Coalition’s new economic plan to beat Labor

Peter Dutton will walk from Scott Morrison’s legislated stage three tax cuts and promise a new plan that combats bracket creep and delivers a better budget bottom line.

Peter Dutton will walk away from Scott Morrison’s legislated stage three tax cuts and launch a “tax-and-spend” fight with Labor, as the Coalition develops a 2025 economic election manifesto combating bracket creep and delivering a better budget bottom line.

The Opposition Leader, who is expected to announce as early as Tuesday that the Coalition will neither block nor delay Anthony Albanese’s revamped stage three tax cuts, will warn voters that Labor is preparing to impose new tax hits on families and investors.

Less than four weeks from the Dunkley by-election in Melbourne, shadow cabinet was due to meet overnight to discuss the Coalition’s position on the Prime Minister’s broken election promise, ahead of a joint party room meeting on Tuesday.

Liberal and Nationals sources said that, while there were mixed views among MPs, they would ultimately back Mr Dutton and shadow cabinet if they agreed not to stand in the way of tax relief for millions of Australians.

The Australian understands it is unlikely the Coalition will go to the election promising to revive a flat marginal rate of 30 per cent for every dollar earned between $45,000 and $200,000, given the cost of coupling that plan with higher relief for low-income ­earners.

This is despite new analysis from AMP Capital showing only the top 20 per cent of income earners paid more tax than they received in government benefits.

The political fight over tax cuts came as Treasury officials on Monday conceded they didn’t know how many Australians would be paying more tax over the decade as a result of the ­revamped stage three package, despite working on the overhaul from December 11.

Mr Dutton, who will meet again with key shadow cabinet members on Tuesday morning, is expected to launch an attack on Mr Albanese’s integrity and credibility after he dumped Labor’s election commitment not to overhaul the Morrison government’s stage three tax package.

During the first question time of the year, the Liberal leader will accuse Mr Albanese of breaking his word and warn households the government is preparing to come after negative gearing, trusts and the family home.

In his address to Labor caucus on Monday, Mr Albanese accused the Coalition of flip-flopping on his tax plan. “Our opponents have had a few positions,” Mr Albanese told Labor MPs. “Not sure what theirs is today. First they said they were against it. They hadn’t seen it but they were against it. Then they said they would reverse it. They’d roll it back. What that would mean of course is ­additional tax for some 12 million Australians.

“But if they’re at all fair dinkum about their old plan, the Morrison plan, being better than what we’re putting forward, that is precisely what they have to do.”

Amid split opinions among Liberal and Nationals MPs over the revamped stage three tax cuts package, the Coalition will not allow the Greens to hijack lower tax cuts for Australians by ­imposing big-spending measures in return for their support.

Senior Coalition sources said they would likely put forward amendments, including extending a lower tax threshold for some earning above $135,000, after Jim Chalmers tabled the legislation in the House of Representatives on Tuesday.

Mr Dutton is expected to flag the Coalition’s economic and tax reform package that it will take to the election, focusing on “growing the pie”, cutting waste, slashing red tape and stimulating economic growth. Central to the plan, expected to be finalised within months, is ensuring any new tax promises are countered by savings measures and that it delivers a better budget bottom line.

Along with energy, climate change and Indigenous policies, Mr Dutton is under pressure to fast-track policy development amid concerns Mr Albanese could call an early election later this year if inflation further moderates and the Reserve Bank cuts interest rates.

As Zoe Daniel and Helen Haines joined other teal independents in confirming they would support the stage three changes, opposition Treasury spokesman Angus Taylor said the Coalition managed the economy better for aspirational Australians.

AMP Capital chief economist Shane Oliver said Australian Bureau of Statistics data showed only the top 20 per cent of income earners paid more tax than the amount they received in government benefits including welfare payments and subsidies for costs such as childcare or rents.

Treasurer Jim Chalmers and Prime Minister Anthony Albanese.

Dr Oliver said the top 20 per cent, which Australian Taxation Office statistics show includes those earning above $106,000, “are already paying their fair share of tax”. Workers on $180,000 or more represent the top 3.6 per cent of income earners but pay nearly a third of income tax, while the top 10 per cent of earners pay half. “The point is that higher income earners are already paying their fair share of tax,” he said.

Opposition finance spokeswoman Jane Hume, who chairs the parliamentary cost-of-living committee, on Monday asked Treasury first assistant secretary Damien White how many Australians would be paying more tax over the next decade given Treasury estimated the new plan would raise an extra $28bn out to 2034-35. After Mr White could not give a number, Senator Hume told him: “How can you not know how many more people are going to pay more tax over the medium term over which the government is going to rake in an additional $28bn?”.

Asked if Treasury was preparing advice to overhaul negative gearing or make other changes in breach of election commitments, deputy secretary Diane Brown said: “We are always looking at the operation of the tax system. But there has been no direction … to change any of those arrangements.”

Ms Brown confirmed the “10-day rule” in the cabinet handbook, stipulating deadlines for cabinet submissions, had not been adhered to as the government rushed the tax changes. She said the Prime Minister had the power to “change the rule” when matters needed to be dealt with quickly.

With the Liberals facing a tough March 2 by-election challenge to reclaim Dunkley, held by Labor on a margin of just over 6 per cent, Coalition strategists fear an ALP scare campaign if they stall on the government’s tax cuts.

“The party room and shadow cabinet will go with Peter Dutton. We are losing the politics on it at the moment but we will hit back hard on the broken promise and Labor coming after other taxes,” a senior Liberal source said.

If the Coalition doesn’t pass the tax cuts, the Greens would likely allow the tax cuts bill through the lower house before stalling its passage by referring it to a Senate inquiry. The Greens, who are prepared to delay a vote until after the May 14 budget, will seek modelling from the Parliamentary Budget Office testing Treasury assumptions.

Greens leader Adam Bandt said he wanted improvements to Labor’s tax revamp but refused to say whether he would vote against the legislation. “One option that we’re looking at is this: about $80bn of the cost of Labor’s plan is going to the top tax bracket,” Mr Bandt said. That’s about enough to get dental into Medicare for everyone.”