Stage 3 Tax Cuts: Who Actually Wins (FY2025-26)

TL;DR

The Stage 3 personal income tax cuts began on 1 July 2024 in their redesigned form. From FY2024-25 onwards every Australian taxpayer earning above the $18,200 tax-free threshold gets at least some reduction in their average tax rate, but the dollar gain is not evenly spread. Compared to the FY2023-24 schedule:

The 19% marginal rate dropped to 16% for income between $18,201 and $45,000.
The 32.5% rate between $45,001 and $135,000 was redrawn into a 30% bracket ending at $135,000.
The 37% bracket now starts at $135,001 and ends at $190,000 (instead of $120,001 to $180,000 under the old schedule).
The 45% top bracket now begins at $190,001 rather than $180,001.

Two effects matter for take-home pay:

The biggest dollar saving in the FY2025-26 schedule lands at the top of the new 37% band — around $190,000 — at roughly $4,529 per year more in your pocket compared to the FY2023-24 settings.
The biggest percentage uplift in disposable income lands on full-time award-rate workers earning $50,000 to $80,000, who get a 16% / 30% structure that materially smooths the curve they actually pay tax on.

But the cash difference is only half the story. The cuts interact with the Medicare Levy Surcharge thresholds, Division 293 tax, the HECS-HELP repayment cliffs and the Low Income Tax Offset. Three worked examples below trace those interactions for a graduate, a household at the median, and a high-income professional.

How the Stage 3 redesign actually changed the brackets

The original 2018 Stage 3 plan would have flattened the 32.5%, 37% and 45% bands into a single 30% bracket running from $45,001 all the way to $200,000. The redesign legislated in early 2024 kept the 37% bracket alive — but pushed its lower edge from $120,001 to $135,001 and its upper edge from $180,000 to $190,000. The 30% rate ends at $135,000 instead of $200,000.

Here is the comparison the press releases skip:

Taxable income (AUD)	FY2023-24 marginal rate	FY2025-26 marginal rate
$0 – $18,200	0%	0%
$18,201 – $45,000	19%	16%
$45,001 – $120,000	32.5%	n/a (replaced)
$45,001 – $135,000	n/a	30%
$120,001 – $135,000	37%	(now 30%)
$135,001 – $180,000	37%	37% (unchanged rate, redrawn band)
$180,001 – $190,000	45%	(now 37%)
$190,001+	45%	45%

On top of that the 2% Medicare Levy still applies to most resident taxpayers above the levy reduction thresholds, and HECS-HELP, Division 293 and the Medicare Levy Surcharge sit alongside.

What "the average household saves" actually means

Treasury's own announcement quoted "$1,888 average benefit" for the median household. That figure is the simple arithmetic mean across all taxpayers — it is not what an individual on the median wage gets. Here are five reference points based on the comparison of FY2025-26 to FY2023-24:

$30,000 of taxable income — saves around $354 per year vs FY2023-24.
$60,000 — saves around $1,179 per year.
$90,000 — saves around $1,929 per year.
$135,000 — saves around $3,729 per year.
$190,000 — saves around $4,529 per year (the largest dollar reduction).

The dollar figure rises with income; the percentage of disposable income peaks for the $50,000 to $80,000 band. That is why "who wins" is genuinely a value-judgement question: by dollars the high earners win; by share-of-take-home the median households win.

Official source

Australian Taxation Office — Individual income tax rates — ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents.
Treasury — Tax cuts to help Australians with the cost of living — treasury.gov.au.
Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024 — the Act that legislated the redesign.

The ATO page is the operational source — payroll software, tax agents and the HECS-HELP Repayment Calculator all read from the same schedule. If a third-party site quotes different numbers, the ATO is right.

Worked examples

The numbers below assume a resident taxpayer with no exempt foreign income and no separate offset other than the Low Income Tax Offset (LITO) where it applies. Medicare Levy at 2% sits on top.

Example 1 — Graduate engineer, $80,000 first-year salary

Taxable income: $80,000
HECS-HELP debt: $28,000 outstanding
Private hospital cover: No (relevant for the Medicare Levy Surcharge below)
Reportable employer super: $0 (compulsory SG only)

FY2023-24 income tax: $5,092 (on the $18,201-$45,000 band) + 32.5% × ($80,000 − $45,000) = $5,092 + $11,375 = $16,467.

