Monster tax cuts to stay despite budget pain, Treasurer says

The Treasurer has reiterated a controversial move will remain despite dire warnings about the state of the budget.

Treasurer Jim Chalmers has flagged next month’s budget will include some difficult decisions but declined to reconsider his support for stage 3 tax cuts.

The government is under pressure to dump the monster cuts for 2024/25 that are set to cost $243bn over the next decade.

Labor originally opposed the cuts in the lead-up to the 2019 election but waved them through the last parliament after it was unable to secure amendments.

There is no chance of a surplus in the coming years. Picture: NCA NewsWire / Gary Ramage

But the Treasurer on Wednesday said he had no reason to remove the cuts at this stage.

“Even if we took some of the steps that people have been urging us to do on stage 3 tax cuts, that would not change the inflationary environment that we confront right now,” he said.

“I think the public conversation sometimes doesn’t quite understand that.

“Knocking off these tax cuts two years down the track wouldn’t have an impact on inflation in the interim.”

Mr Chalmers made the observation while handing down the final budget position on Wednesday alongside Finance Minister Katy Gallagher.

It showed the deficit for 2021-22 had fallen from a forecast $79bn to $32bn thanks to high commodity prices and low unemployment.

But the government said any improvements were not baked in and an expected drop in commodity prices would make it harder to pay for commitments made but not yet delivered.

Jim Chalmers is playing down the benefit of the budget improvement. Picture: NCA NewsWire / Gary Ramage

The Treasurer warned the budget boost should not lead to expectations the upcoming October budget could include a surplus in the forward estimates.

“I think we need to be realistic about the fiscal situation,” he told reporters in Canberra.

“One of the reasons why we’ve tried to be as upfront and honest and level with people throughout about the fiscal situation is we want people to understand these pressures that are on the budget.”

Treasury collected $27.7bn more in tax than expected, while spending was $20.1bn lower than forecast.

“This is the largest variance between a final budget outcome and the preceding fiscal update,” Treasury said.

Payments were lower than expected, largely due to delays in contracting Covid-19 spending, supply chain disruptions and capacity constraints delaying road and rail infrastructure projects, along with lower-than-expected demand for health, NDIS and aged care services.