By David Crowe and Rachel Clun
Prime Minister Anthony Albanese has emerged from a caucus meeting after Labor MPs with support for a contentious change to the stage 3 tax cuts, including a cut in the amount of tax paid by people in the lowest tax bracket compared to the original Coalition tax plan.
On Wednesday evening, federal government ministers and backbenchers endorsed his plan to decrease the lowest tax bracket rate from 19 per cent to 16 per cent for those earning less than $45,000, and to keep the 37 per cent tax bracket for those earning between $135,000 and $190,000.
Prime Minister Anthony Albanese has won backing for changes to stage 3 tax cuts.Credit: Alex Ellinghausen
Under the original stage 3 tax cuts, the top tax rate of 45 per cent would have applied to workers earning more than $200,001 from July 1. The government’s proposed changes mean the top rate would cut in at $190,001, which would be higher than the existing threshold of $180,001 but less generous than the Coalition plan.
A worker on $200,000 a year was set to receive a tax cut worth $9075 under the original stage 3 package but would get about half that amount under the Labor overhaul.
Treasurer Jim Chalmers said on Wednesday night the government’s change of heart was about providing bigger tax cuts to middle-income Australians.
“We have changed our view. And we’ve changed our view because we found a better way to provide more cost-of-living relief to more people in a way that doesn’t add to inflation,” he said on ABC’s 7.30 following the caucus meeting.
“We understand that people are under the pump, but we don’t just acknowledge that. Tomorrow, when the prime minister stands up and announces this important change, we will be doing something about it.”
Albanese will provide details of the changes on Thursday with an argument that the pandemic, a recession, worldwide inflation, the Ukraine war and the Middle East conflict have changed conditions since he pledged at the election to keep the stage 3 tax cuts in full.
In a key assurance, the government will release Treasury advice that says the new plan will not fuel inflation because the changes are broadly neutral to the overall cost of the package, which is already factored into inflation forecasts.
Chalmers said it was important that the tax cut changes cost the same as the original stage 3 plan to keep pressure off inflation while providing the maximum relief possible.
“It’s the right kind of tax reform: it’s not an absence of tax reform, it’s a superior tax reform to what it replaces,” he said.
One Labor MP, who spoke on the condition of anonymity because they were not authorised to speak publicly, said there were several questions from nervous caucus members who were worried about selling the tax cut changes in the face of a broken election promise.
“Some of my colleagues and me feel a bit nervous about breaking that promise after making it repeatedly,” the MP said.
But the changes were approved unanimously by the caucus.
“The consensus was that this was morally the best thing to do,” the MP said.
Facing questions on Wednesday morning over the broken promise, Albanese said he was making “the right decision for the right reason” because conditions had changed and many households needed more help with the cost of living.
“There are pressures of cost of living that have, according to Treasury analysis and according to common sense, most impacted low- and middle-income earners,” he said.
“Since 2019, there has been a pandemic, there has been a recession, there has been global inflation. There has been not one war, but two wars, that have had an impact.
“But I’ll be very clear in accepting responsibility for policies put forward by my government.
“No matter what the policies have been, I have accepted responsibility. That’s my job.”
Economists support changes, Coalition attacks broken promise
Economists have been calling for adjustments to the stage 3 tax cuts.
Before the details of the changes were revealed, Cassandra Winzar, chief economist for the Committee for Economic Development of Australia, said it would be a positive development if the overall cost of the tax-cut package stayed the same but more of its benefits were redirected towards lower income earners.
Winzar noted economists have been calling for some time for the government to keep the 37 per cent tax bracket, and that would be a simple change.
“It does make sense to not give quite as big as a cut to that top tax bracket as was previously going to be the case,” she said.
Winzar said shifting who benefits most from the tax cuts would not change the package’s impact on inflation, but the overall package will cause an increase in spending which could add pressure on the Reserve Bank to lift interest rates further.
“We’ll be having the federal government going in one way, giving more money to households, the Reserve Bank going the other way with interest rates and taking money out of households,” she said.
As new details of the plan emerged, shadow treasurer Angus Taylor intensified the attack on Albanese and Treasurer Jim Chalmers by saying they had lied to voters when they said the stage 3 tax cuts would not change.
“They said they were committed to them, they said they were going to stick to them, and over 100 times they lied to the Australian people,” Taylor said on Wednesday morning.
“They’ve been to two elections – two elections – and, of course, both the treasurer and the prime minister voted for [the tax cuts].
“So if there was ever, ever a breach of promises, the mother of all broken promises, this is it. It is an egregious betrayal of trust with the Australian people.”
Albanese said he was not in government to “occupy the space” but wanted to make a difference to individuals and the nation.
“But I’ll tell you what my job is, too. My job isn’t to say, ‘I’ll just wring my hands about cost-of-living pressure that people are feeling’,” he said.
“My job is to respond, to seek advice and then to make a difference – to make the right decision, not the easy decision.”
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