FY2025-26 income tax: 16% × ($45,000 − $18,200) + 30% × ($80,000 − $45,000) = $4,288 + $10,500 = $14,788.

Cash-in-hand uplift = $1,679 before Medicare Levy and HECS-HELP.

Now layer HECS-HELP. At $80,000 HRI the engineer is in the 4.0% band ($79,347 – $84,107). Compulsory repayment = 4.0% × $80,000 = $3,200. That repayment is unaffected by the rate cut. Medicare Levy 2% × $80,000 = $1,600 (also unchanged).

So the engineer's net gain from the Stage 3 redesign is around $1,679 per year, or $32 per week. Real, but not transformative.

Example 2 — Median household, two earners with children

Earner A: $95,000 salary, 11.5% SG, no extra super sacrifice.
Earner B: $45,000 salary (part-time return-to-work), no HECS-HELP, no extra super.
Combined household income: $140,000.
Family Tax Benefit Part A: separately calculated on the Family Tax Benefit Calculator.

Earner A — FY2023-24: $5,092 + 32.5% × ($95,000 − $45,000) = $5,092 + $16,250 = $21,342. Earner A — FY2025-26: $4,288 + 30% × ($95,000 − $45,000) = $4,288 + $15,000 = $19,288. Saving for A: $2,054.

Earner B — FY2023-24: $5,092 (no income above $45,000) ≈ $5,092 with LITO offset reducing to about $4,392. Earner B — FY2025-26: $4,288 with LITO ≈ $3,588. Saving for B: $804.

Combined household saving = $2,858 per year, or roughly $55 per week extra in take-home pay. That is more meaningful for a median household than the engineer's $1,679 — proportional to spending power on groceries, childcare and rent.

This is also the household most likely to have other small windfalls layered on: the Family Tax Benefit Part A end-of-year supplement, the Energy Bill Relief credits in some states, and the lower Medicare Levy due to dependents. Combined, the redesign plus indirect benefits puts roughly $3,500 to $4,500 of post-tax cash back into a typical median family budget compared to FY2023-24.

Example 3 — High-income GP, $250,000 income, packaged

Salary: $250,000 gross
Private hospital cover: Yes (so no Medicare Levy Surcharge)
Salary sacrifice into super: $30,000 (full FY2025-26 concessional cap)
HECS-HELP balance: $45,000 outstanding
No reportable fringe benefits (private practice, no NFP packaging)

Taxable income on PAYG summary: $250,000 − $30,000 = $220,000.

FY2023-24 income tax on $220,000 = $51,667 + 45% × ($220,000 − $180,000) = $51,667 + $18,000 = $69,667.

FY2025-26 income tax on $220,000 = $51,638 + 45% × ($220,000 − $190,000) = $51,638 + $13,500 = $65,138.

Saving from the rate redesign: $4,529.

But the GP also faces:

Division 293 tax — at $220,000 + $30,000 reportable concessional contributions = $250,000, exceeding the $250,000 threshold. Excess concessional contributions are charged 15% on $5,000 (but in this case, the excess is small — the calculation would generally net against Division 293).
HECS-HELP — HRI = $220,000 + $30,000 (reportable employer super) = $250,000, lands in the 10% band, repayment = $25,000.
Medicare Levy — 2% × $220,000 = $4,400.

The headline $4,529 saving is real, but the total tax bill on $250,000 of pre-sacrifice income is still north of $94,000 combining income tax + HECS-HELP + Medicare Levy + Division 293. The Stage 3 redesign moves the needle by about 5% of that bill — meaningful, not transformative.

The broader point: the GP "wins" the largest dollar saving but pays the highest marginal rate on every extra dollar of income, including overtime and on-call shifts. For high-income earners, the salary-sacrifice levers tracked in the Salary Sacrifice Super Calculator and the Division 293 Calculator move the take-home figure more than the Stage 3 cut alone.

