37% Tax Bracket Abolished: What Stage 3 Tax Cuts Mean for Your Pay in 2025-26

One of the biggest changes to Australia's tax system is here: the 37% tax bracket has been abolished as part of the Stage 3 tax cuts taking effect from 1 July 2025. This landmark reform simplifies the tax system and delivers meaningful tax relief to millions of Australian workers. Whether you're earning $50,000 or $150,000, these changes will affect how much tax you pay and how much money lands in your pocket each payday.

Understanding the Stage 3 Tax Cuts

The Stage 3 tax cuts represent the final phase of the government's three-stage tax reform plan, originally announced in the 2018-19 Budget. While Stages 1 and 2 provided temporary relief through low and middle income tax offsets, Stage 3 makes permanent structural changes to the tax brackets that will affect Australian workers for years to come.

The most significant change is the complete removal of the 37% tax bracket. Previously, any income you earned between $120,001 and $180,000 was taxed at 37 cents in the dollar. Under the new system, this bracket disappears entirely, and that income now falls into the expanded 30% bracket. This is a substantial 7 percentage point reduction in the marginal tax rate for thousands of Australians. You can calculate exactly how this affects your take-home pay using our calculator.

Additionally, the threshold for the top 45% tax bracket has been raised from $180,000 to $200,000. This means high-income earners also benefit from paying less tax on a portion of their income. These changes work together to create a flatter, simpler tax system with fewer brackets and lower rates for the majority of workers.

New Tax Brackets for 2025-26: Before and After

To understand the full impact of abolishing the 37% tax bracket, let's compare the old and new tax structures side by side. The changes represent a significant simplification of Australia's progressive tax system.

The table above clearly shows how the 37% bracket has been eliminated. Income that previously fell into this bracket ($135,001 to $190,000) is now taxed at 30% instead. This represents a significant saving for anyone earning above $135,000. For more details on how income tax is calculated under the new system, visit our comprehensive guide.

It's worth noting that the 30% bracket has also been expanded upward. Previously, the 30% rate only applied to income between $45,001 and $120,000. Now it extends all the way to $190,000, creating a much larger tax bracket that covers the majority of Australian full-time workers.

How Much Will You Save?

The amount you save depends entirely on your income level. Workers earning less than $45,000 won't see any change to their tax bill, as the lowest three brackets remain unchanged. However, once your income crosses $45,000, the savings begin to accumulate.

For someone earning $100,000 per year, the savings are approximately $2,179 annually compared to the pre-Stage 3 system. This works out to roughly $42 extra in your pocket each week. A worker on $150,000 saves even more—around $3,729 per year—because a significant portion of their income that was previously taxed at 37% is now taxed at just 30%.

High-income earners also benefit from the raised threshold for the top tax bracket. Someone earning $200,000 now pays 45% only on income above $190,000, whereas previously they paid 45% on everything above $180,000. This creates additional savings at the top end.

These tax cuts are in addition to other deductions you might claim. Don't forget that the Medicare levy of 2% still applies to most taxpayers on top of these rates, and the Medicare Levy Surcharge may apply if you don't have appropriate private health insurance and earn above certain thresholds.

What This Means for Your Superannuation and HECS

While the abolition of the 37% tax bracket puts more money in your pocket, it's important to consider how these changes interact with other aspects of your financial situation. Your superannuation contributions, for example, may become more tax-effective under the new system.

If you're earning between $135,000 and $190,000, concessional super contributions (such as salary sacrifice or personal deductible contributions) are now even more attractive. Since your marginal tax rate has dropped from 37% to 30%, but super contributions are still taxed at just 15%, the tax saving on each dollar contributed to super has reduced from 22% to 15%. However, the benefit still exists, and for many workers, building retirement savings while paying less tax overall remains a smart strategy.

For those with HECS-HELP debts, the situation is a bit different. With more take-home pay, you may have additional capacity to make voluntary repayments. However, indexation on HECS debts continues to apply, and with the repayment thresholds and rates set separately from income tax brackets, your compulsory repayment percentage hasn't changed. Consider whether using some of your tax cut to reduce your study debt faster makes sense for your situation.

It's also worth reviewing your withholding tax arrangements with your employer. If you previously had additional tax withheld to cover a tax bill, you might be able to reduce these withholdings now, giving you access to your tax savings throughout the year rather than waiting for a refund at tax time.

Planning for the New Financial Year

The Stage 3 tax cuts took effect on 1 July 2025, meaning they apply to the entire 2025-26 financial year. If you're a PAYG employee, you should already be seeing the benefits in your regular payslips as your employer adjusts the amount of tax withheld. The extra money in your account each pay cycle can be put to work immediately.

Consider how best to use this additional income. Options include boosting your mortgage repayments, increasing your superannuation contributions, building an emergency fund, paying down high-interest debt, or simply improving your quality of life. The right choice depends on your personal circumstances, financial goals, and existing commitments.

For self-employed workers and those with investment income, the changes affect your quarterly PAYG instalments and end-of-year tax liability. You may need to adjust your budgeting and cash flow planning to account for the reduced tax burden. Speaking with a tax professional can help you navigate these changes effectively.

Keep in mind that these tax rates are legislated to remain in place indefinitely. Unlike the temporary offsets of previous years, the abolition of the 37% bracket is a permanent change to Australia's tax landscape. This provides certainty for long-term financial planning and makes it easier to forecast your after-tax income in the years ahead.

Conclusion

The abolition of the 37% tax bracket under Stage 3 tax cuts represents the most significant change to Australia's personal income tax system in years. By eliminating this bracket and expanding the 30% bracket to cover income up to $190,000, millions of Australian workers will pay less tax and take home more of what they earn.

Whether you're earning $80,000 or $180,000, understanding these changes helps you make informed decisions about your finances. The extra money in your pocket—whether it's $20 or $70 per week—adds up over time and can make a real difference to your financial wellbeing.

To see exactly how much you'll save under the new tax rates, use our take-home pay calculator. And remember, while tax cuts put more money in your hands today, smart financial planning—considering superannuation contributions, debt reduction, and long-term savings—can help you make the most of this opportunity for years to come.