Opinion
A stage 3 payday is on the way. Here’s how to maximise it
Dominic Powell
Money EditorReal Money, a free weekly newsletter giving expert tips on how to save, invest and make the most of your money, is sent every Sunday. You’re reading an excerpt − sign up to get the whole newsletter in your inbox.
Whoever said “there’s no such thing as a free lunch” had clearly never heard about the upcoming stage 3 tax cuts. You’re telling me that for doing absolutely nothing, we’re all getting between $350 to $4500 extra a year in our pay packets? If you ignore the massive cost to the federal budget, the possible inflationary impact, and the outsized benefit for high-income earners, it sounds a lot like a free lunch to me!
To recap, the stage 3 cuts are the most significant and controversial of the former Coalition government’s income tax reform plan. They are intended to “flatten” income tax rates to reduce bracket creep, which is where rising income leads people to paying higher income tax than they should.
Maximise your stage 3 tax cut by following a few simple tips.Credit: Aresna Villanueva
The original plan would have seen everyone earning between $45,000 and $200,000 on the same 30 per cent tax rate, a move that was highly contested and ended up being revised by the Albanese government this year. You can check exactly how much you’re expected to get back in tax via the ATO’s calculator here.
What’s the problem?
With cost of living pressures still high, these cuts will be welcomed by workers, many of whom are still struggling with high interest rates and low wage growth. It’s little surprise then that a Westpac survey from earlier this year found 30 per cent of recipients plan to save all of their tax cut, while a further 50 per cent expect to save at least half.
What you can do about it
With the extra cash hitting our pay from the end of this month, here are some ways you could make the best of your newfound wealth:
- Contribute to your super: For someone on a salary of $100,000, your estimated tax cut come July 1 is $2179, or roughly $40 a week. While that could translate into a few more coffees or some extra groceries, if you’re not feeling the pinch too acutely, it might make sense to shift this extra amount directly into your superannuation through salary sacrificing. A 30-year-old on $100,000 with average super who begins salary sacrificing their full tax cut can expect to be about $100,000 better off in retirement, according to the government’s super calculator, without seeing a reduction in their take-home pay. The amount you salary sacrifice is also taxed at 15 per cent, rather than your marginal tax rate, saving you money on tax.
- Save it, or invest it: If you’d prefer quicker access to your tax cuts and not to have to wait until you turn 60, another option is to look at ways to squirrel them away while still having them earn you extra cash. Grace Bacon, director at RSM Financial Services, says workers should work out how much extra they’ll be getting, and consult their budgets to see how much of it they could start saving. Work out if it’ll be a short-term savings plan (up to 24 months) or long-term (3 to 5 years). For short-term, Bacon says the best move is to put it into a high-interest savings account, and for a longer timeframe, think about investing it, even just a little each month. “Consider your investment timeframe, risk appetite and access to the capital before investing,” she advises.
- Pick something purposeful: While it’s all very well to talk about super and investing and high-interest savers (this is a money newsletter after all), your tax cuts don’t need to be so rigidly spent on improving your personal finance. Victoria Shakeshaft, financial counsellor at Bad Bitch Money, says the most important thing you can do with your tax cuts is give them purpose. “Think about something you’ve had in the back (or front) of your mind as ‘I’d love to do this if I just had a bit more money to spare’,” she says. “Whether that’s anything from tennis lessons, investing, or starting to save for the school holidays earlier in the year, there’s no right or wrong. But if that money isn’t given a purpose, it will find a way to disappear!”
- Pay down debt: Finally, to bring it home with another boring yet sensible finance tip, using your tax cuts to get rid of any lingering debts is one of the best things you could do. Credit cards specifically should be the first thing in your firing line, along with other high-interest loans such as car loans. Even just paying off a few Afterpay purchases early can go a long way.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.