Revised Stage 3 Tax Cuts Explained

Jason · 00:00Welcome to episode 152 I'm Jase. I'm here with Nick and Marty. How are we going today, fellas? Going well, mate.

Marty · 00:07Going really well. Big episode. I like this episode because you're going to tell me if I'm actually getting some money in my pocket or money taken out of my pocket. So I'm really interested to see where you take us, Jase.

Marty · 00:20So, Nick, how are you? Mate, going

Nick · 00:24well. Refreshed. Had a little bit of an extended weekend, as we all did. But, um Just thought it'd be worth sharing. You mentioned something last episode, Jase, about the year of no for you. This year, it's the year of mini breaks for me. Um, I found last year I didn't get away enough.

Nick · 00:43We didn't go away on a big holiday, which is fine for some reasons. But, um, I didn't have any Or mini, mini breaks as well and I've realized how burnt out I was towards the end of the year. So, long weekends, an extra day each side of Easter or, you know, something like that. Um, it's going to be the focus this

Nick · 01:00year to make sure that you've got, you maintain motivation, um, whenever you are in the office and working instead of, you know, being a, not a drag, but you're being fatigued.

Nick · 01:09So. So yeah, refreshed because I've just come off one of those and feeling, uh, feeling good, feeling good.

Jason · 01:16How are you, Jace? I don't like it. And look, if you're listening to this episode and you didn't catch the productivity hack episode last one, Nick's just come back in, carried over another productivity hack, which is, you know, getting these mini breaks if you, you know, if you're looking at the year ahead and you've got public holidays and you can tack on a few annual leave days here and there to create a bit of a mini getaway, recharge those batteries, you know, get excited, get fired up like we are here at the numbers game.

Jason · 01:39So you know, it's, it's, it's a good one, but I'm well Nick, I'm well, just, uh, yeah, the year, the year cracks on, time flies by faster than ever. Uh, my old man always used to say, wait till you get to my age, the time flies by and mate, the, the older I get, the more I, I can't believe how true it is. So yeah, it's exciting.

Jason · 01:57We're going to seize the moment and crack

Marty · 01:59in.

Marty · 02:00Um, I'm just proud you can both still afford holidays. So I, Chase, I'm excited. Come on, get into it. I want to know what's coming out of my pocket. What's coming in. Give

Jason · 02:09me the premise. Oh, straight off the bat. I was away a couple of weeks ago, as I said, you know, in the.

Jason · 02:16I was, I did a month in Bali to start 2024, and I was sitting over there eagerly following the news back home, and there's all these whispers and murmurs about these Stage 3 tax cuts. You know me, I like, I like to talk about tax, I'm the accountant on the show, I'm the boring one, and you guys are here just to make it a little bit more exciting.

Jason · 02:33And as I saw, you know, Albo's being pressured to commit that he was going to deliver on these Stage 3 tax cuts, and basically what the Stage 3 tax cuts were doing was getting to a point where. Once your income ticked over a certain limit, you'd get a flat 30 percent tax rate up to 200 grand. Now before that, there was 45 cent bracket, 37 cent bracket, 32 and a half cent bracket.

Jason · 02:59So

Jason · 03:00ultimately, these stage three tax cuts, which have been kind of coming out bit by bit over the last couple of years, they were going to really reduce tax. Mostly for the high income earners. So you can imagine the pressure elbows under with the cost of living, doing what it was doing everyone in those lower brackets or most people, regardless of the bracket, people are feeling the crunch of cost of living, you know, interest rates, petrol prices, the cost of a basket of goods.

Jason · 03:27So I watched eagerly going. I don't think Elbow is going to be able to commit to the Stage 3 tax cuts because the people getting the biggest benefit were the people earning more than 150, 000. So you can imagine the uproar of everyone between 150, 000 and 250, 000. Their benefit was four, you know, four and a half grand extra in their pocket up to 9, 000 extra in their pocket because of the Stage 3 tax cuts.

Jason · 03:58If you earnt between

Jason · 04:0030, 000 and 60, 000, you got 0 more in your pocket for the majority of them. The most extra dollars in your pocket for the 60, 000 earners was 375 extra. So, the pressure of these Stage 3 tax cuts got to Elbow and they've turned around and they've got a revised Stage 3 tax cut. So, for those listening eagerly to want to know who's affected, If you're on more than 160, 000, your tax cuts have been slashed.

