Coalition splits over Labor’s revamped tax cut package

A growing number of Coalition MPs are arguing for the opposition to accept the overhaul and take further relief for higher income earners to the next election.

Coalition MPs are preparing to ramp up their attack against the government’s broken election promise and its abandonment of income tax reform. Picture: NCA NewsWire / Martin Ollman

A growing number of Coalition MPs say Peter Dutton shouldn’t stand in the way of Labor’s more generous tax cuts for low- and middle-income workers and ­instead propose a better deal at the next election for Australians earning more than $150,000, in a move that could cost an extra $5bn a year.

Coalition MPs are divided on whether to wave Anthony Albanese’s overhaul of stage three through the parliament, which is expected to cost taxpayers $28bn more over the decade, but concede that if the package passes they can’t repeal tax cuts worth an extra $800 for workers earning between $45,000 and $135,000.

With shadow cabinet set to meet on Tuesday to begin discussing Labor’s package, Coalition MPs were preparing to ramp up their attack against the government’s broken election promise and its abandonment of income tax reform.

Senior Liberal sources said there was a strong likelihood the Coalition would seek to amend the legislation but ultimately not vote against it. This would see the Coalition accepting Labor’s lower 16 per cent tax rate for incomes between $18,200 and $45,000.

Opposition sources said this would neutralise Labor’s political attack and provide clear air for the Coalition to focus on the Prime Minister’s “broken ­promise”, which had left those earning more than $146,500 worse off than under the Coalition’s stage three tax cuts.

It would also allow the ­Coalition to go to the next election on a pledge to remove Labor’s 37 per cent tax bracket and replace it with the intended flat 30 per cent tax rate on incomes between $45,000 and $200,000 – honouring the stage three tax cuts in full.

Nationals frontbencher Anne Webster, who represents the Victorian electorate of Mallee, said while it was clear the Prime Minister’s word was not his bond, she would not stand in the way of Labor’s tax reforms.

“What the Prime Minister has done is class warfare and I don’t want to buy into that,” Dr Webster said. “I am really sensitive to the fact that, in my electorate I have a lot of people who will benefit by the change so clearly I am not going to be harshly standing opposed to that.

“It’s important that we as a ­Coalition stick to stage three, but I suspect we should be supporting this move. But also calling it out for what it is, which is a failure to stand by a promise yet again.”

Nationals deputy leader Perin Davey suggested the opposition should consider negotiating with the government to prevent it from doing a radical deal with the Greens. Those negotiations could include addressing bracket creep, which is what the original stage three package was designed to achieve.

“I have an open mind, we do know people are doing it tough but sometimes we need to be practical,” Senator Davey said. “If the Greens demand a lot more, maybe we’re better off sitting down with the government to look at how we can support it.”

Australian National University associate professor Ben Phillips said keeping the lower 16 per cent tax rate for lower-income earners while restoring the 30 per cent flat tax rate for incomes between $45,000 and $200,000 would have large budgetary implications. He said that, if implemented on July 1, it would cost an extra $5.75bn in 2024-25 and $26.5bn over the next four years. The vast majority of the benefit would go to the top 20 per cent of households by income.

“You’d still have 3.34 million households with ‘no change’ as they don’t pay income tax and the ‘winner’ column would increase from about 6.3 million to 7.4 million households,” Professor Phillips said. “In my view the current adjusted stage three tax plan does a reasonable job of returning bracket creep in recent years across the income distribution.”

Judo Bank chief economic ­adviser Warren Hogan said it would be hard for the Coalition to oppose the revamped stage three tax changes, but argued the opposition could support the shake-up, then decide to pursue the “reform element” of the original stage three tax plan going to the next election.

Jim Chalmers declared on Monday that the government would not revisit the Morrison-era stage three tax cuts due to begin on July 1, which Labor voted for in the parliament. “We’re not leaving Scott Morrison’s tax cuts in a drawer somewhere and hoping to put them in place at some future point,” the Treasurer said.

Mr Albanese blamed soaring inflation and consecutive interest rate hikes as driving factors ­behind his decision to rewrite the already legislated tax cuts. The Prime Minister told Triple J’s Hack program the revamp was a “practical response to the fact so many people who are low- and middle-income earners have borne the brunt of having to deal with inflation”.

Tasmanian independent Jacqui Lambie, who controls two votes in the Senate, said she would “absolutely” support the government’s changes and would have gone harder reducing the tax breaks for high-income earners.

While the government has the backing of the Jacqui Lambie Network and ACT independent senator David Pocock, it must also win over the Greens or the Coalition to drive its stage three revamp through the parliament.

Greens leader Adam Bandt said he and his colleagues had been speaking with the Prime Minister about Labor’s changes, which still unfairly benefited ­“politicians and billionaires” over average wage earners.

Additional Reporting: Joe Kelly