The Stage 3 cuts due to come into effect in July 2024 are the most expensive and most inequitable tax cuts in Australia’s history. The cuts are the third and final stage of the Turnbull and Morrison Government’s tax reform policy. Stages one and two, implemented in 2018 and 2020 respectively, provided modest savings for low- and middle-income earners, and were relatively uncontroversial.

By contrast, the Stage 3 cuts comprise significant reductions in the tax collected on annual income between $45,000 and $200,000. The Parliamentary Budget Office’s latest calculations estimate that over the first 10 years after the cuts come into effect, they will mean that the federal government will collect $320 billion less tax revenue than it would have done otherwise. In the first year alone, the cuts are estimated to cost $21 billion in foregone revenue. This is $1 billion less than the entire budget surplus for 2022–23, equal to the annual budgeted expenditure for financial support for People with Disability in 2024–25, and some $6 billion more than the amount budgeted for Job Seeker Income Support.

This paper proposes four alternative changes to the tax system. Each proposition would deliver equal or larger tax cuts to all those earning less than at least $124,600 than the existing Stage 3 policy and would do so while costing between $70 billion and $130 billion less over the first 10 years than the proposed Stage 3 cuts.