Jason · 04:29You're, you're basically reducing down. So for the biggest, biggest bracket, who are the people who are getting 9, 075 more, you're now getting only 4, 500 more after the tax cuts. So still better off. You've still got an extra 4, 500 in your pocket. But what they've done is they've shifted the benefit down the ranks to the lower income earners who will now be better off.

Jason · 04:53So You know, I'll just really kind of dive in straight in here with the info and then I'll kind of unpack a little bit more,

Jason · 05:00but if you know, if, for example, if you were earning 60, 000, and I said before, you only got 375 better off, you're now 1, 179 better off due to the Stage 3 tax cuts being revised. Um, ultimately, overall, I mean, I'll start with my high level thoughts.

Jason · 05:18I think it's probably the right decision, even though, you know, he's come out and committed to it, you know, back at budget time, knowing what we know now about the economy and cost of living and whatnot, this really is putting more money in the pockets of the lower to middle income earners who are probably feeling the pinch.

Jason · 05:36More it's not to say that somebody earning 200 grand who's already paying, you know, a huge share of that 200 grand. I don't see in their pocket. I think sometimes, you know, people think of someone earning 200 grand and go shit. They have filthy rich. They're loaded. But 80, 000 of that or more ends up back in the tax man's pocket.

Jason · 05:55Um, you know, so it's, you're not really seeing all of that money.

Jason · 06:00Um, but yeah, on a higher level, guys, before I unpack the SAGE III tax cuts further and what it means for the government, expenditure, and so on and so forth, and businesses, especially around tax planning, I think it's going to be a nightmare for a lot of accountants out there that have, you know, we were making decisions a year ago.

Jason · 06:16Based on knowing these stage three tax cuts were coming, it was legislated, but they're going to have to go and do some revisions. Uh, but Marty, uh, what are your thoughts on

Marty · 06:24this, mate? Uh, well, you know me, originally I'm always the one to simplify tax as much as possible. And, uh, but I do agree, I can't believe I'm saying this, but I do agree that it was the right decision to spread.

Marty · 06:38Uh, the benefit across, uh, across many different income levels, just given circumstances, how they are, I think it would have been. Unfair for the highest tax bracket to get the biggest benefit, uh, given the circumstances. Like I said, I've always won for 30 cents across the board and then we haven't got any drivers, but, um,

Marty · 07:00yeah, on a, on a high level, but I think they did the right thing in this situation.

Marty · 07:04And even like thinking about my own situation, I wouldn't have any problem in. You know, getting a lesser tax break in order for other people that really need it to have, you know, to have more money in their pocket. Um, yeah, that, that was my initial thought. Nick. Yeah, agree.

Nick · 07:21I think it is the right thing to do.

Nick · 07:23Um, but I'm not convinced. I'm not convinced. How much would someone on 40K pay in tax, Jase? 4, 000. Okay, so they'll pay 3, 350 instead of 4, 000? I think it's right, because I think the original plan for someone on 200k to get 9k back, which is really another 200 a week in their pocket, I feel like that's pretty excessive.

Nick · 07:50Is that right? That's right. That's what it would have been. If you're on 200K, you would have got about 180 a week back in your pocket. I think those people probably have more levers to pull as in, you know, they've

Nick · 08:00probably got nicer cars that they can downgrade. They've probably go on a holiday that they can maybe not go on a holiday.

Nick · 08:07Um, whereas the people on the lower, um, the lower income brackets probably don't have those levers. So I think it's right, but can't stop thinking about, you know, your first point, which is how much tax are these people actually paying? Um, and then there's the, you know, back to the, I don't open a can of worms here, but yeah, there's the disincentive to work, all these kinds of things that I think about versus.

Nick · 08:31You know, you've got single income families where maybe the, uh, one party is earning more, uh, because the other party's at home versus where you've got the income split across a couple of different, um, people in the household that are earning money. So, yeah, look, I get it, but just, I just look at how much money someone on 200, 000 gives back to the, the ATO.

