Stage 3 Tax Cuts Positive Benefits for Individuals and Brokers
Proposed by the Albanese Labor Government, tax cuts will be delivered for every Australian taxpayer commencing on the 1st of July 2024. This is aimed at providing relief to Australian taxpayers and easing cost-of-living pressures.
An Overview of the Stage 3 Tax Cuts
The tax cuts were legislated in 2019, extending tax relief to those earning less than $45,000 a year to be paid for by reducing the benefit to higher-income earners. Under the Morrison government, the stage 3 tax cuts were set to apply a 30 per cent tax rate to those earning between $45,000 and $200,000, removing the existing tax brackets of 32.5-37 per cent, and increasing the minimum income level for those within the 45 per cent tax bracket.
Since this was legislated, the global economy has been impacted by several significant, unanticipated shocks, including the Coronavirus pandemic, rollout of unprecedented government support, rapid increases in energy and food prices, and an increase in inflation reaching 30-year highs.
Set to come into effect as of the 1st of July 2024, the tax cuts include:
- Reduce the 19 per cent tax rate to 16 per cent (for incomes between $18,200 and $45,000).
- Reduce the 32.5 per cent tax rate to 30 per cent (for incomes between $45,000 and the new $135,000 threshold).
- Increase the threshold at which the 37 per cent tax rate applies from $120,000 to $135,000.
- Increase the threshold at which the 45 per cent tax rate applies from $180,000 to $190,000.
Stage 3 Tax Cuts Benefit for Mortgage Brokers
Whilst these alterations represent a significant improvement for families in the middle-income bracket, the Stage 3 tax cuts also have several indirect benefits for mortgage brokers.
1) Increased Disposable Income
Lowering tax for individuals and households raises disposable income, allowing consumers to spend more. This has the potential to stimulate economic activity, including the demand for mortgage-related services.
2) Economic Growth & a Boost to the Housing Market
With an increase in disposable income, people have more money to spend, and more money to buy a home. This in turn increases the demand for homes in the Australian property market, leading to more property purchases and mortgage transactions. This has a positive correlation in the need for mortgage brokers’ services.
Having more disposable income also means individuals may feel more confident in their decision making and are more inclined to enter the property market sooner.
3) Relief to the Cost-of-Living
We all know that household necessities and services are weighing heavy on our pockets, and we are tightening our wallets more and more. In particular, working households have experienced the fastest rise in their cost of living, with prices rising 9 per cent through 2023 to the September 2023 quarter. This relatively large rise int the cost of living for these households reflects rising mortgage interest costs, which almost doubled through the year to June 2023.
However, the stage 3 tax cuts relief extends the cost-of-living pressures on energy bills, medicines, childcare, strengthening Medicare, higher income support payments, and the biggest boost to Rent Assistance in 30 years.
As a result of this relief, individuals are more inclined to allocate more of their income towards mortgage payments, or seek new mortgage opportunities, such as property investments.
Stage 3 Tax Cuts: Opportunities for Brokers
With an increase in disposable income, cost-of-living relief, and economic growth, this in turn enhances the borrowing capacity for many individuals. The stage 3 tax cuts should have a positive effect on helping to build back some buyers eroded borrowing capacity. Additionally, this should also help more first home buyers get into the market by opening more market areas that fit within their borrowing capacity.
Labor’s tax cuts will make a significant difference for 13.6 million Australians. This opens many opportunities for mortgage brokers. As more prospective clients explore their opportunities, brokers can anticipate a growth or change in the market.
It’s fundamental as a broker to stay ahead of the curve and stay well-informed on the changes of the economy. At Vision, we recognise the importance of this and offer our brokers a wealth of resources to accelerate on positive trends in the industry. If you’re interested in discovering how Vision can assist you in leveraging your broking career, contact us today.