In the initial quarter of 2024, the Australian Government introduced significant modifications to the Stage 3 Tax Cuts, confronted ongoing yet moderating inflation rates—particularly persistent in certain sectors—experienced a robust surge in the stock market, and dealt with ongoing strains in the property market.
The Labor government disclosed alterations to the planned Stage 3 tax reductions in January, with the intention of extending greater tax reliefs to the middle class. These amendments, which were ratified by the Senate in February, maintain the tax bracket slated for removal in the original scheme and modify tax percentages to the advantage of earners at both the lower and upper ends of the income scale.
These changes are set to commence on July 1 and are detailed below:
Taxable Income Bracket | Tax rate | |
New Tax Plan from July 1, 2024 | Below $18,200 | 0% |
$18,200 to $45,000 | 16% | |
$45,000 to $135,000 | 30% | |
$135,000 to $190,000 | 37% | |
Above $190,000 | 45% | |
Original Stage 3 tax cuts | Below $18,200 | 0% |
$18,200 to $45,000 | 19% | |
$45,000 to $200,000 | 30% | |
Above $200,000 | 45% |
There’s a noticeable downtrend in inflation, with predictions from the Reserve Bank of Australia (RBA) indicating a return to the desired range of 2-3 percent by 2025 and an aim to hit the midpoint by 2026.
Although inflation related to service pricing is persistently high, the inflation for goods pricing is on the decline, underpinned by sustained over-demand and robust internal cost pressures.
By June, the RBA anticipates the consumer price index (CPI) to reach 3.3%, a reduction from the 3.9% predicted three months prior. Consequently, the board has decided to maintain the cash rate at 4.35 percent during the initial meeting of the year.
This quarter has seen global equity markets reach unprecedented levels, with indices such as the ASX200, S&P500, Eurozone, and Japanese markets achieving all-time highs. This surge is buoyed by US inflation figures aligning with forecasts, which suggests the Federal Reserve is on course to reduce interest rates starting from mid-year.
Despite forecasts indicating a deceleration in economic expansion both domestically and internationally, the sentiment in the market remains upbeat. Inflation has begun to recede and is anticipated to continue its decline, with expectations of rate cuts by central banks in the US, Canada, and Europe in the near future. Although recession poses a threat, the economy might be steering towards a gentle downturn.
In February, the national vacancy rate dropped to a record low of 0.7 percent, emphasising the persistent challenges of supply and demand in Australian rental properties due to factors such as a strained construction sector, rapid population growth from immigration, and climbing property values.
While the government has tightened regulations on international students to alleviate demand, supply issues persist. Building approvals saw a 1 percent reduction in January, though approvals for multi-unit buildings surged by 19.5 percent.
Despite the backdrop of elevated interest rates, inflation, and cost-of-living concerns, property values continued their ascent. The Home Value Index rose by 0.6 percent nationally in February, with increments observed in every capital city except Hobart.
The labour market experienced a downshift throughout the December quarter of 2023, with a notable pivot from full-time employment towards part-time roles and a slump in hiring activities. These patterns are in alignment with Treasury projections that anticipate continued slowdown in growth and a rise in the unemployment rate from 3.9 percent in January to 4.2 percent by June, reaching 4.3 percent by year’s end.
Even with these indicators of relaxation, the labour market conditions remain tight, with employers facing difficulties in sourcing suitable staff to fill vacancies, while certain sectors still show signs of labour shortages.
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