Nick · 08:53Uh, and then on the flip side of that, there's disincentive people on, some people that don't earn as much because they don't want to earn as much because

Nick · 09:00they're just paid in tax, so, yeah, I don't know. I think if you came in at the other angle, which is where they came from in the first place, which was, don't worry about income, uh, cost of living, just look at how much income these parties are actually paying.

Nick · 09:14You know, which goes towards roads, welfare, all these things. I think there's another side of the argument, but with what we know today, it's

Jason · 09:22probably right. Yeah, exactly. Now look, um, the, this has been going on since the 1819 federal budget. So you imagine when, when, and basically what they said was bracket creep, right?

Jason · 09:36Like, you know, all of a sudden, if you're earning more than 120 grand, you are losing 37 percent of every dollar after that. Then once you get to 180, you're losing 45%. And they said, look, let's, let's smooth it out and make it easier. You know, if you earn over certain amounts of flat 30%. And then that's simple, it's done, and they basically assume it was going to be more fair for everyone else.

Jason · 09:56Now, it also makes you think, what goes through their heads at the time

Jason · 10:00when they plan this? So they, because they know the numbers. And effectively, you know, even this small change, or this change they've made to take a little, but not give so much back to the high income earners, share it with the low to middle income earners, but even in what they've re kind of, uh, recut up and shared around or redesigned, I should say.

Jason · 10:21It is going to save the government a billion dollars over the next four years. So it's almost like they took the chance to go, hey, we can put a bit of a positive spin on this and say that we're giving more back to the low middle income earners, but at the end of the day, the government somehow redesigned this to also put a billion dollars back in their coffers, because back in that 18, 19 year when the budget came out, maybe overcooked it a little bit.

Jason · 10:47And, but they also probably didn't foresee COVID and the amount of stimulus that our governments were handing out at those times too. So, you know, did I agree with it as well? I think it's, as I said, the right thing is to shift the low

Jason · 11:00middle income earners some more money back in their pocket. Um, you know, and being on the front line, talking to a lot of people who are in these situations, like we all do, we talk to our customers, um, our clients, you know, 50 bucks a week.

Jason · 11:13Can make a huge deal to someone right now who's feeling the financial pinch So and as you said Nick, you know that maybe those higher income earners are instead of getting a hundred and seventy or hundred eighty Dollars more per week. They're gonna get an extra 80 per week Are they gonna are they gonna 80 per week and have as big an impact?

Jason · 11:31Maybe

Nick · 11:31not to your point around the backflip of the government. I think we need to I'm not pro government at all, but, um, I think we need to remember too, that you can only make decisions with the information to hand. Right. So, you know, to jump all over them for, for. Yeah, I think the headlines have been backflip and, you know, and I think it's not a backflip at all.

Nick · 11:52They're just, they're just altering it to what makes sense now. Um, that, you know, was, they're dealing with things now they weren't

Nick · 12:00dealing with in 2018, 2019. So, you know, they made decisions then with what was in front of them and now they're making a better decision based on more information. So. Yeah, I think to jump all over and suggest it's a backflip is just, you know, it's just silly really.

Nick · 12:13Yep,

Jason · 12:14100%. Now look, I've said it time and time again, I'm a big believer in, I think that Australia needs a massive tax reform in itself. Um, we're the only established economy in the world that's never increased GST. Um, you know, you look at our 10 percent GST, GST rate since the year 2000. And you know, you compare over to New Zealand, for example, they've increased their GST rate.

Jason · 12:37No issues there. Software and systems all sorted out. Yes, it might not be as easy to go, oh, 10%. We can do a quick little calculation on GST. Um, but for example, New Zealand's top marginal rate is 39%. We're still losing 45 cents to the dollar or with Medicare levy, 47 cents to the dollar for our top income earners.

Jason · 12:57So you can imagine if there was a big overhaul and a

Jason · 13:00big reform, maybe GST collects a little bit more and then the income tax can come down again so that there's more pockets in the everyday Australian who's going out and working. And as you said Nick, that incentive to work, to go out and work, and that then means the more you earn, if you've got more to spend.

Jason · 13:15They're collecting more revenue through the GST system, because every time you go out and buy goods or service, if you've got the money to go get a massage every week or fortnight, GST gets collected on that service, and all of a sudden you're giving money back to the government. So there's, and then, you know, if you've got the money to go and buy the new car with the luxury tax on top, more money back to the government.

