The prime minister, Anthony Albanese, has defended Labor’s plan to make stage-three tax cuts less generous for high-income earners to pay for substantial cost of living relief for others, arguing he must make the “right” decision, not the “easy” one.
All taxpayers earning less than $150,000 will benefit from the Albanese government’s plan to reduce tax cuts for high-income earners, including workers earning less than $45,000 who were slated to miss out on stage-three cuts.
Guardian Australia has confirmed that on Tuesday cabinet approved a plan to retain the 37% tax rate – unwinding the most controversial element of the Morrison government’s stage-three tax cuts passed in mid-2019 with support from Labor.
Savings will be redirected to low- and middle-income earners in a “substantial” cost-of-living relief package, delivering on Albanese’s promise this week that “everyone will get a tax cut” by including those earning between the tax-free threshold of $18,200 and $45,000.
The Albanese government’s new plan, to go to the full ministry and Labor caucus on Wednesday, has already sparked a political firestorm. The opposition has noted it amounts to Labor breaking its 2022 election promise to match the stage-three cuts, which were already legislated to take effect in July.
But the plan will allow Labor to argue it is giving more generous cuts to about 80% of Australians, presenting the opposition leader, Peter Dutton, as a threat to middle-income earners if he persists with the original plan to flatten the marginal tax rate between $45,000 and $200,000.
The stage-three plan would have delivered tax cuts worth $9,000 to high-income earners, prompting demands from the Greens and the crossbench to scrap or adjust them to improve fairness.
On Tuesday, Albanese declared that he supported “tax cuts and everyone will be getting a tax cut”.
On Wednesday, Albanese confirmed he would take a new proposal to Labor caucus that was “all about supporting middle Australia” and responding to “cost of living pressures”.
“We’re determined to follow the Treasury advice to provide assistance to them,” he told reporters in Canberra.
Asked about his earlier remarks that when it comes to delivering the tax cuts his word was his bond, Albanese said his job was “to get the best outcome for Australians”.
Asked whether he would accept the change amounted to a broken promise, Albanese argued that since the tax cuts were legislated in 2019, there has been “a pandemic, a recession, global inflation, not one war but two wars that have had an impact”.
“So there [have] been considerable events. But I’ll be very clear accepting responsibility for policies put forward by my government.
“That’s my job. My job isn’t to say I’ll just wring my hands about cost of living pressures that people are feeling. My job is to respond … to make a difference, to make the right decision, not the easy decision.”
The stage-three cuts would have removed the $120,000 to $180,000 tax bracket, increased the top tax bracket to $200,000 and reduced the marginal rate of tax for everyone earning between $45,000 and $200,000 to 30%.
Guardian Australia understands that under the new plan the 37% tax bracket will be retained but the threshold will be raised from $120,000 to $135,000. The top rate of tax will apply from $190,000.
Reducing the lowest rate of tax from 19% to 16% for those earning less than $45,000 would save low income earners up to $800. Retaining the 37% tax rate and mooted changes to other rates and thresholds would effectively halve the benefit to people earning over $200,000 from about $9,000 to $4,500.
Some Labor MPs are concerned about a backlash from aspirational middle-income voters and that the Coalition campaign on broken promises will hurt in marginal seats – particularly in Western Australia.
But even MPs most at risk acknowledge that although the reforms will be weaponised it is a debate Labor must have to fund greater relief for those struggling to keep up with increased prices, particularly rent and mortgages.
The shadow treasurer, Angus Taylor, said on Tuesday that Labor had committed the “mother of all broken promises”, claiming Albanese and the treasurer, Jim Chalmers, had committed “more than 100 times between them to stick with these stage-three tax cuts”.
“And it’s clear now that he’s going to break that promise, but worse, [the stage-three tax cuts had] been to two elections,” he told Sky News.
Taylor refused to say whether Australians earning more than $150,000 deserved a tax cut, promising to respond to the detail “when this prime minister has the guts to stand up and say that he’s declared war on aspirational Australians”.
“There’s going to be a lot of people going over that $150,000 tax bracket in the coming years, given the rate at which inflation is going we’re seeing a growing number of people being pushed up into higher tax brackets.”
The Liberal deputy leader, Sussan Ley, has highlighted Labor’s pre-election commitment that workers earning more than $45,000 would “get the same legislated tax cut” under Labor or the Coalition.
A reminder that before the election Labor promised Australians: “they'll get the same legislated tax cut under us as under them.”
— Sussan Ley (@sussanley) January 22, 2024
Even considering increasing taxes is a change in position.
If they break this promise how can you trust them ever again?https://t.co/dMIeGuHe7H pic.twitter.com/XqL5VAixzI
Albanese has said repeatedly since the election that there had been no change to Labor’s position.
Despite Coalition opposition to any changes to stage three, the Greens and key crossbenchers Jacqui Lambie and David Pocock have offered Labor support to make changes.
On Tuesday, Pocock told Radio National the stage-three tax cuts “should be redesigned” because “there is a way to make these fairer”.
“People want governments to have integrity, but they also want them to respond to the challenges in front of them,” Pocock said.
