Biggest winners from broken tax cut promise revealed

The Albanese government is defending its decision to change the tax cuts it promised at the 2022 federal election.

Treasurer Jim Chalmers has defended the controversial backflip on stage 3 tax cuts, saying they are they will help middle Australia and are “better for the economy”

Low and middle income earners will be the biggest beneficiaries of major tax changes set to be announced by Prime Minister Anthony Albanese on Thursday.

But the changes will come at the cost of Australians earning in excess of $135,000, with the government set to break an election pledge to implement the stage 3 tax cuts.

Speaking to reporters on Wednesday morning, Mr Albanese said the policy was aimed “squarely at middle Australia” but was also “good economic policy”.

“My determination and my job is to get the best outcome for Australians,” he said.

“It’s to respond to the circumstances which we confront. And we know that there’s been considerable coverage about the pressure that is on low- and middle-income earners, particularly with regard to cost of living.”

Cabinet on Tuesday signed off on the updated plan, which quickly led to attack on the government for breaking a major election promise.

The Prime Minister is set to announce the tax shake-up, alongside a host of additional cost of living measures, at the National Press Club on Thursday. Picture: NCA NewsWire.

Treasurer Jim Chalmers says the new tax package is better for middle Australia and the economy. Picture: NCA NewsWire / Martin Ollman

Dr Chalmers later will on Thursday release Treasury analysis of the tax package which he said took into consideration the cost-of-living pressures – and defended the government’s decision.

“People will want to know why we’ve changed our view,” Dr Chalmers told 7.30.

“The simplest answer to that question is we’ve found a better way. A better way for Middle Australia, a better way for cost of living and a better way for the economy.”

According to reports on Sky News, the tax rate on income earnt between $19,000 and $45,000 will be slashed to 16c in every $1, down from its current level of 19c.

Income earnt within the second tax bracket of $45,000 to $135,000 will also be taxed at a lower rate – 30 per cent, down from 32.5 per cent.

The 37 per cent tax bracket, which was set to be abolished under the legislated Morrison-era tax plan, will now apply to between $135,000 and $190,000.

Finally, the top marginal tax rate will be lowered to $190,000 under the updated tax package. Income earnt above this level will still be taxed at a 45 per cent rate.

As Australia has a progressive tax system, with the rate increasing at subsequent thresholds, all income earners will receive a tax cut.

However, income earners making more than $135,000 a year will receive less than was initially intended under the changes legislated by the Morrison government in 2019.

Labor adopted the policy in lead-up to the 2022 election, promising to deliver them in full hundreds of times during the campaign and in the almost two years since winning government.

Mr Albanese is expected to unveil the full details of his plan when he seeks to hit the reset button during his anticipated address to the National Press Club on Thursday.

Labor MPs were called to Canberra for a special caucus meeting to rubber stamp the changes, and later attended drinks at the Prime Minister’s residence, The Lodge.

The Labor MPs arrives at the Lodge in Canberra. Picture: NCA NewsWire / Martin Ollman

Amanda Rishworth, Anika Wells and Kristy McBain arrive at the Lodge for drinks. Picture: NCA NewsWire / Martin Ollman

Meanwhile, the Coalition has ramped up its attack on Mr Albanese, accusing him of “waging a class warfare”.

“If there was ever a breach of promise, that’s the mother of all broken promises. This is huge. It is an egregious betrayal of trust with the Australian people,” shadow treasurer Angus Taylor said.

“And the truth is that this Prime Minister’s word and this Treasurer’s word means absolutely nothing.

“Quite frankly, he doesn’t deserve to be prime minister.”

Angus Taylor says the tax cut backflip is the ‘mother of all broken promises’. Picture: NCA NewsWire / Martin Ollman

Deputy Liberal leader Sussan Ley said the Coalition would scrap any changes made to the policy if it won the next election.

“This is absolutely our position. And the point is, it was Labor’s position too. The promise that’s been made, the promise that’s been broken, the lies that have been told to the Australian people,” she told Sky News.

Ahead of Wednesday’s meeting, the Greens issued warnings claiming that the already-legislated tax package would add to inflation. As they stand, the cuts, which were the third tranche of a package announced by the former Coalition government, would cost the federal budget some $323.6bn over the first decade of the policy.

Greens senator Nick McKim said the package was a “disgrace” and called on the government to significantly increase income support

He cited figures sourced from the Parliamentary Budget Office showing that people in the lower tier of the income tax brackets face a potential 1.4 per cent increase in their tax bill under current conditions

“This is not as it’s currently cast to be made out to be for lower and middle-income Australians and I very much doubt that whatever tweaks Mr Albanese makes are going to make very much difference,” he said on Wednesday.

The peak union body has praised Mr Albanese for taking “decisive action” on cost of living, saying that pivoting stage three tax cuts would help “the baristas and childcare workers” of Australia.

“We welcome the Prime Minister taking action on cost of living for hardworking Australians (who) have been absolutely smashed by cost of living that’s happened because of global inflation,” ACTU secretary Sally McManus said.

“The proposal of the stage three tax cuts which would mean that the baristas, the hospital workers, the retail workers or childcare workers of Australia would get absolutely nothing is just not fair.

“The Prime Minister taking this decisive action to address cost of living, to help ordinary Australians with the cost of living, is exactly what we need at the start of this year.”

Meanwhile, the business lobby say the government must resist pressure to make changes to the stage three tax cuts, and must deliver them in full, as was legislated.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the final phase of the Morrison government’s “modest reform package” would “benefit all taxpayers”.

“Pressure to make any last minute changes must be resisted,” he said.