Liberals oppose Labor's 2025 Stage 3 redesign and will introduce a bill to restore the original flat 30% rate up to $200,000.
Original Stage 3 design
The Stage 3 tax cuts were originally designed by the Morrison government as the final phase of a comprehensive tax reform package aimed at simplifying Australia's income tax system and reducing bracket creep. The centerpiece was a flat 30% rate for middle and upper-middle income earners.
Enacted in 2019 with bipartisan support, the original Stage 3 design represented a significant flattening of Australia's progressive tax system, consolidating multiple tax brackets into a broader middle-income band with consistent treatment.
Key features of the original plan
- 32.5% bracket merged into 30% from $45–200k: Elimination of the intermediate tax bracket for comprehensive reform
- 45% bracket starts at $200k: Clear threshold for top marginal rate application
- Enacted under Morrison government: Legislated with staged implementation through to 2024-25
- Bracket creep protection: Wider tax brackets reduce automatic tax increases from wage growth
The Liberal Party argues this design provides long-term certainty for taxpayers and reduces the complexity of the tax system by eliminating bracket boundaries that create effective marginal rate spikes for specific income ranges.
Liberal Tax Restoration Strategy
Tax payable $50k–$200k (Labor vs Liberal)
Income levels vs tax payable under both versions
Labor's 2025 redesign
Labor's modification of Stage 3 represents a fundamental shift in the policy's distributional impact, redirecting tax relief toward lower and middle-income earners while maintaining higher effective rates for upper-middle and high-income taxpayers.
The redesign was implemented in January 2025 following Labor's argument that the original structure provided disproportionate benefits to high-income earners during a cost-of-living crisis. The changes maintain the overall cost neutrality of the package while redistributing benefits.
Key changes in Labor's version
- Cuts for $45–135k group reduced to 30%: Lower rates for middle-income earners but narrower application
- 35% bracket 135–190k, 45% above: Retention of progressive structure with multiple brackets
- Switch cost neutral by Treasury modelling: Same overall fiscal impact as original design
- Enhanced benefits for low-income earners: Greater relief for households under $80,000
Labor argues this approach provides more targeted relief to households facing the greatest cost-of-living pressures while maintaining revenue for essential services and debt reduction.
Liberal response & alternatives
The Liberal Party's response to Labor's Stage 3 modifications centers on restoring the original design through parliamentary action and alternative funding mechanisms. The party argues that changing legislated tax cuts undermines business and household confidence in long-term policy settings.
Liberal restoration strategy and funding
The Liberal Party's approach to restoring the original Stage 3 design combines parliamentary action with alternative revenue measures to maintain fiscal responsibility. The strategy emphasizes government efficiency improvements rather than increased borrowing or higher taxes.
- Opposition bill to restore original 30% flat to $200k: Parliamentary legislation to reinstate the broad 30% bracket covering $45,000–$200,000 income range as originally designed
- Offset revenue gap with public-service efficiency dividend: Funding through targeted reductions in public sector costs, consultant spending, and administrative efficiency improvements
- Backs removal of LMITO cliff via separate amendment: Additional legislation to reinstate low and middle-income tax offset through alternative mechanism outside Stage 3
- Cross-bench negotiation strategy: Securing Senate support through targeted amendments and compromise measures
Revenue offset strategies
The Liberal funding approach includes:
- Public service efficiency dividend: 2% annual productivity improvement targets across departments
- Consultant spending reduction: 50% cut in external advisory and consulting expenditure
- Program review and consolidation: Streamlining overlapping government programs and agencies
- Asset optimization: Strategic disposal of non-core government assets and property
Budget impact 2024-35
Projected revenue loss Liberal vs Labor plan
Key Policy Differences
Frequently Asked Questions
The Liberal Party's position on Stage 3 tax cuts reflects deeper philosophical differences about tax policy, with the party advocating for broad-based tax reduction and simplified structures over targeted relief. The success of their restoration efforts depends on cross-bench support and public sentiment around tax fairness during economic uncertainty.
For more information on Liberal tax policy, explore the Liberal Party profile or use the Stage 3 tax calculator to compare scenarios.