Personal tax rates cut from 1 July 2026 and 2027 (March 2025 Federal Budget Update)

Published on 26 March 2025 by Drew Pflaum
Categories: Government Budgets

The Government has proposed to cut the personal income tax rate for the income threshold ($18,200 to $45,000) from 16% to 15% (from 1 July 2026) and 14% (from 1 July 2027).

Under the proposed changes, every Australian taxpayer will receive a tax cut of up to $268 from 1 July 2026, rising to $536 from 1 July 2027.

The Government said the proposed tax cuts will provide “modest but meaningful” cost-of-living relief and “return bracket creep” by lowering average tax rates for all taxpayers, especially for low- and middle-income earners. The measure is expected to cost $17.1 billion.

Combined with the existing Stage 3 tax cuts from 2024–2025, the Treasurer said the average annual tax cut will increase to $2,229 in 2026–2027 and $2,548 (for 2027–2028) – so, around $50 per week (relative to 2023–2024 tax settings). A person on the average wage of around $79,000 will receive a total tax cut of $2,190 in 2027–2028 (compared to 2023–2024 tax settings).

The Government said the proposed tax cuts will reward workforce participation by encouraging part-time and lower income earners to take on more hours of work. According to the Government, the combined tax cuts will increase total hours worked by 1.3 million hours per week, equivalent to more than 30,000 full-time jobs, compared to 2023–2024 tax settings. This increase is anticipated to be driven mostly by women, who are expected to increase their labour supply by 900,000 hours compared to 2023–2024 tax settings.

The combined tax cuts are also estimated to increase nominal household disposable income by 1.9% by 2027–2028 (compared with 2023–2024 tax settings).

Current rates

The tax rates and income thresholds for residents for 2024–2025 and 2025–2026 (as already legislated) are:

• taxable income up to $18,200 – nil;
• taxable income of $18,201 to $45,000 – nil plus 16% of excess over $18,200;
• taxable income of $45,001 to $135,000 – $4,288 plus 30% of excess over $45,000;
• taxable income of $135,001 to $190,000 – $31,288 plus 37% of excess over $135,000; and
• taxable income of more than $190,001 – $51,638 plus 45% of excess over $190,000.

Proposed rates 2026–2027

The tax rates and income thresholds for residents for 2026–2027 (as proposed) are:

• taxable income up to $18,200 – nil;
• taxable income of $18,201 to $45,000 – nil plus 15% of excess over $18,200;
• taxable income of $45,001 to $135,000 – $4,020 plus 30% of excess over $45,000;
• taxable income of $135,001 to $190,000 – $31,020 plus 37% of excess over $135,000; and
• taxable income of more than $190,001 – $51,370 plus 45% of excess over $190,000.

Proposed rates 2027–2028

The tax rates and income thresholds for residents for 2027–2028 (as proposed) are:

• taxable income up to $18,200 – nil;
• taxable income of $18,201 to $45,000 – nil plus 14% of excess over $18,200;
• taxable income of $45,001 to $135,000 – $3,752 plus 30% of excess over $45,000;
• taxable income of $135,001 to $190,000 – $30,752 plus 37% of excess over $135,000; and
• taxable income of more than $190,001 – $51,102 plus 45% of excess over $190,000.

Low income tax offset (unchanged)

No changes were made to the low income tax offset (LITO) in the 2024–2025 Budget.

For completeness, and as a reminder, while the low and middle income tax offset (LMITO) ceased from 1 July 2022, low and middle income taxpayers remain entitled to the LITO.

The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Medicare levy low-income thresholds for 2024–2025

For the 2024–2025 income year, the Medicare levy low-income threshold for singles has been increased to $27,222 for 2024–2025 (up from $26,000 for 2023–2024). For couples with no children, the family income threshold is $45,907 (up from $43,846 for 2023–2024). The additional amount of threshold for each dependent child or student is $4,216 (up from $4,027).

For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold is $43,020 (up from $41,089). The family threshold for seniors and pensioners is $59,886 (up from $57,198), plus $4,216 for each dependent child or student.