Common pitfalls

Treating the headline rate as the marginal rate. Australia's true marginal rate at $80,000 is 30% income tax + 2% Medicare + (potentially) 4% HECS-HELP + 1% Medicare Levy Surcharge if no private cover = 37% effective. The Stage 3 cut moved the income-tax slice by 2.5 percentage points; the others did not change. Plan around the effective rate, not the headline.
Forgetting the Medicare Levy Surcharge. Single income above $97,000 (FY2025-26 threshold) without private hospital cover triggers MLS at 1.0% to 1.5% of taxable income. The Stage 3 cut does not exempt anyone from MLS — see the Medicare Levy Surcharge Calculator for the threshold check.
Assuming the LITO is gone. The Low Income Tax Offset still exists at $700 for incomes up to $37,500, tapering to zero at $66,667. The Low and Middle Income Tax Offset (LMITO) was a separate, time-limited offset and was not renewed. Confusing the two is common in older blog posts and stale articles.
Confusing PAYG withholding with the actual tax bill. Employer payroll software updates the PAYG schedules each July. If your payroll team has been slow to update, your withholding can be too high (you get a bigger refund) or too low (you get a bill at lodgement). Check the first July payslip against the ATO calculator to confirm.
Treating the saving as recurring. The bracket bands above are not indexed to inflation. Fiscal drag (bracket creep) erodes the saving each year as wages grow. A $1,679 saving in FY2025-26 is around $1,400 of FY2023-24-equivalent purchasing power by FY2027-28 if wages rise 3% per year and brackets do not move.
Forgetting the Medicare Levy reduction. Low-income earners and senior pensioners receive a phased-in Medicare Levy starting at $26,000 of taxable income for FY2025-26 (singles), with full 2% only kicking in at $32,500. The Stage 3 cuts do not change the Medicare Levy, but if your income now sits in the phase-in zone the combined effective rate can be lower than the headline tax-bracket figures suggest. The Medicare Levy Reduction Calculator handles this correctly for the senior, family and standard thresholds.
Stacking rebates that are now incompatible. Some state-based rebates and Centrelink supplements were redesigned alongside the Stage 3 changes. The Family Tax Benefit thresholds, the Commonwealth Rent Assistance ceilings and the Senior Australians and Pensioners Tax Offset (SAPTO) all interact with taxable income, and a higher take-home pay can shrink some of these. The SAPTO/LITO Tax Offset Calculator handles the interaction explicitly.
Ignoring the impact on second jobs. The "no tax-free threshold" claimed at a second employer means the 16% rate applies from the first dollar at that employer, not from $18,201. The redesign benefits second-job income earners at $20,000 to $30,000 more than the headline numbers suggest, because the 16% rate replaces the 19% rate from dollar one. The Second Job Tax Calculator shows the cash-flow effect.
Not adjusting salary sacrifice in light of the redesign. A worker who was salary-sacrificing $200/month at the old marginal rate may want to revisit the trade-off. At a 30% marginal rate the after-tax cost of an extra $200/month into super is now $140 (instead of $135 at 32.5%). Worth running again before the next pay cycle locks in.

Bracket creep is the silent counter-cut

Bracket creep is the technical name for the slow rise in the average tax rate as wages grow but the brackets stay nominally fixed. Treasury's own forecasts show that within roughly four to five years of unindexed brackets, fiscal drag has clawed back roughly 40% of the dollar value of the Stage 3 cuts for an average wage earner. The Reserve Bank's Statement on Monetary Policy tracks this in its tax-take projections each February.

For the median household earning $90,000 to $100,000 today, that means the $1,929 saving in FY2025-26 is worth roughly $1,150 in FY2023-24-equivalent purchasing power by FY2029-30 if wages grow at 3.5% per year and brackets stay fixed. None of this is hypothetical — it is built into the medium-term Budget projections. Two practical levers reduce the bite:

Salary sacrifice into super. Every $1,000 sacrificed at the 30% marginal rate gets contributed at the 15% concessional rate, banking 15 percentage points of difference on the dollar. The trade-off is the money is locked in until preservation age.
Private health cover where it makes sense. For singles with income approaching the $97,000 Medicare Levy Surcharge threshold, picking up a basic hospital policy can be cheaper than the 1% surcharge. The break-even is calculator territory — see the Medicare Levy Surcharge Calculator.

