Labor tax revamp to leave one in four taxpayers worse off in a decade

Labor’s revamp of the tax system will force nearly one in four Australians to pay more in taxes over the decade, with the Coalition escalating its attack on the Prime Minister’s integrity.

Anthony Albanese in question time on Wednesday. Picture: NCA NewsWire / Martin Ollman

Nearly one in four workers will be slugged with more tax over a decade under Labor’s stage three ­revamp according to an independent analysis that reveals 3.6 million Australians will be left worse off by 2033-34 compared with the legislated Morrison-era tax cuts.

The Coalition escalated its parliamentary attack over ­Anthony Albanese’s truthfulness on Wednesday, using question time to test the credibility of the government’s claim it was Treasury that had initiated the stage three redesign.

Asked whether he had instructed his department to re-examine the tax cuts in a December 11 meeting last year, Jim Chalmers acknowledged he held “private conversations” over the summer about wanting to do something “bigger and broader” to provide cost-of-living relief.

But the Treasurer did not ­reveal whether these conversations included a potential re­design of the stage cuts.

The Prime Minister also deflected criticism that he could not be trusted, arguing it was disingenuous of the Coalition to attack the stage three redesign while also supporting the government’s changes through the parliament.

He said the Coalition criticism meant nothing unless Peter Dutton was prepared to vote against the legislation and commit to “roll it back”.

“Those opposite have described it, our policy to give tax cuts to every Australian, in the following terms: an egregious error, a betrayal, treachery, trickery, absolutely shameful, class warfare, war on aspiration, lifetime tax on aspiration, divisive, regressive, morally bankrupt, handful of dollars, inflationary, a big tax grab, Marxist economics,” Mr Albanese said.

“It was going to obliterate ­opportunity, crush confidence and undermine the strength of the economy. They said all that before they declared they were going to vote for it. You can’t be taken seriously.”

Using a static microsimulation model of the tax-and-transfer ­system, Australian National University associate professor Ben Phillips found that Labor’s tax ­redesign would result in 10.8 million taxpayers receiving a larger tax cut in 2024-25 (86 per cent), while saddling 1.7 million ­Australians with higher taxes (14 per cent).

By 2033-34, the model showed that nearly 3.6 million Australian taxpayers (23 per cent) would be paying more in tax compared with the legislated Morrison-era tax cuts, while the percentage of those paying less in tax would shrink to 77 per cent.

Professor Phillips provided an important caveat to the ANU analysis, noting that the figures had assumed no change in the tax system over the medium term “which would be historically unusual”.

Judo Bank chief economic ­adviser Warren Hogan said the ANU figures sounded “about right”. He said the stage three redesign strengthened the case for the government to act more swiftly to return bracket creep than would have been the case under the already legislated tax cuts, which would have introduced a flat 30 per cent tax rate for those on incomes of between $45,000 and $200,000 from July 1.

“If they are serious about addressing bracket creep for all Australians they shouldn’t have done the changes,” Mr Hogan said.

“But they will have to do something in the next couple of years.”

“If you want to have a meaningful negation of the bracket creep we are starting to see in the last few years, you need to do something now. They have chosen not to.”

Under Labor’s revamp, the 37 per cent tax rate is retained and applied to incomes between $135,000 and $190,000 while the marginal tax rate for those earning between $18,200 and $45,000 is reduced from 19 per cent to 16 per cent. The 30 per cent tax rate, which under the Coalition’s legislated tax cuts would have applied on incomes from $45,000 to $200,000, will be paid on incomes between $45,000 and $135,000. The top tax rate of 45 per cent kicks in at $190,000 under Labor’s plan, $10,000 lower than the Morrison-era tax plan.

United Australia Party senator Ralph Babet said he would move an amendment in the upper house to abolish the 37 per cent tax bracket in two years, arguing workers should be allowed to keep more of their money.

“As the law currently stands, there is no 37c tax bracket from next financial year,” Senator Babet said. “Labor is inserting a new tax bracket to increase taxes for a large number of Australians. I call on the government to also honour their promise and abolish the 37c tax bracket.”

The Australian Taxpayers Alliance said the amendment, which it worked on with Senator Babet, allowed Labor to “do the right thing and stick to their election promise”.

“Our pragmatic amendment allows the government to pass their current tax cuts while committing to preserving a key election promise when they say the economy will bounce back. It’s a no-brainer,” said ATA president Brian Marlow.

In question time, Liberal frontbencher Dan Tehan landed a blow against the Prime Minister when he blasted across the dispatch box the line from actor Jack Nicholson in the movie A Few Good Men – “you can’t handle the truth.”

The quip came in response to Mr Albanese likening the Opposition Leader to Nicholson’s character in horror movie, The Shining. “Some people have asked me … why of all the Jack Nicholson movies I picked The Shining?” Mr Albanese told parliament. “Well, it couldn’t be A Few Good Men.”

Additional Reporting: Rosie Lewis