Anthony Albanese’s broken tax pledge does not make up for losses in cost-of-living crisis

Anthony Albanese’s broken tax pledge would return less than 10pc of the real disposable income average earners have lost per week over the last 18 months.

Anthony Albanese is under pressure over his broken promise on stage three tax cuts. Picture: NCA NewsWire / Martin Ollman

Anthony Albanese’s broken tax pledge would return less than 10 per cent of the real disposable income average earners have lost per week, as a leading economist warns bracket creep is more damaging to workers than interest rate hikes.

As the political battle sharpens over competing tax relief plans for “middle Australia” and the Prime Minister refuses to apologise for his broken election promise, the Coalition has released analysis of national accounts data showing the government has presided over a fall in real disposable income for average earners now amounting to $153 a week.

However, Labor’s new tax model, which reduces the size of tax cuts to higher-income earners to redistribute to lower-wage earners, would deliver only $15 extra a week to an average earner beyond the original stage three cuts. The opposition claims the data exposes the revised tax plan as providing “a drop in the ocean” in addressing the cost-of-living and inflation crisis the Albanese government claims it is addressing with its plan.

The Australian understands the Greens are considering demanding that Labor raise the $18,200 tax-free threshold in order to win the party’s support on the stage three rewrite in the ­Senate.

The Coalition’s fresh attack on Labor’s stage three broken promise comes as EQ Economics managing director Warren Hogan claimed bracket creep had a worse impact on workers over the past two years than the Reserve Bank of Australia’s 13 interest rate hikes.

A separate analysis of the national accounts by Mr Hogan showed total mortgage interest repayments increased by $18bn a quarter in the two years to September, from about $11bn in the three months to September 2021 to $29bn in the three months to September 2023.

This is compared to the quarterly increase of $26bn in income tax paid over the same period – from $65bn to $91bn a quarter – although high migration numbers have also been a factor in the workforce tax figures. “This government has basically spent its first 18 months in office blaming the RBA for all the misery out there when it is actually income tax that has gone up more,” Mr Hogan said.

“Bracket creep has had a bigger impact on middle-income Australia than the RBA’s interest rate hikes.”

The Coalition’s analysis of national accounts data from the December 2023 quarter shows real net disposable income per person fell by 8.6 per cent in the first 18 months of the Albanese government.

For an average income earner this is a decline in take-home pay of just under $8000. The primary drivers of the hit to net disposable income have been rising prices, rising mortgage payments, falling real wages and bracket creep.

The Coalition claims an average earner would receive just $804 more under Labor’s policy – $15.46 a week – than it would under the existing tax laws.

Opposition Treasury spokesman Angus Taylor claimed this was less than 1 per cent of their annual wage and returned just 10 cents for every dollar they had lost to cost-of-living pressures.

The opposition analysis is based on the difference between what the average full-time wage earner on a salary of around $95,000 would have received under the existing stage three tax cuts as legislated by the former Coalition government and Labor’s new model, which it will need parliament to pass before July 1.

The analysis assumes a 3.5 per cent rise in real wages and a 9.4 per cent rise in prices amid population growth of 3.5 per cent.

This amounted to a loss in real net disposable income of $7953 a year. “Labor is selling their broken tax promise as a solution to the cost-of-living crisis,” Mr Taylor said. “Labor’s failures on workplace relations, energy, housing and tax are driving up the cost of living for all Australians.

“Rather than boost productivity and rein in spending to control inflation, Labor has broken its core election promise to raise taxes. Anthony Albanese has sold his integrity and started a class war for a 10c election sugar hit. Bracket creep is the tax increase nobody voted for. Labor’s broken promise entrenches bracket creep in our tax system.

“Remarkably, it is a tax cut that increases taxes by $28bn on more than four million Australians. Labor is trying to tax its way out of inflation and hardworking families are paying the price.

“Strong economic management, not broken promises, is the only way to provide relief to middle Australians from Labor’s cost-of-living crisis.”

A spokesman for Jim Chalmers accused Mr Taylor of “fumbling around for the usual incoherent excuses to play politics with our bigger tax cuts for middle Australia”.

“This is why nobody takes Angus Taylor seriously. He says he’s for lower taxes then opposes bigger tax cuts for more people to help with the cost of living,” he said. “All those words and he still can’t explain why he wants higher taxes on middle Australia to fund even bigger tax cuts for those on the highest incomes.

“This shows once again his mindless negativity is no substitute for economic credibility, and he will harm not help the workers and families of middle Australia.

“If the Liberals really understood how tough people are doing it in middle Australia they wouldn’t be opposing more help for them via the tax system.”

Mr Albanese on Sunday continued to defend his broken election pledge, having promised in opposition to not relitigate the stage three tax cuts, which he previously supported. He said new legislation would be introduced in “coming weeks” with parliament due to return on February 6.

It would unwind the existing tax cuts – which were due to begin on July 1 – and replace them with Labor’s revised model. Labor will need the support of the Greens, which are hostile to tax cuts, and two of the Senate crossbench – or rely on the Coalition not to stand in the way of the changes.

“We are putting our plan to the parliament and we are hopeful of getting support. We will talk to people across the parliament,” Mr Albanese said Sunday.

“We’ll put it first to the House of Representatives. We will put it to the Senate. And I’m very confident that people will look at the two plans … one of which leaves a whole lot of people behind.

“All those people, the part-time workers, the renters, the people earning under $45,000, (it) leaves them behind and gives them nothing.”

He said the 13 interest rate hikes – 12 of which have come since Labor was elected in May 2022 – had been the driving factor in his change of mind.

“Well, the challenge and the clear obligation that we had was to not put further pressure on inflation. So that was the context here. That was the problem with, you could hand out, the easy politics is to hand out cheques.”

However, the Prime Minister appeared unable to clearly define what salary a person needed to be earning to be considered part of “middle Australia”, despite his claim Labor’s tax model was aimed directly at this group. His comments come after repeatedly defending the stage three tax cut overhaul by arguing the changes will overwhelmingly benefit middle Australia, which is doing it tough in cost-of-living pressures.

“So that, for the average family (that) earns $130,000, instead of getting just $1000, they’ll be getting $2600. That makes a substantial difference to them. So our choice, very clearly, is to give every taxpayer a tax cut. We have done that. We have aimed the biggest benefit … squarely at middle Australia.”

The Coalition has yet to confirm its position on whether to oppose the changes or incorporate them in a broader election tax package that would also reinstate the original stage three cuts.