Labor threatens showdown over income tax cut plan

Labor passed the three-stage income tax cut package last year but says if the timing is changed in Tuesday’s Budget it will have to reconsider its support for the third phase.

A political stoush is brewing over tax cuts set to be brought forward in Tuesday’s federal budget.

Under the phased income tax changes scheduled for 2022 and 2024, one big tax bracket will be created between $45,000 and $200,000.

That means that people earning between those amounts will pay a marginal rate of no more than 30 cents in the dollar.

Labor is supportive of the second stage of the tax cuts, which will help bracket creep for low and middle income earners, being brought forward.

This includes raising the 32.5 per cent tax rate’s bottom threshold from $41,000 to $45,000 and its upper threshold from $90,000 to $120,000.

But the Opposition had planned to reassess the third stage, which lifts the $120,000 threshold to $200,000 and abolishes the 37 per cent tax rate in 2024, closer to the next election.

Changes to the timing of the tax cuts – poised to be announced on Tuesday night – will need to be passed through the parliament, setting both major parties u for a political showdown in the Senate.

Labor passed the full package of tax cuts last year after the government refused to allow a vote on different stages of the package. NCA NewsWire /Picture Gary Ramage

Opposition treasury spokesman Jim Chalmers on Sunday did not rule out repealing cuts for the big end of town.

“If the Government changes the timing of those tax cuts, if they change the mix of those tax cuts, we will consider it then,” Dr Chalmers told ABC Insiders.

“We are not against tax relief for low and middle-income earners but we have been clear on stage three.

“Stage three is least affordable, least fair and least effective in the economy.”

Under the full package, a high income-earner on $200,000 gains $11,640 compared to a $1205 for a middle income-earner on $50,000.

But Treasurer Josh Frydenberg told Today that Australians should keep more of what they earn.

“We also believe more people having more money in their pockets right now will help economic activity across the economy,” he said.

“More spending will mean more jobs.”

Mr Frydenberg defended his tax plan saying it would continue to remain progressive.

“If you’re on $200,000 you pay 10 times as much tax as someone who is on $45,000,” he said.

“The top 5 per cent of taxpayers pay about a third of the total tax bill.”

Treasurer Josh Frydenberg will on Tuesday night hand down one of the most important budgets since the Second World War. Picture: NCA NewsWire / Gary Ramage