The changes to Stage 3 show that good policy is good politics

by Greg Jericho
Australian Prime Minister Anthony Albanese speaks during a press conference at Parliament House in Canberra, Tuesday, February 27, 2024. (AAP Image/Lukas Coch)
(AAP Image/Lukas Coch


The changes to the Stage 3 tax cuts have passed the Senate and will become law.

It marks one of the most progressive tax changes in decades and demonstrates that good policy is also good politics. We at the Australia Institute will always fight for good policy to make Australia a better and more progressive nation.

When the Stage 3 tax cuts were first proposed in the 2018 Budget, they were so brazen that then Treasurer Scott Morrison did not bother to provide any costings for them, nor did he attempt to explain to the public who would benefit the most.

Fortunately, the Australia Institute’s Matt Grudnoff was straight on the case and was able to determine that the benefits were massively geared to the richest. Morrison tried to ridicule the research at the time, but subsequent reports by others, including the Parliamentary Budget Office, showed it to be right on the money.

The reality is the Turnbull and Morrison governments never really defended the Stage 3 tax cuts. Because they couldn’t.

They were designed to give people on $200,000 a $9,075 tax cut (4.5%), while those on the median income of $68,000 got just $575 (0.8%).

All up, the Stage 3 cuts in their first year were going to cost a touch under $21bn and 56% of that was going to the richest 10 per cent. That meant people earning more than $153,000 were getting $11bn in tax cuts, while the bottom 50% were going to receive just $400m. And the poorest 30% – those earning under $45,000? Sorry, you got nothing!

Think on this – under the Stage 3 tax cuts designed by Scott Morrison, the richest 10% of income earners were going to get, in total, $2bn more in tax cuts than was going to go to the entire other 90%.

No wonder the LNP government instead spent their time talking about “curing bracket creep” (which these cuts would not do, given bracket creep affects those on low-middle incomes the most). They also tried to suggest that the tax cuts were part of a package and that Stages 1 and 2 were targeted to low- and middle-income earners so the whole was fair even if Stage 3 was not.

This was also a lie.Stages 1 & 2 were not targeted to low- and middle-income earners, they merely gave some (temporary) tax cuts to them, as well as (permanent) tax cuts to the rich. Under the old Stages 1, 2 and 3, those on $200,000 ended up with a combined tax cut of 5.8% ($11,600) while those on median income got just 2.4% ($1,632).

However, you sliced it, the Stage 3 tax cuts were terrible and would have created a flat-tax regime where people on $200,000 would pay the same marginal tax rate as those on the minimum wage.

The Australia Institute campaigned against these grossly unfair cuts from the beginning. Over the 5 and half years from the 2018 Budget, through the period of Stages 1 and 2 coming and going and even when the ALP in 2021 announced they were supporting the Stage 3 cuts we campaigned against them and kept presenting research explaining why they should not go ahead.

We support ideas not political parties and we are determined to change minds.

At our 2022 and 2023 Revenue Summits we continued to argue against Stage 3 even as we were told the fight was over and we should admit the realities of the politics.

Instead our research showed that a majority of voters were against the Stage 3 cuts and wanted them either dumped or changed to deliver more to those on low incomes and less to the richest.

Our research found that not only were voters of all parties against Stage 3, around 40% of voters actually had no real understanding of the tax cuts.

That is why we continued to provide research highlighting how unfairly the cuts benefited the rich, and did next to nothing for those who had been hit hardest by the cost-of-living crisis that has seen the costs of essentials rise faster than the costs of luxuries. We knew the Stage 3 cuts were bad and we also knew the more people heard about the reality of the cuts, the less they liked them.

And we were determined through social mediavideos, speeches, interviews, podcasts, articles (and articles and articles!), and through research to make sure everyone knew how bad the tax cuts were.

At our 2023 Revenue Summit I presented research by myself and Matt Grudnoff on how the Stage 3 cuts could be changed to provide more money to a vast majority of taxpayers. Crucially we showed how providing tax cuts to those earning less than $45,000 was affordable and that the government could deliver bigger tax cuts to at least 80% of taxpayers while still keeping our progressive tax system.

The changes announced by the Prime Minister, Anthony Albanese, at the National Press Club on 25 January and which have now passed the parliament do just that. They will see the 19% tax rate for incomes between $18,200 and $45,000 fall to 16%, while lifting the 37% tax bracket on incomes between $120,000 to $180,000 to incomes from $135,000 to $190,000.

These changes deliver bigger tax cuts than under the old Stage 3 to everyone earning up to $146,500 (more than 80% of taxpayers), and everyone earning between $45,000 and $135,000 gets $804 more than they would have under the old Stage 3.

Instead of 56% of the tax cuts going to the richest 10% now they get just 28%. Over the next 4 years

Our polling since the changes were announced confirmed what we have always known. People are strongly in favour of the new Stage 3 and the support is across the political spectrum and income ranges.

The new tax changes are a triumph of progressive policy, and they show that when a government delivers policies that better Australia rather than just the richest minority voters respond positively.

The changes to Stage 3 are not the end of the fight – those outside the tax system, most notably those on JobSeeker will get no benefit from these changes. But the fight demonstrates that we at the Australia Institute will always fight for good, progressive policy regardless of who is in government, and that we do change minds.

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