Jason · 13:35So, I think at the moment, they're just trying to tackle, um, the spending for the cost of living and the inflationary environment and whatnot. Um, so to, for those who have managed to get through this much of stage three tax cuts and, uh, bit of the final bit of info in the redesign version, um, they're bringing in a new tax rate of 16 cents to the dollar.

Jason · 13:58So you meant before I was telling you,

Jason · 14:00you know, we had a 19 cent bracket of 32 and a half, or 37 or 45. We've now got this new 16% bracket. There's then going to be a flat 30 percent bracket between 45, 000 and 135, 000. They've then brought back the 37 percent bracket, but they've extended it from 135, 000 to 190, 000.

Jason · 14:20Used to be 180, 000, so they've crept it up a little bit into 190, 000. And then anyone on more than 190, 000 is still back into the 45 percent bracket, which was getting abolished, um, or sorry, was moving to 200, 000 under the old legislation. So one of the other things as well. Um, the previous stage 3 tax cuts were legislated.

Jason · 14:40So the government actually has to go through this process now to amend legislation and try and get this passed in Parliament. So we watch that space to see what happens. And keep in mind, time does go quick. Uh, the 1st of July 2024 is when this is meant to come into play. So watch this space. What I mentioned before

Jason · 15:00was around tax planning, um, and tax minimisation in accounting and, and business land.

Jason · 15:05Um, for business owners out there, you may have had conversations with your accountant over the past year that we're talking about taking advantage of the 30 percent tax bracket to get more wealth into your family's pockets, might be husband and wife, business owners or family groups. Um, this is going to change some of those tax planning.

Jason · 15:25Um, strategies that may have been put in place, um, you know, we've talked in previous episodes about tax hacks by having bucket companies, um, a family trust can put money into a bucket company or a business can shoot dividends and then that bucket company can be used in future years. Clear income out to the business owners, you know, in a year where the tax rates may be more favorable.

Jason · 15:46Might have been a down year, so you want to get more income out. Might have been, you know, husband and wife had a baby, so wife might not have been working as much. So these opportunities to get money out of companies, bucket companies and family trusts. One of the

Jason · 16:00major tax planning strategies that we were looking at over the last year or two was when these stage three tax cuts come in.

Jason · 16:07We've got an opportunity to get money out to families for 30 cents to the dollar, flat. That is now gone. So there's big plans that have been put in place by accounting firms all over the country with business owners all over the country that are now going to need to be revisited to see how much that is going to cost families around Australia who had made plans for this.

Jason · 16:30So, you know, I don't think. Obviously, they don't care, you know, to think about the, you know, all the strategies out there that were in play. Maybe that's where the billion dollars of extra money in the ATO's pocket is going to come from, is because they're going to be able to collect on this money that's now going to be taxed at a higher rate than what it would have been had these strategies been able to be rolled out.

Jason · 16:51Does that make sense to you guys? podcast and trying to roll this info out, but if you guys get it, then hopefully I've done my job. No, I

Marty · 16:59totally get where you're coming

Marty · 17:00from on it. Clear? I still think, uh, that 0 40 grand space, uh, I'd like that to be on a very, very low tax rate across the board. Cause again, like Nick was saying, just to incentivize people to make the most of their opportunities, the more we can, um, the more we could not have as many bracket creeps, I think the better.

Marty · 17:22So I'd like to have one that really supports people, you know, particularly you think of single parents. That are working in the workforce and they're going, she said, I want to earn more than 18 because tax free and stuff like that. And you get that with benefits that they're getting as well from the government.

Marty · 17:37I think if you, if you put that up to 40, where you have a very, very nominal tax margin, which puts money back into their pocket. And then again, i'm very much of the opinion, you know, have a set and forget tax rate. Because as people earn more and more money, and there is different tax levels, they will utilize professionals, which is, yeah, which is what's going to happen to, you know,

Marty · 18:00optimize their tax position.

Marty · 18:01So which is good for accounts too, don't get me wrong, it's, it's, but I, but I think again, like we, you know, like we always talk about just consistency and simplicity so people can go out there and if there's high GST, um, you know, rates and so be it, you know, I, I think. I think we can simplify and still advance our community across the board and support those in need, uh, as well, a lot better through that.

