In February, after enduring years of being politicised, debated and tossed from one side to another, the Stage 3 Tax Cuts ‘football’ was finally grounded. All tax payers will receive a cut in the tax they pay.
The Senate has passed the revised Stage 3 Tax cuts, so Australia’s new tax regime will come into effect from 1 July 2024.
The legislated tax cuts incorporate recent revisions that are designed to spread benefits to low and middle income earners.
Government announcements
The government stated in a press release, “Our tax cuts are good for middle Australia, good for women, good for helping with cost-of-living pressures, good for labour supply and good for the economy.”
The Senate also passed the Treasury Laws Amendment (Cost of Living—Medicare Levy) Bill 2024. It raises the low income threshold amounts for the Medicare levy and Medicare levy surcharge on individuals, families and individual taxpayers and families eligible for the seniors and pensioners tax offset.
What will the reformed tax schedule look like?
From 1 July 2024, the tax cuts will reduce the amount that everyone who is taxed pays, from low to high:
The 19% tax rate reduces to 16%
The 32.5% tax rate reduces to 30%
The 37% tax rate will apply at a higher threshold – $135,000 instead of $120,000.
The 45% tax rate will apply at a higher threshold – $190,000 instead of $180,000.
For further information see the ATO website.
What general impacts are expected?
The key driver behind the tax cuts revision was the need to provide cost-of-living relief for Australians. The original proposed tax cuts were formulated pre-pandemic and would have seen tax payers on less than $45,000 per year receive no cut. Years later and with the cost-of-living crisis in full swing, revisions were designed so that low and middle income earners received a break.
Both houses of parliament agreed to pass the revised tax cuts, with the general response being that the tax cuts will have mostly positive consequences.
On the positive side, low-income workers will have more money in their pockets, and the tax cuts could encourage more workforce participation. The relief of some cost-of-living pressures should flow on to benefit the economy, including small businesses.
On the negative side, there may be a marginal effect on inflation. However, Treasurer Jim Chalmers said that the Reserve Bank Governor indicated that she did not expect the revised tax cuts would “alter the Reserve Bank’s forecasts or expectations for inflation.” In the Treasury advice on the tax cuts it describes the expected impact: “This option is broadly revenue neutral, will not add to inflationary pressures and will support labour supply.”
On the Medicare levy changes, the government press release stated: “This will benefit more than a million Australians, ensuring people on lower incomes continue to pay a reduced levy rate or are exempt from the Medicare levy.”
Potential impact on the charity sector
One of the few negative issues that could affect NFPs is that they may lose some volunteers who re-join the paid workforce because the new tax cuts are favourable for their personal circumstances.
Otherwise, the overall contribution to cost-of-living relief – through the tax-cuts and Medicare threshold changes – should be beneficial for NFPs that depend on public donations to keep doing their work.
Some key findings on donations in Australia presented recently by Martin Paul, an NFP fundraising and marketing consultant, indicate that charities are increasingly reliant on a dwindling number of the same donors for support. The majority, which includes below-average income earners, have been forced to tighten their belts – four out of five Australians surveyed have adjusted their lifestyles in response to the higher cost of living. While wealthier donors are driving an increase in annual giving, the actual level of online giving has declined over the last year.
With below average income earners better off after 1 July, the prospects for community donations to NFPs look brighter.
