By David Crowe
Prime Minister Anthony Albanese has cleared the way for a furious political fight over tax reform by securing a cabinet decision to offer bigger tax cuts to workers who earn up to about $150,000 a year by amending the stage 3 tax package.
The move will increase the tax gains for millions of workers by recasting the controversial package when it starts on July 1 at a cost of $20.7 billion in its first year, with no change to the impact on federal revenue.
Employers are warning Prime Minister Anthony Albanese against changes to the stage 3 tax cuts.Credit: Alex Ellinghausen
But the changes expose Labor to a ferocious political attack for breaking its election promise to keep the stage 3 tax package in place, despite years of dispute over whether the benefits were too generous to workers earning the highest incomes.
The Coalition accused Labor of “chaos and dysfunction” over the looming changes and prepared the ground for an attack on Albanese over the broken promise, heightening the political risk for Labor when it is seeking to hold the Melbourne electorate of Dunkley at a byelection on March 2.
While some workers will receive smaller tax cuts than the original package, the new plan aims to limit this impact to about 1 million individual taxpayers who earn more than about $150,000 a year while ensuring they still receive a benefit.
Millions more would gain from the redesign because it would shift the balance of the $20.7 billion toward what the government regards as middle Australia.
Federal ministers were sworn to silence on the plans to be put to the Labor caucus in Canberra on Wednesday after federal cabinet cleared the plan and the full federal ministry discussed tax reform and broader strategy in a six-hour meeting on Tuesday.
The full ministry will reconvene on Wednesday to discuss Labor’s broader agenda for the year before caucus considers the tax changes at 4pm so Albanese can unveil the new policy in a speech to the National Press Club on Thursday.
The original package offered a tax cut worth $1875 a year to a worker earning $120,000 but a more generous benefit of $9075 a year to a worker earning $200,000.
The changes will scale back the $9075 tax cut to bring it into line with the benefits offered to those on lower incomes, but sources within the government declined to release the details of those changes.
Treasurer Jim Chalmers received formal advice from Treasury officials on the economic case to redesign the package to address concerns about equity and the work incentives for millions of “middle income” Australians.
The changes address criticisms from the Greens and progressive think tanks such as The Australia Institute that $9.1 billion of the $20.7 billion in benefits would go to workers earning more than $180,000 a year.
Shadow treasurer Angus Taylor said the Coalition would “absolutely not” accept any changes to stage 3 because voters had been promised the tax cuts in the form set in law.
“This is something that the prime minister and treasurer have committed to over 100 times,” Taylor said on Tuesday morning.
“It’s in legislation and Labor voted for it. And it’s been to two elections. So this is not something you change.”
The nation’s peak employers issued a blistering warning against any change to the stage 3 tax cuts because of the risk to the economy as well as the damage to trust in the government.
“Tinkering at the edges would mean a promise has been broken,” said four big employer groups in a joint statement.
“Delivering these tax cuts in full would help demonstrate that governments can make and keep promises.”
The statement from the four groups – the Business Council of Australia, the Australian Industry Group, the Australian Chamber of Commerce and Industry and the Minerals Council of Australia – heightens the conflict over the new package after years of dispute over the fairness of the tax cuts.
ACTU secretary Sally McManus backed the case to amend the package, however, by saying the government had to act on the cost of living.
“We need more help for people who are really feeling cost-of-living pressures and these tax cuts primarily help those who need it the least,” she said of the original package.
The latest costing on the original stage 3 package, commissioned by the Greens from the Parliamentary Budget Office, estimates the tax cuts would sacrifice $323.6 billion in federal revenue over a decade, leading the Greens to blast the changes as unaffordable.
The overall cost does not change under the government revision, although it is based on different Treasury estimates on the cost.
The Labor emphasis on “middle Australia” highlights the debate about giving more tax cuts to workers earning the median full-time salary of $83,000 or the average full-time salary of about $95,000 a year.
Giving more benefits to those workers, however, runs the risk of complaints from social services groups and the Greens about giving too little to those who are on or near the poverty line, such as people on JobSeeker and other federal income support.
Victorian Treasurer Tim Pallas backed the case for change after years of dispute over whether the package was too generous to the wealthy.
“I’m sure that the federal government are thinking about what they can [do to help cost of living] with a caucus meeting,” he said.
“I’m waiting with bated breath to see what the prime minister can do. If the reports are true, that he’s considering moving away from those stage 3 tax cuts and making them more equitable, particularly at the low end, he would have no stronger supporter than me.”
But Future Fund chairman Peter Costello, who was federal treasurer during the Coalition government from 1996 to 2007, said the tax cuts should stay in place.
“They’ve been legislated. You’ve got to remember they are part of a package and stage one and two have already been delivered. One and two were the parts of the tax cuts directed at low and middle-income earners. And this is the final part,” Costello, who is also chairman of Nine Entertainment, owner of this masthead, said.
“If you take away the final part, it undoes the whole package. So I think that the government, which has committed itself to introducing them, should stay the course.”
The stage 1 tax cuts offered a temporary offset worth up to $1080 to workers earning up to $90,000 a year, which has now ended.
The stage 2 package increased the upper threshold for the 19 per cent tax rate to $45,000 and increased the threshold for the 32.5 per cent tax rate to $120,000, which targeted the gains at workers earning up to that amount.
The stage 3 cuts remove the 37 per cent marginal tax rate for those earning over $120,000 and reduce the 32.5 per cent tax rate to 30 per cent for people earning between $45,000 and $200,000.
The benefit from stage 3 ranges from $125 a year for someone who earns $50,000 a year to $9075 for someone earning $200,000 a year, which is the maximum benefit for all those earning over that amount.
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