The Government has proposed to cut the personal income tax rate for the income threshold ($18,200 to $45,000) from 16% to 15% (from 1 July 2026) and 14% (from 1 July 2027).
Under the proposed changes, every Australian taxpayer will receive a tax cut of up to $268 from 1 July 2026, rising to $536 from 1 July 2027.
The Government said the proposed tax cuts will provide “modest but meaningful” cost-of-living relief and “return bracket creep” by lowering average tax rates for all taxpayers, especially for low- and middle-income earners. The measure is expected to cost $17.1 billion.
Combined with the existing Stage 3 tax cuts from 2024–2025, the Treasurer said the average annual tax cut will increase to $2,229 in 2026–2027 and $2,548 (for 2027–2028) – so, around $50 per week (relative to 2023–2024 tax settings). A person on the average wage of around $79,000 will receive a total tax cut of $2,190 in 2027–2028 (compared to 2023–2024 tax settings).
The Government said the proposed tax cuts will reward workforce participation by encouraging part-time and lower income earners to take on more hours of work. According to the Government, the combined tax cuts will increase total hours worked by 1.3 million hours per week, equivalent to more than 30,000 full-time jobs, compared to 2023–2024 tax settings. This increase is anticipated to be driven mostly by women, who are expected to increase their labour supply by 900,000 hours compared to 2023–2024 tax settings.
The combined tax cuts are also estimated to increase nominal household disposable income by 1.9% by 2027–2028 (compared with 2023–2024 tax settings).
Low income tax offset (unchanged)
No changes were made to the low income tax offset (LITO) in the 2024–2025 Budget.
For completeness, and as a reminder, while the low and middle income tax offset (LMITO) ceased from 1 July 2022, low and middle income taxpayers remain entitled to the LITO.
The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
The Australian Government will apply a 20% reduction to all student loans as at 1 June 2025, before indexation was applied, to reduce the debt burden for those with a student loan.