By David Crowe
More than 11 million Australians will receive bigger tax cuts in a bid by the Albanese government to convince voters to back a sweeping overhaul of the stage 3 tax package that breaks a core election pledge to deliver the original cuts in full.
Prime Minister Anthony Albanese will ask Australians to support the new plan because it offers tax cuts to all workers without putting pressure on inflation or deepening the cost to the federal budget.
Prime Minister Anthony Albanese will change the stage 3 tax cuts.Credit: Marija Ercegovac
A worker on the average full-time salary of $73,000 a year would receive a tax cut of about $1,500 a year under the new plan, according to a Treasury analysis that says the proposals will encourage more people into work.
That compares to a tax cut of only $625 for someone earning $70,000 a year under the original stage 3 package, according to figures from the Tax Institute.
Albanese will unveil the changes on Thursday with a claim that conditions had changed since he made his 2022 election promise, while also challenging the Coalition to accept the new package and not “roll back” the plan in order to restore bigger tax cuts for wealthier workers.
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.
“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.”
A worker earning $100,000 a year will gain a tax cut of $2100 a year under the Labor policy, compared to a tax cut of $1375 under the original plan put in place by the Coalition almost five years ago.
A worker on $40,000 will receive a tax cut of about $650 a year but was due to receive no benefit under the original stage 3 plan because the Coalition argued that workers on lower incomes were given earlier benefits in stages 1 and 2 of the tax package.
The government says a family on the average household income will be $1600 better off from the Labor version of the stage 3 tax package. It calculates this by assuming one partner earns $80,000 and another earns $50,000, which means their combined tax cut would be about $2600.
Labor will tell voters that 13.6 million taxpayers will gain from the new package, spreading benefits to more households than the original Coalition plan. Treasury calculates that 11.5 million taxpayers will get a bigger tax cut than the original stage 3 package.
“Our government understands that middle income Australians need help with cost of living now, more than ever,” the prime minister is expected to say on Thursday, in extracts from a draft speech to the National Press Club.
“This is why Labor’s tax cuts are fairly and squarely focused on middle Australia.”
Labor MPs endorsed the new plan to cut the lowest rate of income tax from 19 per cent to 16 per cent on earnings up to $45,000 a year, ensuring most taxpayers would see the gains in their take-home pay from July 1.
A second element of the plan will cut the existing 32.5 per cent tax rate to 30 per cent on earnings between $45,000 and $135,000 a year, delivering another gain that extends to workers who receive more than the average full-time salary.
The package will retain the existing 37 per cent rate and apply it to all earnings above $135,000 in a significant revision of the original stage 3 package put in place by the Coalition more than four years ago, with the effect of scaling back the gains for those on higher incomes.
The top tax rate of 45 per cent will apply to earnings above the threshold of $190,000 a year, which is higher than the existing threshold of $180,000, but scales back the benefits in the original plan at the top end of the income scale.
In a separate move that helps Australians on the lowest earnings, the government will also give 1.2 million people a bigger exemption from the Medicare levy – set at 2 per cent of taxable income – by increasing the threshold at which the levy applies. This does not change the tax-free threshold for income tax.
The new plan shifts the bulk of the benefits of the stage 3 package – worth $323.6 billion over a decade according to a recent costing from the Parliamentary Budget Office – from workers on high incomes to those on some of the lowest earnings.
Albanese told the caucus the Coalition had bungled its response to the tax changes because key figures such as Liberal deputy Sussan Ley had vowed to “roll back” the changes if the Coalition won power at the next election.
Ley was asked on Sky News on Wednesday whether the Coalition would “roll back whatever changes are made” and she replied: “Well, this is our position. This is absolutely our position.”
Shadow treasurer Angus Taylor was more cautious when asked the same question in an interview on 2GB, saying: “We clearly haven’t seen the whole package, so I’m not going to put the cart before the horse here.”
Caucus members left the meeting shortly after 5pm on Wednesday with a positive verdict on the new plan, saying Albanese and Chalmers had presented details to assuage concerns about the change in policy.
“They’re up for the fight,” one MP said of the prime minister and treasurer.
“And the Coalition has already mishandled it in terms of their response.”
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