage 3 tax cuts in Australia are scheduled to start on July 1, 2024. These changes aim to provide relief to all Australian taxpayers by adjusting individual income tax rates and thresholds.

Here are the key updates:

Tax Rate Adjustments from July 1, 2024

  • The 19% tax rate will be reduced to 16%

  • The 32.5% tax rate will be reduced to 30%

  • The 37% tax threshold will increase from $120,001 to $135,001

  • The 45% tax threshold will increase from over $180,000 to over $190,000.

New Income Tax Thresholds for 2024-25

  • Income up to $18,200 remains tax-free

  • Income between $18,201and $45,000 will be taxed at 16%

  • Income between $45,001 and $135,000 will be taxed at 30%

  • Income between $135,001 and $190,000 will be taxed at 37%

  • Income above $190,000 will be taxed at 45%.

The Stage 3 Tax Cuts Explained.

These changes mean that starting July 2024, many taxpayers will notice more money in their pockets each payday. For others, the tax savings will be reflected when they file their tax return after the 2024/25 financial year ends. You can use a tax calculator here to get an estimate of how much you could save.

The reason for these tax cuts is to help ease the financial strain on Australian households dealing with rising living costs. The tax cuts also support women, boost labour supply and return bracket creep. This means that you can potentially work more hours and retain more of what you earn, increasing your financial stability and overall wellbeing.

Stage 3 tax Cuts Table

Thresholds in 2023-2024Tax Rates in 2023-2024Thresholds in 2024-2025Tax Rates in 2024-2025
$0 – $18,200Tax Free$0 – $18,200Tax Free
$18,201 – $45,00019%$18,201 – $45,00016%
$45,001 – $120,00032.5%$45,001 – $135,00030%
$120,001 – $180,00037%$135,001 – $190,00037%
Over $180,00045%Over $190,00045%

What are the Immediate Effects of Tax Cuts on Australian Households?

The upcoming tax cuts are expected to substantially boost the disposable income of households across different income levels in Australia. Beginning July 1, 2024, these cuts will put more money directly into the pockets of everyday Australians.

Let’s look at some examples:

Retail Worker
Annual Salary: $44,000
2023/24 Tax: $ 5,407
Stage 3 Tax: $ 4,633
Resulting in a saving of $14.88 a week or $774 a year

Childcare Worker
Annual Salary: $60,000
2023/24 Tax: $ 11,067
Stage 3 Tax: $ 9,888
Resulting in a saving of $22.67 a week or $1,179 a year

Annual Salary: $ 100,000
2023/24 Tax: $ 24,967
Stage 3 Tax: $ 22,788
Resulting in a saving of $41.90 a week or $2,179 a year

What are the Impacts on Disposable Income?

These are key areas where the July 2024 tax cuts could potentially offer you relief.

  • Housing: The additional disposable income can assist with rental payments, saving for a new home, and ongoing mortgage expenses. If you’re facing challenges with upfront rental costs, explore Fair Go Finance’s rental bond loans to simplify your moving process.

  • Groceries: With the boost in your income, buying essential items will feel more manageable. This means more flexibility in your budget and the freedom to treat yourself to something special from time to time.

  • Utilities: With utility bills increasing, managing your budget can be tough. The upcoming tax cuts will provide more funds for these essential services. If you find yourself with an unexpected bill, Fair Go Finance offers loans to help cover your essential expenses and ensure your bills are paid on time.

  • Transportation: The additional funds in your pocket next financial year can ease the pressure of car expenses like fuel and maintenance. This financial increase can make your daily commute smoother and less stressful.

  • Healthcare: July’s tax cuts could put more money in your pocket to cover essential expenses such as medications and doctors’ visits. Whether you’re managing illnesses or affording prescriptions, these cuts provide relief by reducing the financial strain of maintaining good health.

Even with these tax cuts, some households may still require extra funds for unexpected expenses. Fair Go Finance offers a quick loan solution. Whether it’s an unexpected bill or your car breaks down, our loans can support when you need it most, and you can boost your credit score when you make your repayments.

Comparing the Cost-of-Living Pre and Post Tax Cuts.

For many households, making ends meet is increasingly challenging. The escalating cost of essentials like food, healthcare, rent, or mortgage repayments is putting immense strain on budgets. Unfortunately, this has led to a decline in household savings ratios over the past 18 months, reaching their lowest levels since 2007.

These numbers underscore the harsh realities faced by many living on tight budgets.

Rising living costs have hit working households hard, with prices soaring 9% in the year leading up to the September 2023 quarter. Much of this increase has been due to a sharp rise in mortgage costs, nearly doubling between June 2022 and June 2023.

The upcoming stage 3 tax cuts, effective July 1, 2024, are expected to bring much-needed relief to struggling households.

If you’re facing financial challenges during this period of change, Fair Go Finance offers quick and secure emergency loans. These loans provide the help you need when it matters most, allowing you to cover unexpected expenses and regain control of your finances.

The Long-Term Implications of Recent Tax Cuts.

The long-term impacts of Australia’s stage 3 tax cuts could vary.

They might stimulate economic growth by boosting consumer spending and investment, yet could widen the budget deficit if not offset by other measures. Although you may gain more savings and investment chances, there’s a potential risk of increasing income inequality and applying pressure on inflation and interest rates.

Reduced tax revenue could also affect government services such as healthcare and education, prompting a careful review of public spending priorities.

In a recent opinion piece in The Australian, The Hon. Dr Jim Chalmers MP, Treasurer, highlighted that under the new plan, the average wage earner will pay less of their income in tax for at least the next decade, meaning the tax cut plan reduces bracket creep more. He emphasised that ‘this is good for workers, good for business, and good for the economy.’

How do Australians feel about the New Tax Cuts?

The Australian government’s proposed change to stage 3 tax cuts has received overwhelming public approval, with 69% of the voters in favour, according to a recent YouGov poll.

How Can I Maximise My Tax Cut Benefits?

To maximise the benefits of these stage 3 tax cuts, here are some practical tips to adjust your budget.

  1. Increase savings: Direct a portion of your tax savings into a high-interest savings account or a term deposit.

  2. Pay down debt: Use the extra funds to pay off debts like credit cards or Buy Now Pay Later.

  3. Invest wisely: Consider investing in stocks, bonds, or your retirement fund to grow your wealth over time. For personalised advice, consider speaking with a certified financial planner.

  4. Boost emergency funds: Ensure you have an adequate emergency fund that covers at least 3-6 months of living expenses.

  5. Improve quality of life: Allocate some of the savings towards health and wellness, such as gym memberships, healthy food, or preventative healthcare measures.

To assist in adjusting your budget and maximising the benefits of your tax cuts, explore helpful financial planning tools like Moneysmart. This website offers useful calculators and budgeting tools.

Apps like Buddy and Goodbudget are also excellent for tracking spending, setting savings goals, and managing your finances effectively.

The content provided in this article is intended for general informational purposes only. It is not intended to serve as medical, financial, or professional advice. The tips and advice shared are based on general knowledge and are not tailored to the specific circumstances of any individual reader. Always seek professional advice with any questions you may have regarding your health, mental wellbeing, or financial situation.