Why the redesign cost less than the original 2018 plan

The original Stage 3 — flat 30% from $45,001 to $200,000, 45% above — was costed at roughly $254 billion over a decade. The 2024 redesign reduced that fiscal cost to about $213 billion over the same window, freeing roughly $40 billion that the Government redirected to the lower-band cuts (the 19% → 16% step) and to other cost-of-living measures. The change is therefore distributional rather than headline-cost. Roughly:

Bottom 60% of earners ($18,201 – $80,000) gained more than they would have under the original plan, because the 19% → 16% cut applied to their entire taxable slice above $18,200.
Top 5% ($190,001+) gained less than they would have under the original plan but still gained more in dollars than any other quintile.

Whether that trade-off is "fair" is a value judgement; the arithmetic is what it is.

How payroll software handles the change

If you are an employee, your employer's payroll system updates the PAYG withholding schedules from the first pay period that ends on or after 1 July. The ATO publishes the new schedule (Schedule 1, Statement of formulas for calculating amounts to be withheld) in May or June each year. Most systems — Xero, MYOB, KeyPay, ADP, Employment Hero — fetch the schedule automatically. If you self-employ and are paying yourself a wage, you will need to download the new schedule manually.

If your withholding has been too high for a period of weeks (because the old schedule was still loaded), you do not lose the money — it surfaces as a larger refund at lodgement. The reverse is true if it was too low. Either way, do not panic about a fortnightly figure that drifts by $20 from the calculator's expected number — small variances flatten out at lodgement.

Related calculators

HECS-HELP Repayment Calculator — see how the new income tax bands interact with the HRI cliff.
Salary Sacrifice Super Calculator — work out how much extra super to sacrifice now that the marginal rate at $80,000 sits at 30% rather than 32.5%.
Division 293 Tax Calculator — the 15% extra super tax for income (including reportable super) above $250,000 — unaffected by Stage 3.
Medicare Levy Surcharge Calculator — confirm whether private hospital cover saves money at your new take-home pay.
Second Job Tax Calculator — the surprise upside for second-job earners under the new 16% bottom band.
SAPTO/LITO Tax Offset Calculator — for anyone near the LITO taper or pension age tax offset.

Why "average" gains hide median outcomes

The Treasury announcement quotes a $1,888 "average" benefit. That number is a per-taxpayer arithmetic mean — and like all means it is dragged up by the top earners' larger dollar gains. The median individual taxpayer (the person right in the middle of the distribution) sat at roughly $58,000 of taxable income at the time of the redesign, and the median gain at that figure is closer to $1,150 per year. Sorting by household, the median dual-income household lands closer to $2,200 of combined gain. A useful mental model:

Most one-income households earning $50,000 to $80,000 see roughly $1,000 to $1,500 of saving.
Most dual-income households earning $130,000 to $180,000 combined see roughly $2,500 to $3,200 combined.
Most single high-income earners above $190,000 see the maximum $4,529.

If you are budgeting for the saving on a household basis, the dual-income median figure is the most useful anchor. The Australian Bureau of Statistics publishes the Personal Income in Australia release each year with the actual distribution percentile-by-percentile, which is the most rigorous reference if you want to position your own household against the population.

What to watch for in the next Budget

Each Federal Budget night (the second Tuesday in May) brings the latest tax-rate adjustments. The marginal HECS-HELP system, the Medicare Levy thresholds and the Family Tax Benefit caps are all reviewed annually. Two items worth flagging for the FY2026-27 cycle:

HECS-HELP marginal system. If the proposed switch to a 15% / 17% marginal model passes during 2025, expect a true-up calculation in late 2025 or early 2026 to retrospectively credit borrowers who were caught by the cliffs in FY2025-26. The ATO has flagged it would administer this without requiring borrowers to re-lodge.
Bracket indexation. A growing chorus of economists (RBA, Productivity Commission, Treasury's own Intergenerational Report) is calling for explicit indexation of the personal income tax brackets to inflation. There is no commitment yet, but the design discussion is live; if the brackets are indexed from FY2026-27 onwards the numbers in this article will need an update.
Medicare Levy thresholds. The low-income singles, family and senior thresholds rise each year with CPI. The full 2% rate kicks in at $32,500 for singles and roughly $54,807 for couples in FY2025-26; the figures are republished each Budget night.

We update this article each May after the Federal Budget. The "Updated" date at the top of the page is the version you are looking at.

This article is general information based on the legislated FY2025-26 rates and Treasury announcements. It is not personal tax advice; talk to a registered tax agent for your specific situation. The figures will be revisited each May after the Federal Budget.