Marty · 18:26But that's, I mean, that's just my opinion at the end of the day. I've thought that for a long, long time because I want to incentivize people. To create opportunity for themselves and to have a crack, not just think I don't want to do that because I go into another bracket. It just doesn't make any,

Jason · 18:43any sense to me.

Jason · 18:44That there, Marty, is exactly the point I want to get through for anyone listening out there. And I've said it before, but in case you're joining and you're a new listener. We, we often hear people say, they contact us and go, what's the next bracket? When am I going to have to start to pay more tax? But what

Jason · 19:00they're thinking is, let's say the old brackets, the, this, this employee might've been on 119, 000 and they were paying tax for that bracket at 32 and a half cents.

Jason · 19:10They then got offered a pay rise by their boss and they were going to be on 125, 000, but they got told that was going to push them into the 37 percent tax bracket. Now, the mentality was. Stuff that I don't want the six grand pay rise because I'm going to pay more tax. I'll stay under the 120. Not realizing that it's only every dollar over 120 that's getting taxed at 37 percent and doesn't become your entire income.

Jason · 19:34So that those brackets are very important to understand that it's the in each bracket you get taxed. The marginal rate that applies to the bracket. If you end up earning, you know, 150, your whole income is not going to get taxed at 37%. And just, just because we love numbers here at the numbers game, we talked about that, um, the new, the 40, 000 paying approximately 44, 000 tax on the redesign.

Jason · 20:00If you earn 45 grand, you pay 4, 287 in tax. So, you know, and that equates to 9. 5 percent tax rate. If you look at the actual tax rate across the board, then the next, the next top, the next bracket before the change becomes 135, 000 on that flat 30%. If you earn 135, 000, you're paying tax of 31, 287. So it's approximately 23 percent of your income.

Jason · 20:30So that's one way to think of it. If I, if you know, if you're out there and you earn 135, 000, you're losing 23 cents for the dollar to the ATO. So sometimes, and we do this in our tax planning, we actually show the actual marginal rate once you average it out across all brackets. And it helps people to understand because you get some pretty upset clients or people that go, you know, stuff this, I work so hard, I'm paying 45 cents to the dollar to the ATO, but it's not, it's not that, you know, overall, you know, you 30 cents to the dollar when you're

Jason · 21:00at that higher end.

Jason · 21:01And look, maybe that still doesn't feel great to give the ATO 30 cents to the dollar. Maybe they don't spend the money as best as they can, but. Um, help, you know, using those rates of, you know, 23 cents or nine and a half cents, probably a little bit easier pill to swallow for our taxpayers out there.

Marty · 21:15Yeah, you've explained it beautifully, but look at what people have to go through to work that out.

Marty · 21:20You know what I mean? It's like, you know, the everyday person out there, it's like, you've explained it perfectly, but I go, it takes a professional to explain it. People should be able to really be able to come to that conclusion themselves. And I think that's the frustration in the community. That, uh, you know, complexity is, uh, certainly over the top in this sort of stuff too.

Jason · 21:42100%. Well, guys, appreciate you bearing with me on the stage three tax cuts. I know tax is exciting for mostly me and maybe not for everyone else out there, but I appreciate you listening. Um, look, this shift in policy and prioritizing relief for the low and middle income earners. It's, uh, it's going to go through, it's done,

Jason · 22:00Albo's going to get his way, uh, but for the business owners and, and our individual listeners out there who think this may affect their tax situation and, and some stuff in their business, definitely get ahead of the curve, have a reevaluation of what's going on in your business, your bucket companies, your trust, talk to your accountant.

Jason · 22:15Talk to the amazing team at Innovate as well. If you've got some financial planning things that you need to look at or some refinancing, um, the future and the Innovate teams, as always, are here to support you just like they support the numbers game along with our other sponsors. So, uh, thank you for listening.

Jason · 22:30And until next time,

Marty · 22:32I've put a lot of clients onto Jace and they're very, very happy. So please make use of Jason and give future advisory and Jace a call because you got to know your numbers. If you want to get ahead in the world, game over. ---