By David Crowe
Workers will gain a cut to their personal income tax from July 1 under a clear commitment from Prime Minister Anthony Albanese to deliver the stage 3 tax changes, despite warnings from economists about the impact on inflation and calls from the Greens to scrap the $313 billion package.
Albanese promised to deliver the tax cuts as planned after being questioned on Wednesday morning about his repeated assurance that the government had “no changes to our plans” on tax.
Prime Minister Anthony Albanese.Credit: Paul Jeffers
His response commits the government to cutting personal income tax rates under laws that deliver an annual benefit worth about $1375 to someone earning $100,000 a year, with smaller gains for those on lower incomes and more generous cuts for those who earn more, according to calculations by the Tax Institute of Australia.
“Tax cuts will happen in July,” Albanese told radio station Triple M in Adelaide. When asked whether the cuts would be the same as Labor had previously committed to, Albanese said they would be.
“We’re committed to that. Well, we haven’t changed our position on that,” he said.
Albanese has signalled more help for households on the cost of living after convening a federal cabinet meeting on Monday to discuss the government’s agenda for the year, saying he would reveal more policy measures in the lead-up to the May budget.
Grattan Institute economic policy program director Brendan Coates warned last November that the tax package would put pressure on inflation, while Anglicare Australia says the cuts are unfair because the benefits are so small for those on low incomes.
Some Labor caucus members have privately backed the idea of modifying the package to respond to those concerns, but they have stopped short of going public with calls for change because of the sensitivity within the government about breaking an election promise to proceed with the cuts.
Legislated by the Coalition and backed by Labor five years ago, the changes remove the 37 per cent marginal tax rate for those earning over $120,000 and reduces the 32.5 per cent tax rate to 30 per cent for people earning between $45,000 and $200,000.
While the annual gain is worth $125 for someone earning $50,000 a year, the benefits increase for those who are on higher incomes and therefore pay more tax.
The changes are due to take effect from July 1, when workers should see an automatic change to the tax they pay under the PAYG system, which makes the May budget the last chance for Albanese and Treasurer Jim Chalmers to amend the package.
Of the $20.4 billion cost of the package in its first year, $9.1 billion goes to those earning more than $180,000 a year. Another $8.8 billion goes to those earning between $90,000 and $180,000, according to Parliamentary Budget Office analysis for the Greens.
The benefits rise significantly for those who earn more than $90,000, close to the average salary for full-time workers, because the Coalition claimed the stage 3 changes should help those on higher incomes after earlier stages helped those on lower incomes.
The Tax Institute estimates that someone earning $120,000 a year gains an annual tax cut worth $1,875 and someone earning $150,000 gains an annual benefit worth $3,975. Someone earning $180,000 gains a benefit of $6075 and those earning $200,000 or more gain $9075 per year.
The annual benefit remains the same for those on incomes above $200,000 because the stage 3 package retains the 45 per cent income tax rate on earnings above that level.
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