Cost of stage 3 tax cuts blows out to more than $250bn

The Treasurer says the Coalition “booby-trapped” the federal budget as a contentious election promise blows out by $11bn.

Jim Chalmers has revealed the cost of the stage 3 tax cuts has blown out by $11bn.

The Treasurer said on Thursday the latest Treasury costing of the policy had jumped from $243bn over a decade to $254bn.

Dr Chalmers made the announcement on ABC Radio National, five days before he hands down his first federal budget.

The revelation is likely to reignite debate over the equity of the tax cuts for workers on higher incomes at a time when the budget is facing considerable strain.

The cuts, which are due to come into effect in July 2024, would mean no one earning up to $200,000 a year will pay more than 30 cents of the dollar in tax.

Labor in 2019 supported the Morrison government to legislate three tiers of tax cuts – starting with relief for low and middle-income earners – and then said before this year’s election it would keep the third stage in place.

Dr Chalmers had asked Treasury officials to prepare a new cost estimate for the policy earlier this month after a week in which the Albanese government let speculation run rife over whether the cuts would be scrapped or pared back.

Critics of the tax cuts, including some within Labor, say they are not affordable or fair.

But Dr Chalmers has ruled out amending the policy, at least for now.

Treasurer Jim Chalmers has ruled out making any changes to the stage 3 tax cuts in next week’s budget. Picture: NCA NewsWire / Gary Ramage

Asked on Thursday if he was alarmed by the $11bn blowout, Dr Chalmers said it was “pretty clear to everyone” that the tax cuts would affect the budget.

“But I think the point that we’ve been making is that they come in a couple of years time,” he said.

“We’ve got more pressing priorities, the budget is not going to be about those tax cuts.”

Dr Chalmers said next week’s budget would focus on responsible cost-of-living relief, “targeted investments” to create a more resilient economy and beginning fiscal repair after what he characterises as a “decade of waste and rorts” by the Coalition.

He said his predecessors had effectively ambushed Labor after a government audit uncovered $6.4bn in extra spending on services such as aged care that hadn’t been funded but would have to be included in this budget.

“Our predecessors more or less booby-trapped the budget with a bunch of spending, some billions of dollars in spending, which is unavoidable, which we’ve had to find room for. And we have,” he said.

He said high commodity prices had resulted in a boon to commonwealth exports that would provide some relief for the budget over the next two years.

But he warned the boost was only temporary and that it wouldn’t keep up with the amount of money the government would need to spend on public services and pay off the interest on nearly $1 trillion of debt.

Dr Chalmers has repeatedly said the Albanese government would need to make “tough decisions” in order to cover the spiralling costs of the “big five” government services, including the National Disability Insurance Scheme, aged care and Defence.

Asked later on Thursday how the government could justify keeping the stage 3 tax cuts, Prime Minister Anthony Albanese said “we have not changed our position on that”.

Originally published as Cost of stage 3 tax cuts blows out to more than $250bn