Labor’s major test over promise to keep controversial tax cuts

Labor is facing a major test as division swirls over whether it should break a controversial pre-election commitment.

Labor has opened the door wider to amending the controversial stage three tax cuts as division swirls within the government over whether to keep the policy.

Jim Chalmers insists the Albanese government hasn’t changed its position on the already-legislated cuts, but he hasn’t ruled out changing them or paring them back amid growing concern over their $243bn cost.

“Our expectations for the global economy have deteriorated even in the course of the last few weeks,” the Treasurer told reporters on Thursday.

“About the next couple of years … My job, as the treasurer of this country, is to make sure that the budget is on as sustainable footing as it can be to deal with the challenges that we anticipate.”

As he prepares to deliver his first federal budget, Dr Chalmers is under pressure to dump the cuts, which critics say are not affordable or equitable and will cost more than $20bn a year after they begin in July 2024.

Prime Minister Anthony Albanese is facing division from across parliament over the controversial stage three tax cuts. Picture: NCA NewsWire / Gary Ramage

Labor supported the Morrison government to legislate its three-tier tax relief package in 2019, with the party now divided over whether it should break its election promise to keep the third tranche of cuts.

Labor said in July last year it would deliver the same legislated tax relief as the Coalition if it formed government.

Asked why he had chosen this week to revive debate over the policy, Dr Chalmers said: “Our job is to make sure that our spending is sustainable and that we anticipate challenges (with) the best possible budget settings”.

The stage three cuts will abolish the entire 38 per cent tax bracket, meaning anyone earning between $45,000 and $200,000 will pay only 30 cents of every dollar they earn in tax.

“I’m not troubled by the views that people have put forward and people have put a lot of views to me privately from all parts of the conversation as well,” he said.

Chalmers said it was inevitable that people from across parliament – including within Labor – would have dissenting views on an issue “of this nature and this magnitude”.

Former finance minister and senior Liberal Simon Birmingham says Labor should keep its election promise. Picture: NCA NewsWire / Gary Ramage

Communications Minister Michelle Rowland, who represents the marginal western Sydney electorate of Greenway, said she thought all Australians “expect us to deliver a sustainable and responsible budget”.

Skills Minister Brendan O’Connor said Labor was still committed to stage three and that their implementation was “a long, long way away”.

“You know, if a week in politics is a long time, then almost two years is an eternity,” he said, suggesting now was the time to focus on cost-of-living relief.

Senior coalition figures have warned the Albanese government against breaking its promise to keep the stage three cuts as the Opposition prepares to attack any changes.

Former finance minister Simon Birmingham said Anthony Albanese and Dr Chalmers had said “again and again” they would honour the legislated stage three tax cuts before the federal election.

“We’ve got an economy that remains in Australia in a strong position and a government that had promised to deliver on these tax cuts,” Senator Birmingham said.

“And any erosion of that would be a clear breach of that promise by (the Prime Minister) to the Australian people.”

Treasurer Jim Chalmers will deliver his first federal budget later this month. Picture: NCA NewsWire / Gary Ramage

Giving his reasons for supporting the policy, Senator Birmingham said the federal budget was in a much stronger position than had been previously forecast and interest rate rises had been expected well before they started in May.

“You certainly don’t go hiking interest rates up if you say you’re on the cusp of a potential recession,” the former finance minister told ABC Radio.

But union leader Sally McManus called the policy “grossly unfair” and said the extra revenue should be used to fund higher pay for care workers and financial support for households struggling with the cost of living.

“In opposition, the Labor Party supported stage three tax cuts in 2018 when the world was a very different place,” the ACTU national secretary said in a speech to The Australia Institute on Wednesday night.

“There was no Covid and no lockdowns. There was no JobKeeper … and while wages were stagnant then, workers were not facing the absolute cost of living crisis confronting them today.”

Finance Minister Katy Gallagher said on Wednesday: “We haven’t changed our position”.

“We are finalising a budget where we are looking across the board at a whole range of decisions,” she told ABC Radio.

The government’s final budget position showed the deficit for 2021-22 had fallen from a forecast $79bn to $32bn.