Anthony Albanese unveils stage three tax ambush

The PM will use his National Press Club speech today to argue changed economic circumstances forced him to break his stage three tax cuts election promise.

Anthony Albanese and Penny Wong walk to the Labor caucus meeting on Wednesday. Picture: NCA NewsWire / Martin Ollman

Anthony Albanese will say changed economic circumstances forced him to break his election promise and redistribute already legislated tax cuts from 1.8 million workers to fund cost-of-living relief for 12.5 million lower and ­middle income Australians.

Speaking at the National Press Club, the Prime Minister will on Thursday argue that his reworked tax package better targets Middle Australia and doubles the relief for an Australian on the average wage of $73,000 while remaining ­revenue-neutral and not adding to inflationary pressures.

The Labor caucus unanimously endorsed the rewriting of the tax package at a special meeting on Wednesday afternoon despite the grave concerns of some MPs that the government would be punished for breaking its election commitment, with one branding the decision as “election-losing”.

Mr Albanese will on Thursday use Treasury advice to justify the decision to redistribute the benefits of the tax package to those earning less than $150,000 as a “better way forward”, with his speech coinciding with the release of a new advertising campaign to sell the changes to the public.

Under the tax shake-up – which is likely to leave almost 20,000 people in Mr Albanese’s own inner-Sydney seat of Grayndler worse off – those on incomes of less than $150,000 will be the winners. Those earning more than this threshold are the losers, with Mr Albanese saying the proposal was “all about supporting Middle ­Australia”.

Under the plan, the cost of living relief for the average wage earner equates to $15 a week more than the tax cuts legislated under the previous Coalition government. Those on incomes of more than $200,000 will lose half their $9000 tax cut, leaving them with about $4500. Those on incomes of $190,000 will miss out on close to $3000 in relief while those earning $180,000 will be about $2200 worse off.

Labor will also abandon a flat tax rate of 30 per cent for those earning between $45,000 and $200,000, in what business warned was the “death knell” for tax reform in Australia and set up a showdown in the Senate with the Greens.

“When economic circumstances change, the right thing to do is change your economic policy,” Mr Albanese says in an advance copy of his NPC address.

“Some would say that we should stay the course, even if it means going to the wrong destination. We are doing the right thing, for the right reasons, with a plan that delivers a tax cut for every taxpayer.”

Mr Albanese said Treasury had informed the government the economy was “expected to be supported by a positive global outlook with strong, broad-based global growth” while inflation and interest rates were “expected to remain low”. But he said Treasury was now advising “unanticipated global events meant that these projections have not come to pass.”

Jim Chalmers said the government changed its view on the stage three tax cuts because it found a “better way” to provide more cost-of-living relief to more people, especially middle Australia.

Government sources said Mr Albanese’s stage three revamp was aimed at wedging Peter Dutton by daring the Coalition to vote against greater tax relief for lower-income earners. The opposition argued on Tuesday that the 2022 election win was based on a lie.

As revealed by The Australian, Labor’s shake-up will retain the 37 per cent tax bracket, applying to workers earning more than $135,000, and only lift the 45 per cent top tax bracket to incomes above $190,000, lower than the Coalition’s plan of $200,000.

Those on incomes of up to $45,000 will pay a marginal rate of 16 per cent instead of 19 per cent.

The stage three tax cut changes will leave more than 1.1 million households worse off, have no major impact on 3.3 million households and give larger tax relief to about 6.3 million households.

The Treasurer insisted the changes would not add to inflation and would be revenue-neutral.

He said the government had listened to Australians facing sustained and persistent cost-of-­living pressure and every taxpaying worker would receive a tax cut under Labor’s plan.

“This is not about politics; this is about helping people with cost-of-living pressures in a more effective way,” Dr Chalmers told the ABC’s 7.30. “It’s about providing bigger tax cuts for more people to help them deal with the cost-of-living.”

The government’s advertising campaign will say “the world has changed” since the design of the package two years before the pandemic and that Labor was now doing the “responsible thing (by) delivering better, fairer tax cuts”.

“More people will get a bigger tax cut,” the ads say. “And every taxpayer will pay less tax.”

In his draft NPC address, Mr Albanese also said the government would increase the low-­income threshold at which the Medicare levy applies so that “1.2 million low-income earners either remain exempt from paying the levy, or will pay less in tax”.

Five weeks out from a crucial Dunkley by-election on March 2, a number of Labor MPs used the snap caucus meeting to ask how the government intended to sell the policy recalibration and justify its backflip. “We’ve broken a major political promise ... and we are going to have to pay the price of it,” one MP said. “It will cost us votes for sure ... it will be up to people’s political judgment. This could be an election-losing issue.”

Another MP said the package was “potentially electoral gold in outer-suburban electorates” such as Dunkley in Victoria and in western Sydney seats. They warned there were 30 to 40 electorates that had begun to show “signs of anger” towards Labor over a lack of cost-of-living relief.

“This is the biggest reset the government could have done. The positives outweigh the risk,” the MP said. “There will be bark coming off with broken promises, but voters expect politicians to break promises. The Prime Minister has broken a promise to give you more money – that’s an easy sell.”

One backbencher said they were surprised the government had sought to change the tax cuts; another said the political fight would boil down to whether people would be angry at the broken promise or satisfied at middle income Australians having more money in their pocket.

Labor will need support from the Greens and two crossbenchers to get its changes through the Senate if the Coalition is opposed.

Additional reporting: Jess Malcolm