Labor puts stage three tax package under spotlight - Sydney Morning Herald

Workers on average incomes are being singled out for help in a bold Labor move to adjust tax and spending policies to help millions of households with the cost of living, sparking an incendiary political fight over stage three tax cuts that cost $323.6 billion over a decade.

The new policies will add to the controversial tax cuts in ways that target middle-income workers and act on concerns within the government that existing measures do not do enough to help those workers deal with rising prices.

Changes to the stage three tax cuts would leave Prime Minister Anthony Albanese open to Coalition claims he broke election promises.Credit: Paul Jeffers

But a radical proposal to slash the stage three tax package is being dismissed inside the government after media reports that the benefits would be scaled back for all people earning more than $180,000 a year.

The government is canvassing several options to be put to federal cabinet on Tuesday and later discussed at a full meeting of the ministry in preparation for a caucus meeting on Wednesday that will finalise an ambitious agenda to reshape debate on the cost of living.

No final decision has been made and some cabinet ministers are strongly against breaking an election promise by changing the stage three tax package in terms of its total value or how it flows to workers in each tax bracket.

Other options include being more generous to workers on middle incomes by adjusting other parts of the tax system such as the Medicare levy or the low income tax offset.

Prime Minister Anthony Albanese restated his support for the stage three tax cuts last Wednesday, saying they would go ahead as planned in July, but has left room to adjust policies after years of complaints that the package is too generous to those on high incomes.

In a new analysis that intensifies the argument over the fairness of the package, the Parliamentary Budget Office has found that the cuts will offer workers $20.7 billion in their first year and that almost half this amount will go to those in the top tax bracket.

The new findings, commissioned by the Greens, show that workers on more than $180,000 a year are set to gain $9.1 billion from the package, which is set in law and cannot be changed without a fiery debate in parliament before July 1.

Another $3.2 billion goes to workers who earn between $120,000 and $150,000 a year, while $2.9 billion goes to those who earn $150,000 to $180,000 a year.

Albanese made no comment on the stage three tax cuts in an interview on Monday morning and said he was yet to receive final advice from Treasury on options to help with the cost of living, but he emphasised help for people on low and middle incomes.

“We’ve always said that we will continue to look for ways to assist people,” he told Sky News.

“If we can find ways to put extra dollars in people’s pockets, particularly those low and middle-income earners who are doing it tough, then we’re prepared to do so.”

While radio station 2GB reported on Monday afternoon that the government would raise the tax-free threshold above $18,200 a year and keep the top marginal tax threshold at $180,000 a year, two Labor sources with knowledge of the issue said this was wrong.

Shadow treasurer Angus Taylor seized on the report, however, to claim that Albanese was set to break his election promise to keep the tax package in place.

“This is the mother of all broken promises,” he said.

Albanese said last Wednesday he was committed to the tax cuts going ahead in July and had not changed his position since he promised to support the full package at the last election.

Legislated by the Coalition and backed by Labor five years ago, the changes remove the 37 per cent marginal tax rate for those earning over $120,000 and reduce the 32.5 per cent tax rate to 30 per cent for people earning between $45,000 and $200,000.

The Tax Institute estimates that someone earning $120,000 a year gains an annual tax cut worth $1875 and someone earning $180,000 gains a benefit of $6075.

The annual benefit is worth $9075 for those on $200,000 a year and remains the same for all earnings above that threshold because the stage three package retains the 45 per cent income tax rate above that level.

Setting the threshold at $180,000 would limit the benefits to $6075 to all those on and above that income.

Australians on average incomes have missed out on the lion’s share of federal Labor’s $23 billion in spending to deal with the cost of living, intensifying a national debate on new proposals to help households without fuelling inflation.

About $5 billion of the federal support will be spent this financial year and only a fraction will go to people who are not on income support or other Commonwealth assistance, according to a government list of the policy pledges made so far.

The details reveal the $23 billion includes policies that continue to 2027 or beyond when Labor caucus members want the government to offer immediate help for consumers who are grappling with rising prices and higher interest rates this year.

Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.

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2024-01-22 08:45:00Z
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