The Albanese Government has announced a series of tax reforms aimed at alleviating the cost-of-living pressures faced by Australians. These reforms, set to roll out over the next two years, include reductions in income tax rates and adjustments to the Medicare levy thresholds. We provide a comprehensive overview of these changes and their implications for taxpayers.
The Context of Tax Reforms
In recent years, Australians have grappled with rising living costs, driven by factors such as inflation and global economic uncertainties. Recognising these challenges, the government has introduced tax reforms designed to increase disposable income and provide financial relief to individuals and families across the nation.
Detailed Breakdown of Tax Rate Changes
The government's tax reforms will be implemented in phases:
- From 1 July 2026: The income tax rate for earnings between $18,201 and $45,000 will decrease from 16% to 15%.
- From 1 July 2027: This rate will further reduce to 14%.
These changes aim to provide incremental relief to low and middle-income earners.
Table 1: New Personal Tax Rates and Thresholds
| Tax thresholds ($) | Tax rates (%) |
|---|
| 2023–24 | 2024–25 2025–26 | 2026–27 |
2027–28 |
|---|
| 0 – 18,200 | Tax free | Tax free |
Tax free | Tax free |
| 18,201 – 45,000 | 19 | 16 |
15 | 14 |
| 45,001 – 120,000 | 32.5 | 30 |
30 | 30 |
| 120,001 – 135,000 | 37 | 30 |
30 | 30 |
| 135,001 – 180,000 | 37 | 37 |
37 | 37 |
| 180,001 – 190,000 | 45 | 37 |
37 | 37 |
| 190,001 and above | 45 | 45 |
45 | 45 |
Impact Analysis Across Different Income Levels
The tax cuts will benefit a broad spectrum of taxpayers:
- All 14 million Australian taxpayers will receive a tax cut, supplementing the relief already in place.
- Individuals earning above $45,000 will see an additional annual tax cut of $268 in 2026–27 and $536 from 2027–28, compared to 2024–25 settings.
- Those earning between $18,201 and $45,000 will receive up to $268 in 2026–27 and up to $536 from 2027–28.
- A person earning $40,000 will benefit from an extra tax cut of $218 in 2026–27 and $436 every year from 2027–28.
When combined with the first round of tax cuts introduced in July 2024:
- The average tax cut is expected to be around $43 per week or more than $2,200 in 2026–27, and around $50 per week or more than $2,500 in 2027–28, compared with 2023–24 settings.
- An average earner will receive total tax relief of $1,922 in 2026–27 and $2,190 per year from 2027–28, compared to 2023–24 tax settings.
- Over the long term, an average income earner will pay around $30,000 less in tax by 2035–36 compared to 2023–24 settings.
The tax cuts will benefit a broad spectrum of taxpayers. The following table provides a detailed summary of how different income groups stand to gain:
Table 2: Summary of Tax Benefits
| Taxable Income | Current tax cut from 1 July 2024
compared to 2023–24 tax settings | 2026–27
First new tax cut (from 16 to 15 per cent)
compared to 2024–25 tax settings |
2026–27
Total benefit from Labor's tax cuts
compared to 2023–24 tax settings | 2027–28 onwards
Second new tax cut (from 15 to 14 per cent)
compared to 2026–27 tax settings |
2027–28 onwards
Total new tax cut
compared to 2024–25 tax settings | 2027–28 onwards
Total benefit from Labor’s tax cuts
compared to 2023–24 tax settings |
|---|
| $40,000 | $654 | $218 |
$872 | $218 | $436 | $1,090 |
| $47,627^ | $870 | $268 |
$1,138 | $268 | $536 | $1,406 |
| $50,000 | $929 | $268 |
$1,197 | $268 | $536 | $1,465 |
| $79,000* | $1,654 | $268 |
$1,922 | $268 | $536 | $2,190 |
| $100,000 | $2,179 | $268 |
$2,447 | $268 | $536 | $2,715 |
| $103,000** | $2,254 | $268 |
$2,522 | $268 | $536 | $2,790 |
| $150,000 | $3,729 | $268 |
$3,997 | $268 | $536 | $4,265 |
| $200,000 | $4,529 | $268 |
$4,797 | $268 | $536 | $5,065 |
^ The national minimum wage is $47,627, set by the Fair Work Commission under the Fair Work Act as of 1 July 2024.
* Annualised average weekly earnings is around $79,000, based on $1,510.90 per week in November 2024 (ABS data release), which captures average gross wages across all employees, including full‑ time and part‑time workers.
** Average ordinary full‑time earnings is $103,000, based on $1,975.80 per week in November 2024 (ABS data release), which captures average gross wage income across full‑time employees only, and excludes any income earned from overtime.
As at 25 March 2025. |
Additional Measures: Medicare Levy Threshold Adjustments
In addition to income tax cuts, the government will increase the Medicare levy low-income thresholds from 2024–25. This adjustment is expected to benefit over a million Australians by reducing or exempting their levy payments, further easing the financial burden on low-income earners.
Strategic Considerations for Taxpayers
To maximize the benefits of these reforms, taxpayers should consider the following:
- Review Withholding Arrangements: Adjusting your withholding tax can ensure that you benefit from the tax cuts throughout the year, rather than waiting for a refund at tax time.
- Reevaluate Investment Strategies: With increased disposable income, consider revisiting your investment plans to align with your financial goals.
- Plan for Deductible Expenses: Understanding the timing of deductible expenses can optimize your tax position in light of the new rates.
Preparing for a New Tax Landscape
We recommend speaking with your RJS advisor to explore how these changes can benefit you or your business. Whether it’s adjusting your salary packaging, planning asset purchases, or refining your investment strategy, our team is here to help you navigate these tax reforms with confidence.
Need help understanding what these changes mean for you or your business?
Book a chat with our team of tax professionals to plan ahead.
