The Greens have warned that stage-three tax cuts will add to inflation by injecting $20.7bn into the economy in their first year while failing to compensate low- and middle-income earners for bracket creep.
The party has released new Parliamentary Budget Office estimates that the cuts will cost $323.6bn over a decade as part of a last-ditch push to influence Albanese government deliberations over the future of the cuts, which deliver a $9,000 tax cut to those earning $200,000 or more.
The prime minister, Anthony Albanese, has all but confirmed that Wednesday’s caucus meeting and his address to the National Press Club on Thursday will contain new cost-of-living measures.
While promising to look for ways to “put extra dollars” in low- and middle-income earners’ pockets, the government has refused to say whether it will retain the stage-three tax cuts in full.
Labor has poured cold water on a report it is preparing to raise the tax-free threshold to help low-income earners and retain the top tax threshold of $180,000, down from $200,000 in the tax package legislated to take effect in July.
On Wednesday Albanese made a virtue of the fact the tax cuts cut in at $45,000, but the PBO costings showed people earning $45,000 to $60,000 would receive just $400m, or less than 2% of the benefit, in the first financial year.
The bottom 40% of households would receive nothing in the first year of the cuts, the middle 20% of income earners receive just $1.2bn, while the top two-fifths receive $15.9bn and $3.6bn.
In a letter to the treasurer, Jim Chalmers, the Greens argued the tax cuts were “unsustainable” – because their cost grows at 12.3% a year – and unfair because they “direct 77% of the tax cuts to the wealthiest 20% of society next financial year”.
Although returning bracket creep – the increase in tax as inflation raises nominal wages, pushing income earners into higher tax brackets – had been central to Labor’s defence of the Morrison-era tax cuts, the Greens argued most taxpayers would still be worse off.
“Factoring in ongoing bracket creep, the two brackets on the income tax scale where people will experience the largest increase in their tax rate will be people earning between $18,200 and $120,000 with up to a 1.4% increase,” the acting leader, Mehreen Faruqi, and Treasury spokesperson, Nick McKim, wrote.
The pair also noted the tax cuts “give $2 to men for every $1 for women” and “push the budget needlessly into deficit, when otherwise it would be in surplus two out of the next three years”.
Although the Greens and the key crossbench senators Jacqui Lambie and David Pocock had all called for stage-three cuts to be reformed, Labor MPs were bracing for fierce backlash from the Coalition if the government tried to do so.
The shadow treasurer, Angus Taylor, accused Labor of preparing to deliver “the mother of all broken promises” if it reformed the package, which it helped the Coalition pass in mid-2019 and recommitted to at the election.
Media reports this afternoon make it clear Labor look set to break their promise on stage three tax cuts.
— Angus Taylor MP (@AngusTaylorMP) January 22, 2024
This is the mother of all broken promises.
Taylor noted that more than a million households were expected to be in the top tax bracket by 2030, at which time the PBO analysis said they would get $18.6bn of the $35.9bn benefit that year.
“Anthony Albanese is proving once and for all that you cannot trust Labor on tax,” Taylor said.
“Australians have voted for these tax cuts twice. Any change to the legislated tax cuts is an absolute betrayal of the trust Australians have placed in this government.”
But some Labor MPs believe the cost-of-living crisis has given new impetus to reforms that allow more generosity to lower- and middle-income earners.
“Surely there is capacity for a sensible government to tweak the tax cuts appropriately,” one MP said. “There are a lot of people who need it more than income earners on politicians’ wages.”
Even one MP who believes the government should “stick to what we said we’d do”, accepted it might be possible to cut out the “top one or 2% of income earners who don’t need it”.
“The average person wouldn’t complain about that,” the MP said. “I’m not sure how brave we’ll be – we’ll find out on Wednesday.”
