The government’s $140-billion tax cut plan will drastically reshape our personal income tax system. Over the long term, this means almost every Australian will have extra money in their pocket - but some more than others.

A series of tax cuts will be introduced gradually over the next seven years. The first cut comes this financial year with a tax offset proposed for low to middle-income earners - when people will receive up to $530 a year from 1 July 2018 through to 30 June 2022. If you are eligible, the first rebate will become available after your 2018-19 tax return has been lodged and assessed.

What are the changes to the tax brackets?

The tax brackets will be adjusted from 1 July 2018, incrementally increasing the top threshold for most brackets until 1 July 2024, when the government will remove the 37% tax bracket entirely. From 1 July 2024, Australians earning between $41,001 and $200,000 will fall into the 32.5% bracket. That’s about 94% of tax payers.

What do the changes mean for you?

Taxable income Reduction in tax per year          Total over seven years
  From 2018-19 From 2022-23 From 2024-25     
$40,000 $290 $455 $455 $2,525
$60,000 $530 $540 $540 $3,740
$80,000 $530 $540 $540 $3,740
$100,000 $515 $1,125 $1,125 $5,435
$120,000 $215 $2,025 $2,025 $6,935
$140,000 $135 $2,025
$2,925 $7,515
$160,000 $135 $2,025 $3,825 $8,415
$180,000 $135 $2,025 $4,725 $9,315
$200,000 $135 $2,025 $7.225 $11,815

Source: Federal Budget 2018-19, budget.gov.au

Taxable income is equal to an individual’s assessable income (such as salary and wages andinterest from bank accounts) minus their allowable deductions. The table  provides stylised cameos based on the tax payable for an individual. The change in tax is calculated only taking into account the basic tax scales, low income tax offset and the low and middle-income tax offset. Actual outcomes for many individuals and households would differ. The tool is for illustrative purposes only. The estimates presented are all in comparison to headline tax rates and thresholds as at the 2017-18 financial year. An individual’s circumstances may result in an actual tax outcome different than that generated by the estimator.

Prime Minister Malcolm Turnbull says the measures are “fair” and that they are a win for hard working Australian families^1. The Opposition opposed the full package, arguing they are too generous to high-income earners and take money away from public infrastructure, such as schools and hospitals.

What to do with your savings

Whichever camp you fall in, the tax changes mean more money in your pocket. Rather than seeing this as a windfall that goes straight into your pocket, you could use your tax savings — or at least a portion of them — as an opportunity to save.

There are very good reasons why super is a good investment:

  • Tax breaks: Before-tax contributions into super are taxed at 15%, which for most of us is lower than our marginal tax rates. Similarly, investment earnings are taxed at a favourable rate of 15%
  • Enforced discipline: you don’t see the money so you can’t spend it
  • Regular savings: Automatic top-ups every pay day mean you don’t have to remember
  • Time’s on your side: Even small amounts of regular savings can really add up.

Don’t forget there are caps on how much you can put into super so keep an eye on your regular account statements.

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  1. Prime Minister of Australia Malcolm Turnbull, 2018, Press Conference with the Minister for Finance and the Treasurer, 21 June, Canberra.

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