The Stage 3 tax cuts — modified from their original design and legislated in early 2024 — delivered personal income tax relief to a broad range of Australian workers from 1 July 2024. Now that 12 months of data is available, it is possible to make a clearer assessment of the economic impact.
Who Got What
The modified cuts delivered the largest proportional gains to workers earning between $40,000 and $90,000. A worker on $60,000 received approximately $1,179 in annual tax relief. Workers on $100,000 received around $2,179. High-income earners also benefited, but the modification from the original design reduced the gains at the top end while increasing them at the lower and middle end of the income distribution. Around 13.6 million taxpayers received some benefit.
The Spending Effect
The critical economic question was whether the tax relief would be spent or saved. Given the cost-of-living pressure that households were experiencing, there was a strong prior expectation that much of the relief would flow directly into consumption — particularly on groceries, utilities, and mortgage repayments. Retail spending data through the second half of 2024 was somewhat stronger than the RBA's base case, consistent with the tax relief providing modest support to consumer spending.
The Inflation Question
The RBA was watching carefully for any sign that the tax relief was adding to inflationary pressure. The evidence suggests the effect was modest and manageable. Because the cuts were pre-announced and anticipated, consumers and businesses had already adjusted their expectations. The relief appears to have primarily replaced spending that would otherwise have been funded by drawing down savings buffers, rather than generating genuinely new demand.
