Speculation mounts on overhaul of stage three tax cuts

Federal cabinet and the Labor caucus will reportedly consider an overhaul of the tax package due to take effect mid-year.

Federal cabinet is said to be considering an overhaul of the stage three tax cuts, exposing the government to accusations of breaking a key election promise.

According to reports on Monday, the third iteration of the Morrison-era tax package could be altered to raise the tax-free threshold, which is currently at $18,200, as the government fields voter demands for additional support through the current cost of living crunch.

However, those who earning in excess of the top marginal tax rate at $180,000 would be in line for a greater tax bill, as the 45 per cent tax rate would still apply above this level, rather than at $200,000 as initially intended, it was reported.

The government said its position on the tax cuts was not changed. Picture: NCA NewsWire / Luis Enrique Ascui

The overhaul would mean lower-income earners would receive greater relief, however those earning above $180,000 would see an increase in their tax bill.

Under the proposed amendment, all workers will receive a tax cut as the level at which the first tax bracket (at 19c for every $1 earnt) kicks in will be higher.

Retaining the $180,000 bracket would allow the tax free threshold to rise to roughly $19,400 without costing the budget.

When asked, the Prime Minister’s office said the government had not changed its position, however the Treasurer’s did not rule out the possibility of the changes.

The stage three tax cuts were legislated by the Morrison government in 2019 and endorsed by the Albanese government.

The current legislated tax changes will abolish the 37 per cent bracket on income earned between $120,000 and $180,000 from July 1.

Under the Morrison-era plan, a 30 per cent taxation rate will apply to all earnings between $45,000 and $200,000.

As recently as Friday, Prime Minister Anthony Albanese said the government’s position on the tax package had not changed.

“Well, of course there will be tax cuts,” he told ABC Radio Sydney.

“They’ll go ahead in July.”

Labor backbenchers fear any amendment to the controversial tax package could spark community backlash. Picture: NCA NewsWire / Gaye Gerard

On Saturday, Mr Albanese urgently recalled federal MPs to parliament two weeks before the first sitting week to canvas new measures to help ease the cost of living, including additional energy bill relief.

Some Labor backbenchers have warned that amending the tax package could leave the government open to criticism should it renege on its commitment.

Separately, the controversial tax package has sparked warnings from economists that it could feed inflation and delay relief to household borrowers in the form of interest rate cuts.

Responding to the revelations, shadow treasurer Angus Taylor said any change to the legislated tax cuts would be a betrayal to the Australian people.

“Anthony Albanese is proving once and for all that you cannot trust Labor on tax,” Mr Taylor said.

“This is the mother of all broken promises. Anthony Albanese and Jim Chalmers have promised over 100 times the stage three tax cuts, as legislated, would not change.”

Originally published as Speculation mounts on overhaul of stage three tax cuts