Stage three tax cut changes are in play and are proving controversial despite most workers getting a greater benefit than they would have under the initial plan.
The federal government says the revised plan will help "middle Australia" with cost of living pressures, but the Opposition has accused it of breaking a promise, with Labor having previously indicated the stage three cuts would go ahead unchanged.
Workers earning $150,000 or more will still receive a tax cut, but it will be less generous than what was offered under the initial package
Here's what you need to know.
What did the stage three tax cuts look like initially?
They formed part of a tax package passed by the previous Coalition government in 2019.
Stage one and stage two of the tax cuts have already taken effect to benefit low and middle-income households. Under the Coalition's plan, stage three would have abolished the 37 per cent tax rate, putting in place a 30 per cent flat tax rate for anyone earning between $45,000 and $200,000.
How Labor has changed the stage three tax cuts
Under, the 37 per cent rate for people earning over $135,000 will be retained, and the top tax rate of 45 per cent will kick in at $190,000 rather than $180,000.
The second tax rate will be reduced from 32.5 to 30 per cent for people earning up to $135,000.
The lowest rate of income tax will be reduced from 19 to 16 cents in the dollar, meaning workers will pay less on the first $45,000 they earn.
The low-income threshold at which the Medicare levy kicks in will also be increased.
What the new stage three tax cuts mean for you
The changes, due to take effect on 1 July, mean most workers will be better off than they would have been under the initial package, while the benefit for those on the highest incomes will be halved.
A person earning an average wage of $73,000 will get a tax cut of more than $1,500 a year, while those earning $50,000 will pocket an extra $929 a year while people on $100,000 will receive $2,100.
At the upper end, the stage three tax cuts for those earning $200,000 will be slashed from $9,075 to $4,500.
Source: SBS News / Kenneth Macleod
Why are the stage three tax cuts so controversial?
The Coalition's stage three package drew criticism from some quarters because it was said to benefit high-income earners more than those on lower incomes.
In November, an found high-earners would be hundreds of dollars better off each pay cycle compared to low-income workers under the original plan.
Groups who were critical of the initial plan have welcomed Labor's changes.
The Australian Council of Social Service, which previously labelled the stage three tax cuts "a hand up to society’s wealthiest", said the revised plan was "a better deal for people earning low, modest, and middle incomes".
But Labor is now under fire from the Opposition who says the changes amount to a broken promise after Prime Minister Anthony Albanese signalled since his party was elected in 2022 that stage three would proceed unchanged.
Credit: Kenneth Macleod
Why did Labor change its position on the stage three tax cuts?
When the stage three tax cuts were introduced by the Coalition in 2018, the Australian economy was expected to be supported by strong global conditions.
Inflation and interest rates were expected to remain low.
"[Former prime minister] Scott Morrison’s tax plan was designed five years ago, before the pandemic, before the global inflation spike, before interest rate rises and greater global uncertainty," Albanese, Treasurer Jim Chalmers, and Finance Minister Kathy Gallagher said in a joint statement. "It doesn’t do enough to help those who’ve been put under the most pressure by these changing circumstances."
Chalmers told ABC radio on Thursday the new plan was "better for Middle Australia" and would help with .
"It became increasingly clear to us over the summer that there was a much more effective way for the same amount of money to provide the cost of living relief that middle Australia desperately needs," Chalmers said.
But the Opposition has accused Albanese of breaking his word and engaging in class warfare.
"A more generous tax cut for one Australian should not come at the expense of what another Australian was promised," deputy Opposition leader Sussan Ley told ABC radio on Thursday.
