Tax revamp to boost labour participation by equivalent of 25,000 jobs, Jim Chalmers says

Jim Chalmers says the changes will increase labour supply by the equivalent of 25,000 full time jobs and result in average income earners paying $21,635 less tax over the decade.

Jim Chalmers says the stage three tax revamp will support the equivalent of 25,000 full time jobs. Picture : NCA NewsWire / Valeriu Campan

Jim Chalmers says the revamped stage three tax cuts will boost workforce participation and increase labour supply by around 930,000 hours per week – the equivalent of 25,000 full time jobs – as he promotes the overhaul ahead of the resumption of parliament next week.

In an address on Thursday afternoon to Labor aligned think tank, The McKell Institute, the Treasurer defended the government’s revamp as a reform to the tax system because it returned bracket creep “where it has the most impact.”

“As a result, the average taxpayer will pay $21,635 less of their income in tax over the next decade,” he said in Brisbane. “Second, our plan boosts labour supply and incentives to work.”

“Treasury estimates our changes will increase labour supply by around 930,000 hours per week. That’s the equivalent of 25,000 full time jobs, which is more than double the labour supply impact of the old stage three,” Dr Chalmers said. “Third, our changes deliver more for women – 5.8 million women, or 90 per cent of taxpaying women will receive a bigger tax cut under our plan.”

The Treasurer has defended the government’s revamp as a reform to the tax system. Picture: NCA NewsWire / Martin Ollman

Dr Chalmers said the changes would not harm the budget position or add to inflationary pressures while leaving teachers, nurses, aged and disability carers and early childhood educators better off.

“Tax relief flows to working Australians over the course of the year rather than in a lump sum – so the effect is staggered,” he said. “And they will begin to flow from the middle of the year when inflation is expected to have moderated further. The economics of this – national and household – are much more important to us than the politics.”

Dr Chalmers said the government knew the changes would be contentious, but Labor changed its position “because the circumstances demanded it” and there was a “much better alternative to put forward.”

In his address, Dr Chalmers rejected criticism the shake-up did not return bracket creep and called out those who believed tax reform was about making changes that “disproportionately benefits people on the highest incomes.”

“They need to acknowledge, as the Treasury advice does, that there’s more than one way to return bracket creep and build more incentive into the tax system,” he said. “Beware the commentator who says it’s only tax reform or economic reform if it mostly benefits those already doing well.”

The new pay package will boost labour supply by around 930,000 hours per week. Picture : NCA NewsWire / Valeriu Campan

He also said Labor was pursuing changes to make the economy more “dynamic and competitive” and had set up a competition task force with a broad remit.

“We’re reviewing our merger settings as a nearer-term priority, having just completed consultation on options for reform,” he said. “And at a time when Australians are under cost-of-living pressure, it’s important our competition settings help consumers too. That’s why today I formally directed the ACCC to investigate pricing and competition in the supermarket sector.”

Dr Chalmers said the government was partnering with states and territories to revitalise national competition policy - a process that will be supported by the Productivity Commission.

He said the Productivity Commission would be tasked with assessing the economic, revenue and broader benefits of reform proposals considered by the Council on Federal Financial Relations (CFFR).

Inaugural chair of the Productivity Commission from 1998-2012, Gary Banks.

Dr Chalmers explained the guiding principles for Labor’s approach to the economy were “relief and reform,” arguing that relief and reform “can and should be complementary, not at odds.”

“This is how we modernise our economy; to maximise our advantages in the defining decade; to create more opportunities for more people in more parts of the country,” he said.

But the inaugural chair of the Productivity Commission from 1998-2012, Gary Banks, expressed frustration at the quality of the tax reform debate. He told The Australian that the “political shenanigans on display give real reform a bad name.”

“Those pushing for tax reform need to be careful what they wish for,” he said. “There is no area of policy less amenable to logic or evidence. Sadly its been a pathetic spectacle for some time.”